Macroeconomics

Minton, Schrand and Walther (2002) (MSW) investigate whether cash flow (earnings) volatility helps predict subsequent levels of cash flow (earnings). Price is the present value of expected future cash flows, so if cash flow volatility forecasts future cash flows (the numerator in the present value calculation), it should have valuation implications. A similar motivation applies to earnings, which may be viewed as a proxy for cash flow.

This paper examines the consequences of capital market liberalization, with special reference to its effects under different exchange rate regimes. Capital market liberalization has not lead to faster growth in developing countries, but has led to greater risks. It describes how International Monetary Fund policies have exacerbated the risks, as a result of the macro-economic response to crises, with bail-out packages that have intensified moral hazard problems. The paper provides a critique of the arguments for capital market liberalization.

There is perhaps no topic that is more important for the functioning of a market economy than competition policy. The theorems and analyses stating that market economies deliver benefits in the form of higher living standards and lower prices are all based on the assumption that there is effective competition in the market. At the same time when Adam Smith emphasised that competitive markets deliver enormous benefits, he also emphasised the tendency of firms to suppress competition.

This article aims to explain how standard economic theory—reflected in much of the popular policy folklore— has served to undermine the above propositions or runs counter to them. The first section shows how policies based on a neoclassical view of the labour market ultimately weaken workers' bargaining position because of pervasive market failures. The next two sections critically discuss the welfare and employment implications of a wider set of policies?

The Bretton Woods Institutions were established just over 50 years ago to aid in the reconstruction of Europe after World War II and to make it less likely that another global calamity such as the Great Depression would occur again. Much has happened in the world since then. The author re-examines the role of these institutions today.

This paper investigates the relationship between economic and social development. Contrary to the view of those who believe in the existence of a tradeoff between democracy and growth, the paper contends that consensus-building, open dialog and the promotion of an active civil society are key ingredients to long-term sustainable development. Development is a participatory process. "Best practices" or reforms that are imposed on a country through conditionality may very well fail to produce lasting change.

We investigate the relation between dividend changes and future profitability, measured in terms of either future earnings or future abnormal earnings. Supporting "the information content of dividends hypothesis," we find that dividend changes provide information about the level of profitability in subsequent years, incremental to market and accounting data. We also document that dividend changes are positively related to earnings changes in each of the two years after the dividend change.

We examine the hypothesis that dividend taxes are capitalized into share prices by focusing on investors? implicit valuations of retained earnings versus paid-in equity. Retained earnings are distributable as taxable dividends, whereas paid-in equity is distributable as a tax-free return of capital. Consistent with dividend tax capitalization, firm-level results for the United States indicate that accumulated retained earnings are valued less per unit than contributed capital. In addition, differences in dividend tax rates across U.S.