Business Economics ®- April 2001

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April 2001 Issue (PDF, 367 K)

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Alan Greenspan

The Challenge of Measuring and Modeling a Dynamic Economy
There is a trade-off between better data and better analysis in the allocation of scarce economic research resources. Although great strides have been made in econometric models, their use as predictive devices does not seem to be superior to simple, reduced-form models, even though they have provided valuable insights into the functioning of the economy. The financial sector, in particular, presents unresolved problems in theory and modeling. However, given the rapid change in the structure of the U.S. economy, it appears that getting better data may provide a better return than more sophisticated analysis. This is particularly true for prices and output in service industries. The Federal Reserve System, as well as the Bureau of Labor Statistics, the Bureau of Economic Analysis, and the Census Bureau, have made great strides in the conceptual improvement of economic measurement, but much remains to be done.
(PDF, 23 K)

Joel Mokyr

Richard C. Koo

The Japanese Economy in Balance Sheet Recession
Many observers both inside and outside Japan have argued that traditional economic policies have failed to revive the Japanese economy because it is suffering from structural problems. They also argue that without structural reform there will be no future for Japan. Although many structural issues undoubtedly need to be resolved, it is difficult to blame them entirely for the poor performance of the Japanese economy in the 1990s. This is because most structural problems date back for decades and so cannot explain why an economy that was so powerful until the very end of the 1980s suddenly lost its for-ward momentum from the 1990s onwards.
(PDF, 53K)

Mathias Moersch

Predicting Market Movers: A Closer Look at Consensus Estimates
Market movers are releases of data or news that lead to price adjustments in financial markets. It is common practice to treat consensus forecasts of market movers as a measure of the information known to the market prior to such an announcement. Any deviation of the announcement from the consensus is interpreted as new information that leads to price adjustments in financial markets. Despite their importance for financial markets, these short-term consensus forecasts of market movers have not been studied systematically to date. An assessment of forecasts for ten monthly macroeconomic time series in the United States from 1994 until 1999 reveals that only half of the forecasts can be characterized as unbiased. Inflation forecasts in particular show a ten-dency to over-predict actual price increases during the sample period. At the same time two simple forecasting rules are clearly inferior to the consensus forecasts in all cases considered.
(PDF, 38 K)

Robert E. Johnson

The Role of Cluster Analysis in Assessing Comparability Under the U.S. Transfer Pricing Regulations
Transfer prices are non-market prices at which property is exchanged between firms under common control. How they are set has important implications for the cross border allocation of multinational income. Transfer pricing analysis requires the identification of comparable, unrelated parties in order to establish benchmarks for price setting. This arti-cle contrasts cluster analysis with conventional methods that require the analyst to specify arbitrary parameters for purposes of locating comparable firms. Cluster analysis also has value in the service of market approaches to the establishment of business enterprise value.
(PDF, 47 K)

John C. Soper

What’s Next for Consolidation in Banking?
Repeal of many provisions of the Glass-Steagall Act and structural changes in banking imply that many banks will either consolidate with other banks or converge with non-bank financial firms. Although merger and acquisi-tion activity has been slowed recently by low bank equity prices and changes in accounting rules, structural factors such as diversification of revenue sources and efficiency will dominate, and the pace of merger and acquisition activity is likely to increase. The emergence of globalization and megabanks will impose significant challenges to the structure and policies of financial regulation and supervision.
(PDF, 28 K)

Raymond E. Owens and Roy H. Webb

Claire Starry

Focus on Industries and Markets: The Emerging In-Vehicle Intelligent Transportation Systems Market
The invehicle Intelligent Transportation Systems (ITS) market is emerging as a major force in mobile communications. The industry has grown from a few companies pursuing new applications for their technologies to an industry dom-inated by major automotive, communi-cations, computer, and software companies. Alliances were a key growth strategy and significantly reduced stakeholder risk and product time to market while enabling small as well as large companies to participate in what was then an unproven market. Now, automotive original equipment makers (OEMs) are at the forefront of in-vehicle ITS development, with several other industries eyeing the car as the next major market for their products and technologies.
(PDF, 41 K)

Robert B. Parker

Focus on Statistics: The Impact of the North American Industry Classification System in U.S. Economic Data: In May 2001, NAICS Hits the Economic Indicators
Based on materials provided by Thomas Mesenbourg of the U.S. Census Bureau, this article describes the forthcoming incorporation of the North American Industry Classification System (NAICS) into several of the principal Federal economic indicators prepared by the Census Bureau. NAICS is replacing the Standard Industrial Classification (SIC) system, which was used widely by government and industry to classify establishments.
(PDF, 26 K)

Book Reviews

Peter L Bernstein, The Power of Gold: The History of an Obsession, Edmund A. Mennis
Russell Roberts, The Invisible Heart: An Economic Romance, Gerald Musgrave
Philip Hans Franses and Dick van Dijk, Non-Linear Time Series Models in Empirical Finance, Jan Kmenta
( PDF, 37 K) Available to Public