Abstract This article studies the case of market reactions to accounting policy deliberations. The purpose of the article paper is to point out several shortcomings of a study by some researchers and to suggest an alternative framework for testing for potential market reactions to a series of events such as FASB deliberations on inflation accounting. The general research approach employed by researchers is premised on the argument that market reactions to FASB inflation accounting deliberations can be determined, appropriately, by examining the association between abnormal returns of firms for various announcements. Perhaps the most significant limitations stems from the fact that the correlation approach is an awkward, if not inappropriate methodology for application to research problems where the number of variates. The exclusive reliance on that methodology by researchers, therefore, is surprising since there exist alternative research paradigms which, although not free of shortcomings, avoid some problems.

Abstract ABSTRACT: The role of accounting data in the formation of security prices in general, and the process by which such prices adjust to the announcement of external accounting numbers in particular, has attracted considerable attention. Extending the research conducted by Ball and Brown, this paper examines the degree to which earnings yields of corporate equities affect the association between annual income numbers and security prices. The propositions of two alternative views on this association are analyzed in the context of a normative model of investor expectations and security price behavior. The empirical evidence reported in this paper leads to the conclusion that, by and large, the level of association between annual income numbers and security prices is not independent of the earnings yields of common stocks. This finding indicates that either there exists frictions in the security price adjustment process or the extant two-parameter model of market equilibrium is mis-specified. Finally, some important implications of these results for capital market researchers, as well as for investors are provided.

Abstract The article presents a comment by the authors on interindustry estimation of general price-level (GPL) impact on financial information. The January, 1973 issue of "The Accounting Review," contains an article by Russell Petersen that examined the impact of GPL adjustments on corporate financial statements. This comment is concerned with two specific shortcomings in the Petersen paper. First, it shows that his methodology for evaluating the impact of GPL restatements contains a fundamental error, which prevents an accurate assessment of the magnitude of "displacement" of certain of the financial parameters studied. The effect of this "comparability error" is sufficiently severe that it would alter some of Petersen's conclusions regarding the displacement effect of GPL restatements. Second, it questions the propriety of some of Petersen's statistical results and related discussion. It is believed that comparability error discussed in this article is but one example of a problem that is likely to arise with increasing frequency if disclosure of GPL restated information is required in the future.

This paper investigates the relative importance of cyclical fluctuations in labor and capital utilization, increasing returns to scale, and technology shocks as explanations for procyclical productivity. It exploits the intuition that materials inputs do not have variable utilization rates, and materials are likely to be used in fixed proportions with value added. Therefore, materials growth is a good measure of unobserved changes in capital and labor utilization. Using this measure shows that cyclical factor utilization is very important, returns to scale are about constant, and technology shocks are small and have low correlation with either output or hours growth.

We develop a tractable small‐open‐economy framework to characterize the constrained efficient use of the monetary policy rate, foreign exchange (FX) intervention, capital controls, and domestic macroprudential measures. The model features dominant currency pricing, positive premia on local currency debt arising from financiers' portfolio constraints, and occasionally‐binding external and domestic borrowing constraints. We characterize the conditions under which the traditional prescription—relying solely on the policy rate and exchange rate flexibility—remains sufficient, even in the presence of externalities. By contrast, to manage noise trader flows into and out of the local currency debt market, FX intervention and in some cases capital inflow taxes should be used instead of the traditional prescription. Moreover, if a country faces a mix of local currency premia and external borrowing constraints, we establish that certain regulations to limit FX mismatch may alleviate the external borrowing constraint but exacerbate the local currency premia. Finally, we show that capital controls may dominate domestic macroprudential measures in cases when external shocks trigger stress in domestic housing markets.

We model growth and technology transfer in a world where technologies are specific to particular combinations of inputs. Unlike the usual specification, our model does not imply that an improvement in one technique for producing a given good improves all other techniques for producing that good. Technology improvements diffuse slowly across countries, although knowledge spreads instantaneously and there are no technology adoption costs. However, even with “Ak” production, our model implies conditional convergence. This model, with appropriate technology and technology diffusion, has more realistic predictions for convergence and growth than either the standard neoclassical model or simple endogenous-growth models.