In this paper we examine the hypothesis that the predictable components of U.K. shares and bonds are related to business conditions. Financial market variables, such as maturity and default premia, are constructed in an attempt to capture different components of business‐conditions risk. The hypothesis is investigated using multivariate regression analysis and a latent variable model. One of the main conclusions reached in this paper is that the time‐varying component of U.K. share and bond excess returns tends to exhibit varying degrees of sensitivity to information on business conditions as captured ex ante by a number of financial variables.
It has long been asserted that there exists a correlation between expected inflation and inflation uncertainty. While the empirical evidence seems to support this hypothesis there have been relatively few formal explanations offered for the phenomenon. I argue that there is a very simple reason for the observed correlation between expected inflation and inflation uncertainty. If real money demand is stochastic, inflation must also be stochastic. Any increase in the growth rate of money merely rescales the distribution of inflation causing an increase in the conditional standard deviation of inflation.
The paper shows that Kalecki's pricing models have some surprising analytical properties which, for the most part, appear to have been both unintended and unrecognized by Kalecki. These include the possibility of multivalued demand levels at given prices and counter‐intuitive comparative statics. Most of these features are related to Kalecki's use of the (weighted) industry average price as a proxy for the prices of each firm's competitors.
A model of stochastic consumption behaviour over the life cycle is used to reconsider earlier conclusions by Barsky, Mankiw and Zeldes (“Ricardian Consumers with Keynesian Propensities”, American Economic Review, Vol. 76, No. 4 (1986), pp. 676–691) and Barro (“The Ricardian Approach to Budget Deficits”, Journal of Economic Perspectives, Vol. 3, No. 2 (1989), pp. 37–54) about the extent to which income uncertainty can induce departures from pure debt neutrality. The results suggest that Barro understates, and Barsky et al. overstate, the importance of income uncertainty in this context.
The statistical properties and historical characteristics of British industrial production are examined. Since 1923 production appears to follow a segmented trend stationary process. Prior historical information and recursive searching are used to identify discontinuities in 1973 and 1979. The wartime shift to fuller employment was accompanied by a productivity crash, and trend industrial growth changed little. The major shift in production trend was at the time of the 1973 oil shock. Discontinuity around 1979 took the form of a crash, and accelerating productivity contributed to industrial employment collapsing to levels not experienced since the nineteenth century.
