Mark A. Yanochik

Budget deficits and the term structure of interest rates in Italy

This paper tests the hypothesis that changes in the federal budget deficit impact the term structure of interest rates in Italy. The results suggest that budget deficits increase the yield spread between long term government bonds and the three month Treasury bill. The implication is that budget deficits may hinder long-term economic growth in Italy, via a crowding out effect, by increasing long-term interest rates relative to short-term interest rates.

Using volume to forecast stock market volatility around the time of the 1929 crash

This article explores the role of trading volume in making out-of-sample forecasts of stock market volatility around the time of the 24 October 1929 crash. Following the recent literature on volatility forecasting, we compare the performance of symmetric and asymmetric GARCH-class models. Moreover, as the volume–volatility relationship is now well established for modern day markets, we also consider the performance of these models when volume is allowed to enter the conditional variance equation. Given the institutional evidence that trading volume was beginning to take on an increasingly important role in the eyes of investors and market regulators during the last part of the 1920s, this is a particularly insightful endeavour. Generally speaking, the volatility models with trading volume provided the best volatility forecasts after ‘Black Thursday’.

John Stuart Mill and the Economic Rationale for Organized Labor

The Classical School of economics is generally credited with providing the ideological foundation for the study of labor unions in the United States. In particular, one passage from Adam Smiths Wealth of Nations is believed to be the catalyst for the systematic study of organized labor. Smith and other classical economists wrote extensively of “labors disadvantage” with capital, which allowed for unfair negotiations between workers and management. In this paper, we suggest that, although Adam Smith was the first economist to identify the problems that labor has in its dealings with management, he did not offer a truly theoretical explanation for these difficulties. The economist who first studied the labor/capital nexus from an economic perspective was John Stuart Mill. Mills pioneering treatment of labor and capital provided an economic justification for the existence of labor unions.

A Real-Options Approach to Post-Hurricane Loss Valuation of Damage Property: Rebuild or Repair?

In this paper, we investigate the rebuild or repair decision that property owners face after damages caused by catastrophic hurricanes such as Katrina in New Orleans. In particular, we consider how the degree of risk aversion and uncertainty affect the decision-making process. A theoretical model is developed using the real-options framework of Dixit and Pindyck (1994). According to the model, the decision to rebuild a property is reached much later when there is a high degree of uncertainty over future social costs and a high discount rate. We demonstrate these effects using simulations with actual numbers from Hurricane Katrina.

A new perspective on antebellum slavery: Public policy and slave prices

Modern economic historians have focused their attention on the supervision and productivity of slavery and have largely ignored the roles that public policy and slave security played in the profitability of antebellum slavery. Other scholars have focused on the public security policy in the slave codes, but only as a determinant of the legal status of slaves, not their economic value. This paper investigates the relationship between slave prices and two public policies that enhanced slave security: manumission laws and slave patrol statutes. The evidence suggests that these policies were associated with slave prices and that public policy did play a significant role in the security of slave property and, thus, the viability and profitability of slavery in the Antebellum South.

Investment in New Proved Oil Reserves: An Austrian Perspective

Abstract Exploration and production (E&P) companies must replace oil produced with new proved reserves in order to sustain their existence, generate future revenues and value. Extensions constitute the largest type of additions to new proved reserves. Adding reserves through extensions is capital intensive and both the real price of oil (represented by real refiner acquisition cost) and real interest (represented by real yield on 10 year Treasury bond) will influence the investment in new discoveries of proved reserves. However, recent periods of unusually high commodity prices and ultra-low interest rates, often linked to monetary policy, may have led to an over-investment in reserves through extensions. Accordingly, using U.S. data (1977–2014) we test for the existence of “explosive behavior” in the volume of extensions over time with financial time series econometric methods referred to as right-tail ADF tests which have traditionally been used for identifying speculative bubbles in asset markets. Empirical evidence identifies a period of explosive (“bubble-like”) behavior in the time series of extensions having occurred beginning 2010 through 2014. This research provides an Austrian explanation for the empirical results consistent with the notion of malinvestment.

Interest Rate Manipulation, Environmental Damage, and Loss Valuation

The damage generated by Hurricane Katrina caused significant private as well as social costs. The water and force from the hurricane and subsequent flooding caused immediate property damage, but also potential environmental contamination over time. The decision on the part of property owners affected by Katrina to deal with damaged property must take into account both the private and social costs. This paper explores this decision making process using a real-options model. In particular, we focus on the element of time preference in this decision. We analyze the impact that changes in monetary policy, and ultimately the discount rate, have on the decision to repair or rebuild a property damaged by flooding. According to the theory, rising interest rates would suggest a greater propensity to defer the option to rebuild damaged properties, whereas falling interest rates cause property owners to reach the decision to rebuild properties relatively more quickly.

Railroad Construction and Antebellum Slave Prices

Slave prices rose rapidly to historic highs in the late‐antebellum South. The boom in railroad construction in the South helps explain this large increase in slave prices. The economic connection between railroads and slave prices reconciles the views of traditional economic historians who thought slavery was economically irrational and the views of the new economic historians who have concluded that slavery was highly profitable. It was the massive public subsidies to railroads that explain it was public policy that provided the stimulant to slave prices, not the “peculiar” culture of the antebellum South or the planter efficient management of slave labor.