Summary of Articles in Business Economics, January 2008 (forthcoming)

By Robert Crow
Editor, Business Economics

“Forecasting Real Inventories and the Anomaly of Money Illusion: A Neural Network Approach”

Anthony Joseph, Maurice Larrain, and Eshwar Singh,
Inventory fluctuations have accounted for a sizable portion of the changes in U.S. gross domestic product during recessions over the past 50 years. In this paper, the authors report on out-of-sample forecasts of manufacturing and trade inventories generated by regression and neural network methodology.  Their forecasting model is Metzlerian in approach, in that the divergence between actual and targeted sales is hypothesized as the primary cause of inventory imbalance. Their forecasts also rely on the slow adjustment of inventory investment to sales surprises. However, the likely presence of money illusion is a caveat to users, and the authors address several distortions it introduces to inventory management measures.

“Nigeria in the Global Economy”

Temitope W. Oshikoya
This paper provides a perspective on Nigeria’s global economic position and integration into the world economy. While other emerging market economies have benefited from globalization, there is concern that African countries continue to be marginalized. Among African countries, Nigeria is one of two major countries with strong potential to harness the opportunities and meet the challenges that the global economy could provide.  Nigeria has the largest population in the continent and has been growing rapidly, due in part to gains from economic reforms and rising prices of oil.  However, Nigeria’s integration into the global economy has been below potential.  While it has improved its global rankings on indicators of competitiveness, business climate, and productivity in the past five years, it still ranks below most of its peer group on these indicators. It is among the poorest countries in the world in terms of social indicators despite oil wealth.  Further integration into the global economy would require sustained policy reforms, improved governance, and public-private investments in social, human, and physical infrastructure.

“Forecasting U.S. Recessions with Probit Stepwise Regression Models”

John Silvia, Sam Bullard, and Huiwen Lai
Yield spreads have been repeatedly used in the literature as the top candidates in predicting future recessions. In this paper, the authors contend that existing model specifications are good but fall short of the performance of more complete models.  Applying a probit stepwise regression procedure to a large number of economic indicators, they find models that dramatically outperform those used in the literature.  Due to a time series that only began in first quarter 1964 and with very few historical recessions, any model specification may capture only a few of the economy's many aspects and thus can potentially be biased. Nevertheless, models with better statistical properties should have a better chance to capture the occurrence of recession. The chosen models are not immune to the statistical limitations, but should forecast better than the existing models in the literature.

“The Great Inflation:  Inflation, Inflationary Expectations and the Phillips Cycle 1960-2005”

Thomas W.  Synnott III
Given the ongoing concern with controlling inflation, it is timely to take another look at the “Great Inflation” of 1966-1983 and to try to understand the process that led to ever-higher peaks of inflation and interest rates.  How was this apparently intractable dynamic reversed?  While a member of the Board of Governors, Federal Reserve Chairman Ben Bernanke set forth three explanations for the decline in macro-economic volatility: structural change, improved macroeconomic policies, and good luck.  While luck is not controlled by government, and government has only tangential influence on structural change, macroeconomic policy is solely the responsibility of the federal government, particularly the Federal Reserve System.  Improvements of monetary policy were largely responsible for taming the great inflation, but new threats, including the dimming of memory, are current challenges to preventing its recurrence.

“Is Inequality Growing as American Workers Fall Behind?”

John A. Tatom
This article looks at reasons why income inequality could rise, and then explores whether, in fact, workers are losing out.  It examines whether workers are falling behind relative to the wealthy and whether real wages have been falling, or perhaps only manufacturing wages. It also examines whether there is a growing “wealth gap” and why it could be developing. Finally, it examines the hypothesis that relatively inexperienced or unskilled workers are falling behind.  The paper concludes that there is a wealth gap, but that it is due to falling real interest rates, not declining compensation.  Other indicators of inequality may be growing as well, but it is not because compensation is falling short of rapid productivity growth or because workers are falling behind other income recipients.

FOCUS ON INDUSTRIES AND MARKETS
“The U.S. Wine Industry”

Barbara Insel
A description of a complex and challenging industry, one built on agriculture and fashion, chemistry and passion, tradition and capital, and how to add value through economics analysis.

FOCUS ON STATISTICS
“Regional Economic Data from Federal Government Agencies: Availability and Access”

Robert P. Parker
A guide to programs and publications of federal government agencies, emphasizing regional data that are available on the Web.

ECONOMICS AT WORK
“Economic Research In A Financial Group In Mexico”

Alberto Gomez-Alcala
An account of the diverse clientele, multiple goals, and unique challenges of economists in a major Mexican bank.