Journal Article Large Economic Units, Banks, and the Transactions Demand for Money: Comment Get access Myeon H. Ross Myeon H. Ross Western Michigan University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 81, Issue 3, August 1967, Pages 529–531, https://doi.org/10.2307/1884817 Published: 01 August 1967

Journal Article “The Cost and Efficiency of Distribution in the Soviet Union”: Comment Get access Myron H. Ross Myron H. Ross Western Michigan University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 77, Issue 3, August 1963, Pages 503–504, https://doi.org/10.2307/1879575 Published: 01 August 1963

Myron Ross correctly points out in his comment that U.S. price inflation is better predicted by the American money supply (MlUS) than by the broader ten-country world money supply (MlW) over the whole statistical time-series from 1960 to 1980 provided in McKinnon's 1982 article. Specifically, he showed that American price inflation is more highly correlated with MlUS lagged one or two years than with MlW similarly lagged. However, McKinnon's present-tense assertion that general, in the world money supply is a better predictor of American price inflation than is American money growth applies only to the weak dollar standard of the 1970's and early 1980's-as his preceding discussion intended, but failed to indicate clearly. Only in this later period of volatile exchange rates and price-level instability in the United States do alternative hard currencies (such as the yen and deutsche mark) become competitive as international stores of value and units of account. Hence, international currency substitution-associated with the ebb and flow of speculation against or for the dollar-significantly destabilized the demand for MlUs in the 1970's and 1980's. And only in this later period might one expect the sum of these internationally substitutable monies, Ml, to predict world, and perhaps even American, price inflation better than does Mlus. In contrast, during the strong dollar standard of the 1950's and 1960's, the dollar was unchallenged as international money. Exchange rates were (by and large) convincingly fixed: speculation for or against the dollar was incapable of substantially altering U.S. interest rates or of directly affecting the demand for MlUS. Because cyclical international influences did not then destabilize the demand for dollars, MlUS was by itself a fairly efficient predictor of American prices. Thus Ross's statistical results for the period 1960 to 1980 show somewhat greater predictive strength in Mlus, compared to Ml', because the 1960's data outweigh the dissimilar data of the 1970's. Let us instead partition the sample of IMF data around the year 1970, whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in Europe and Japan. After applying similar statistical correlation procedures to those used by Ross, we show a striking structural shift in the world's monetary system: the explanatory power of Mlw increases sharply as that of MlUS declines moderately (Tan, 1982). For the early period of 1960 to 1970, Table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in American and world wholesale price indices. The MlUs provides a good explanation of U.S. prices and of world prices one to two years hence, whereas the broader definition of Mlw (in which MlUs enters with a 50 percent weight) does surprisingly poorly, being insignificantly correlated with American or world prices. Apparently, money in industrial countries other than the United States was not then an independent source of worldwide inflationary pressure during the strong dollar standard. Table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of * Stanford University. Please note that a typographical error giving the last word in the original title as Market appeared on the cover of the June 1982 issue of this Review. The title was correct in the table of contents and on the article.

The above theoretical considerations suggest that some revision in present depreciation practices may be appropriate. Wider application of depreciation based on output would approach measuring user cost more closely than the present methods in use. Most methods implicitly assume the absence of the business cycle or economic growth. Canadian-Pacific Railways, in basing depreciation on use, recognizes the importance of economic change. Since user cost is closely linked with changing economic conditions, perhaps more frequent revisions of depreciation schedules are called for. The California Public Utility Commission suggests that annual revisions be made. When technological innovation is accelerated, the life of assets is shortened by increased obsolescence. User cost is as variable as the underlying economic conditions which influence the value of fixed assets. Break-even analysis is generally not dear concerning the nature of depreciation. Depreciation is usually considered a fixed cost. Yet consideration must be given to the fact that present use affects the future value of fixed assets, as well as income. Thus in trying to determine the cost of an additional work shift, for example, one must include the additional wear and tear on plant and machinery. Often because this is not done, the additional shift appears profitable, but is in fact unprofitable. Accounting information should attempt to estimate user cost in order to avoid such errors. Businessmen are not indifferent to the erosion of assets resulting from changes in production and there is little reason why accountants should be. While straight-line computations of depreciation are precise, they are often irrelevant for making business decisions. An approximation of user cost would be preferable. It is true that "user cost is a concept widely known, little understood and almost never used." This should be rectified.

This study examines whether annual financial statements filed with the Securities and Exchange Commission are timely sources of information for investors. We examine a summary measure, the probability of bankruptcy, through which the release of financial statements might communicate information to investors. The results indicate that a significant association exists between revisions in the probability of bankruptcy due to nonearnings data and security returns over the fiscal year, but that investors have largely revised their estimates of the probability of bankruptcy prior to the release of the full financial statements.