Vol. 7, No. 1

Lars Norden:
Daily distribution of Swedish OMX-index returns over intraday-to-intraday time intervals (pp. 3–16)


This paper examines the intradaily behaviour of the Swedish OMX stock index during the time period January 02 to December 30 1992. Daily 24-hour returns are calculated in 18 different time intervals during the day: open-to-open, intraday- to-intraday and close-to-close. Evidence of different OMX-return generating distributions is found. It is most striking when the distributions from the beginning and the end of the day are compared with the distributions terminating during the middle of the day. The evidence of differences in the variances and autocorrelations is supported by robust significance tests within a simplified setting of the Generalized Method of Moments (GMM) estimation. The variances show a V-shaped pattern when they are plotted against the terminal time of the returns as international studies also have shown, whereas the autocorrelations behave almost in an opposite fashion, which is inconsistent with previous research. Since the series of interval returns are exposed to the same flow of information the differences must be due to microstructure effects. The friction in the market prices seems to be more severe at the beginning and at the end of the trading day than at times in between. This implies that there is comparatively more noise in the pricing process just after the opening and prior to the closing of the exchange.

(JEL: G10, G12)

Marina Bianchi:
Evolutionary metaphors and the justification of economic efficiency (pp. 17–29)


The selection principle of evolutionary biology seems to save the economist from having to specify all the complexities of individual optimizing choices. But concentrating exclusively on the outcomes of evolutionary processes as efficient states does not carry us very far. Either the achievement of efficiency has to be restated using the individual optimization rule, which deprives the evolutionary process of any special explanatory role; or, given that optimization provides insufficient guidance in a world of uncertainty, then it remains unclear just how the efficient social outcome is obtained. The alternative proposed and illustrated here is to break the link between selection and efficiency and to enlarge the sense of efficiency to include innovation and learning.

(JEL: A1)

Andrea Salanti:
On the Lakatosian apple of discord in the history and methodology of economics (pp. 30–41)


While economic methodologists seem to be increasingly dissatisfied with Lakatos’s criteria of appraisal, many (internalist) historians of economic thought continue to rely on typically Lakatosian categories in order to identify portions of economic analysis whose historical development is to be ‘rationally’ reconstructed. This historiographic approach, however, prevents economists from realizing that Lakatosian novel facts may be ‘new’ not only because previously unknown, but even because previously inexistent. To deny this possibility is tantamount to believing in an incredibly strong version. of methodological monism according to which social sciences deal with a subject-matter as immutable over time as that of natural science.

(JEL: B41)

Juhana Vartiainen and Anders Vredin:
Finnish monetary policy in the credit rationing era (pp. 42–55)


This paper suggests an analysis of monetary policy reactions in a typical Finnish business cycle during the regime of credit rationing. We start by presenting a macroeconomic model which incorporates the institutional characteristics of repressed financial markets and which can generate cyclical behaviour of the main variables that corresponds to stylised facts. The model is then used to motivate the estimation ofan empirical reaction function of monetary policy. We conclude by discussing the strategic policy choices in the light of the empirical results.

(JEL: E52, E58)

Risto Murto:
Finnish banking crisis: can we blame bank management? (pp. 56–68)


This paper examines the pricing of bank loans using information on Finnish savings banks’ loans from 1987 to 1992. Loan rate premia were affected by many factors, some of which are clearly related to riskiness of the borrower and some are not. The likelihood of delinquent payments is also investigated. The results suggest that there are several factors which were not correctly priced.

(JEL: G21)

Vladimir Bushenkov, Veijo Kaitala, Alexander Lotov and Matti Pohjola:
Decision and negotiation support for transboundary air pollution control between Finland, Russia and Estonia (pp. 69–80)


We present instrumental software for negotiation and decision support for transboundary air pollution abatement. Using this system the decision-maker can interact with a multiple criteria optimization model consisting of regional sulphur abatement cost functions and of a submodel describing the transportation of sulphur between Finland, Russia and Estonia. The PC program visualizes the Pareto-optimal set of chosen policy criteria which may include sulphur deposition rates and abatement costs in some or all of the countries. The program also computes and displays the optimal abatement policy corresponding to the Pareto-optimal (or other attainable) point specified by the decision-maker.

Finnish Economic Papers 1/1994