Benjamin M. Friedman

A death in Brooklyn sends reverberations around the world in Jack Higgins's thrilling new adventure. Journalist Katherine Johnson made the mistake of getting too close to the secrets of international crime boss Jack Fox -- but Fox made the mistake of killing her. Katherine's ex-husband is Blake Johnson, head of the clandestine White House department known as The Basement, and with the President's permission, the former FBI agent is about to take revenge. Wherever the money trail leads -- New York, England, Ireland, the Middle East -- Johnson and his Irish colleague, Sean Dillon, plan to hit Fox where it hurts the most, by cutting his illegal businesses to shreds, until Fox stands defenseless before his enemies. But Fox did not become powerful by letting his enemies get that close. If Johnson and Dillon want to take him on, they will have to face his own brand of revenge. And it is a revenge every bit as deadly as their own.

Background of the fundamental approach; Econometric model; Point linearization; Dynamic policy multipliers; Quadratic obtimization-the level problems of I.

"Under conventional representations of economic policymaking, any innovation is either (1) a change in the objectives that policymakers are seeking to achieve, (2) a change in the choice of policy instrument, or (3) a change in the way auxiliary aspects of economic activity are used to steer policy in the context of time lags.Most public discussion of the 1979 Volcker experiment at the time, and likewise most of the subsequent academic literature, emphasized either the role of quantitative targets for money growth (3) or the use of an open market operating procedure based on a reserves quantity rather than a short-term interest rate (2). With time, however, neither has survived as part of U.S. monetary policymaking.What remains is the question of whether 1979 brought a new, greater weight on the Federal Reserve%u2019s objective of price stability vis-a-vis its objective of output growth and high employment (1). That is certainly one interpretation of the historical record. But the historical evidence is also consistent with the view that the 1970s were exceptional, rather than that the experience since 1979 has differed from what went before as a whole"--National Bureau of Economic Research web site.

Six leading economists examine the financing of corporate capital formation in the U.S. economy. In clear and nontechnical terms, their papers provide valuable information for economists and nonspecialists interested in such questions as why interest rates are so high, why corporate debt has accelerated in recent years, and how government debt affects private financial markets. Addressing these questions, the contributors focus chiefly on three themes: the actual use of debt and equity financing by corporations in recent years; the factors that drive the financial markets' pricing of debt and equity securities; and the relationship between corporations' real investment decisions and their financial decisions. While some of the papers are primarily expository, others break new ground. Extending his previous work, Robert Taggart finds a closer relationship between corporate and government debt than has been supposed. Zvi Bodie, Alex Kane, and Robert McDonald conclude in their study that the volatility of interest rates under the Volcker regime has led to a rise in real interest rates because of investors' demand for a greater risk premium. All of the papers present empirical findings in a useful analytical framework. For its new findings and for its expert overview of issues central to an understanding of the U.S. economy, Financing Corporate Capital Formation should be of both historical and practical interest to students of economics and practitioners in the corporate and financial community.

"This paper begins by examining the persistence of movements in the U.S. Government's budget posture. Deficits display considerable persistence, and debt levels (relative to GDP) even more so. Further, the degree of persistence depends on what gives rise to budget deficits in the first place. Deficits resulting from shocks to defense spending exhibit the greatest persistence and those from shocks to nondefense spending the least; deficits resulting from shocks to revenues fall in the middle. The paper next reviews recent evidence on the impact of changes in government debt levels (again, relative to GDP) on interest rates. The recent literature, focusing on expected future debt levels and expected real interest rates, indicates impacts that are large in the context of actual movements in debt levels: for example, an increase of 94 basis points due to the rise in the debt-to-GDP ratio during 1981-93, and a decline of 65 basis point due to the decline in the debt-to-GDP ratio during 1993-2001. The paper next asks why deficits would exhibit the observed negative correlation with key elements of investment. One answer, following the analysis presented earlier, is that deficits are persistent and therefore lead to changes in expected future debt levels, which in turn affect real interest rates. A different reason, however, revolves around the need for markets to absorb the increased issuance of Government securities in a setting of costly portfolio adjustment. The paper concludes with some reflections on "the Perverse Corollary of Stein's Law" that is, the view that in the presence of large government deficits nothing need be done because something will be done"--National Bureau of Economic Research web site.

The starting point for the research contained in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation was a pair of broad questions about the markets in which the debt and equity securities of business corporations undertaking physical capital formation are issued, traded, and priced. First, how have the markets priced corporate debt and equity securities in the past, and what aspects of the markets' functioning have accounted for these evaluations? Second, how have corporations' financing patterns responded in this environment, and what specific aspects of the interaction between the market mechanism and corporate financing decisions have accounted for these responses? This volume, consists of six papers addressing these questions presented at a conference held at Williamsburg, Va., 2-3 April 1981.