The Story of an Hour Essay Example | Topics and Well Written Essays - 750 words - 1

The Story of an Hour - Essay Example She recollects her married life, the good and the bad experiences of it! She screams, â€Å"Free, free, free.† This is, however, no indication that she does not love her husband. But the inevitable has happened. The death of her husband is a reality and he is gone for ever, never to return! She decides to live a new life and is willing to accept the changed patterns. She is quite emotional, comes down the stairs, only to see her husband return alive, hale and hearty. She is greatly shocked and suffers a heart attack that ends her life. An element of suspense is the hallmark of the plot of the story. The reader never expects that Mallard’s husband will return alive, whereas she had readied to charter her life in the absence of her husband. The plot is so constructed, the author leaves it to the judgment of the reader whether she is happy or not in her married life. When, the husband returns alive, she is not ready to face the situation, this shock is too strong for her, as is the shock when the news of the accidental death of her husband is revealed to her. The story pertains to the late 19th century, when male-dominated society prevailed. The life of a woman was confined to the four walls of the house, cook, bear and rear children. Women had no right to vote in the general elections. They were hired for menial jobs on payment on a lower scale as compared to men. Mallad’s husband dominated her. â€Å"Chopin deals with the issues of female self-discovery and identity in this story. After Mrs. Mallard learns of her husbands death, she is initially overcome with grief. But quickly she begins to feel a previously unknown sense of freedom and relief.† (The Story†¦.)The new-found awakening startles her—is it good or bad? Is it morally correct? She is possessed with her feelings. She is inclined to abandon her former self in search of the new identity her destiny has thrust upon her. After the brief spell of excitement, she regains her composure. She is

Importance of the Student Council and Student Voices

Importance of the Student Council and Student Voices It is being widely recognized that young people have the tight to be heard and also to speak out about their school experiences. International policy makers are urging the contribution of young people to todays and tomorrows world. The U.N. Convention on the Rights of the Child included the right of children to be heard as one of their four basic principles. How to listen and learn, as well as to teach and lead, is the challenge for teachers, schools and their communities (TEACHING AND LEARNINIG, JUNE 2003). A study by Helen Demetriou showed that consulting the young people could be a way to responding to the needs of teachers and also the pupils. It shows that pupils voice have the potential to harness the thoughts and feelings of pupils which will ultimately lead to effective teaching and learning. The study carried out interviews on 11 secondary school science teachers to ascertain the quality of their teaching and the extent to which they felt they were successful in communicating with the students. Thus the research highlighted the merits of consulting children in both primary and secondary schools about their teaching and learning (Helen Demetriou, university of Cambridge). What must the students be consulted about? Firstly the students must be consulted about the School-wide issues Like revising school mission statements, system of rewards and sanctions, revising school rules, what qualities are needed in a new teacher, and how to get the school council to work well the contribution of pupils as researchers. Secondly they must be consulted about the Year group issues like the induction plan for next year, parents evenings, qualities in a year tutor, suggestions for timetables and organizing homework. Thirdly students must be consulted on issues in their class like their preferences in learning styles, way f understanding, peer support, improving group works and way of catching up so that you dont miss work. Consultations at all these three levels have a similar purpose but are shaped differently i.e. in the context in which they occur. In the classroom teachers must always consult pupils and check whether theyve understood the module or need help in their learning. At school level the consultation is based on a different set of condition, skills and sensitivities (TEACHING AND LEARNING, JUNE 2003). ADVANTAGES FOR THE PUPIL It develops in them a stronger sense of membership. They feel more positive about school and the organizational dimension. They will also build a stronger sense of respect and self worth, making them feel positive about themselves. It also creates a sense of self-as-learner and enables them to better manage their own learning. It gives the a sense of agency making them feel like a part of the school matters which will contribute in the improvement of  teaching and learning. ADVANTAGES FOR THE SCHOOL It helps build a practical agenda for a change which the pupils can identify with. The changes can lead to enhanced engagement with school and school learning. It helps in building a deeper relationship between the pupils and the teachers. It also creates a sound basis for developing democratic principles and practices. It will also enhance the capacity of the school as a learning organization. SCHOOL COUNCIL A school council is thus built on this foundation of student consultation, making their voice heard, and thereby integrating them as a part of the organizational system. A school council is a group of students who are elected to represent the views of all pupils and also to improve the school. The term means collectively stands for all kinds of school-based groups run by students, which includes student forums and youth parliaments (Newsround, school councils, retrieved on 28th April).The functions of the school council are to organizes meetings; usually with a teacher present, on topics such as school lunches, behavior or ideas for fundraising events. The members of the school council are also responsible for carrying out the final ideas that have been agreed at the end of each session e.g. planning discos, writing newspaper articles, or meeting with catering staff. The important features that will enhance the working of a school council are firstly it should not be too big. Secondl y they must conduct regular meetings and representatives with strong communication skills must be chosen. Training should also be provided for the members. The council can be again spilt into smaller sub-committees that will work on specific events. The council must also carry out annual evaluations and also decide their curriculum time so that they dont miss out on their lessons. The concept of School Councils has been around for around for almost 40 years, but now with citizenship being taught, there are many more around. The government acknowledges that school councils are important; but still they will not force schools to have one. In some countries there however there are laws which state all secondary schools must have councils. Eg:- Ireland, Germany, Spain, Sweden (Newsround, school councils, retrieved on 28th April). Every school council is a legal entity in its own right i.e. they are a group of people who are given the power to set the key directions for the school. This means that a school council can directly influence the quality of education that the school provides to its students. They endorse the key school planning, evaluation and reporting documents which also includes the School Strategic Plan, the school budget and the Annual Report to the School Community. School councils make sure the schools running effectively in terms of how it spends its money. The council is accountable to the Minister for Education in respect to how it fulfills its functions. (Introduction to school council, retrieved on 28th April). Objectives of a school council A school councils objectives must include assisting the schools in their efficient governance, ensuring that decisions affecting students of the school are made keeping in mind first and foremost the students interests. It must also include, enhancing the educational opportunities of the students at the school and ensuring that the school and council comply with all the legal requirements. Functions of a school council (Introduction to school council, retrieved on 28th april) The 3 critical functions of a school council are to firstly participate in the development of the School Strategic Plan. Secondly it is to approve the annual budget and the monitor the expenditures. Thirdly they must be involved in developing, reviewing, updating and monitoring of the school policies Drawbacks of a school council The drawbacks of a school council includes that firstly it does not manage day-to-day functioning of the school. It also does not discuss the individual issues that relate to teachers or staff or parents. Thirdly school councilors are not appointed to represent specific interest groups. Also school councils do not renew the principals contract or recruit or dismiss the principal. The school Council is also not allowed to grant license in terms of land; purchase a motor vehicle or plane etc. Co-operative forces in school councils In order for school councils to operate effectively, its important that the school council is able to work in a team. An important relationship is that between the principal and the school council president. They need to co-operate and work together, and when necessary, be prepared to acknowledge any personal differences so as to be able to work in partnership for the good of the school. Even the school council president and the conveners of the subcommittees must maintain respectful and cooperative relationships. Subcommittees are advisory bodies to school council and do not make decisions by themselves. Therefore its important for subcommittee to remember this. School council members need to work as a team, which means respecting the different skills, knowledge and experience that each member brings to council, sharing the workload and responsibility. School council also needs to be able to work cooperatively with the parents and staff at the school. This does not mean that counsel ors have to like everyone, rather they need to be able to listen and ask the school community, about their views on various topics; example: uniform policy or dress code. The school council needs to discuss and document a process for consulting with its community. Role of school council members For the school councils to operate effectively, its very important that its members respect each others opinions, even with the ones with whom they disagree with. Its very important that after a council reaches a decision, the school counselors must support that decision in the school community. Parent members who are on the school council can share their experiences as parents at the school, thereby bringing a wider school community to school council meetings. If any community members are on a school council, they can introduce a particular skill to school council like accounting , building skills or some other skill that the school is looking for at that time. To be on the school council one must be keen, not necessarily an expert. Its helpful if one likes to interact with people, because of the need to be able to work as a team. One also needs to be prepared to commit time and effort to ensure the work of council gets done. School councils work best only when they have people from different backgrounds with different experiences. Being on the school council is thus a great way to get involved and have a say in what the school does for its students. It is also a very good way to help the present and future students. One important role of the school council is to help set the future direction for the school. The school council must meet at least 8 times every school year, and at least once per school term. Its a good practice to have 2 meetings per term. The meetings should be restricted to approximately 2.5 hours duration at most. Most schools require that all school counselors are expected to sit on at least one subcommittee. Subcommittees also meet at least twice each term (Introduction to school council, retrieved on 28th April). School council elections The principal arranges and conducts these elections according to the procedures that are outlined in the schools council. The Elections are held each year. If one decides to stand for election, they must arrange for someone to nominate them as a candidate or they can nominate themselves. The nomination form must be returned within the time stated on the notice of election and call for nominations. Ballots are held only if more people are nominated as candidates than there are positions to fill. Every student must vote and even encourage the parents to do the same. The details of the election process are available from the school. To find out more about what a school council involves, one can talk to the principal or the school council president or the past and present school counselors. Officer Roles in school council The School Councils have officer roles such as the Chairperson whose duty is to has to draw up an agenda at least two days before a meeting. He/she has to take views of the other Council members. Second officer duty is that of a Vice-Chairperson who takes the Chairpersons place if he/she is not available. A vice chairperson has to assist the chairperson. The third officer position is that of a secretary who has to take down the minutes of the meeting, write any letters/communicate with others. If a member seeks election as Chairperson, and proves unsuccessful, they automatically go forward for election as Vice-Chairperson. Need for a School Council To help children develop responsible attitudes, improve their behavior; give children hands-on experience of issues in the National Curriculum. It also creates a feeling of belonging, encourages listening to others and develops self-confidence. And above all to improve pupil/teacher relationships (SCHOOL COUNCIL, retrieved on 28th April). NSPC SURVEY (School Councils, retrieved on 28th April) In 1989 NSPCC ran its first Listen to Children week with an aim to encourage parents and professionals to listen to children. The underlying message was that a child who is heard is more likely to turn to a parent or other adult if she/he needs help. And the schools have a particular role in encouraging and empowering young people. In a previous research conducted by NSPCC, pupils across the Midlands and Wales were consulted about their school life. The major recommendation from this research was that schools must find effective ways of consulting pupils. School councils have been an essential feature of the British education for many years but very little was known about how effective teachers and students believed they were (School Councils, retrieved on 28th April 2011). The previous NSPCC activities and research have reinforced the importance of listening to children as part of their protection. Schools in particular have an important part to play in supporting this process of empowerment. NSPCC believes that school councils must encourage children and young people to be more resilient and better protected. NSPCC did this research as a first step in the process of attempting to learn more about school councils and how they were perceived by those who participate in them, as well as collecting the views of the staff and students who dont have school councils (School Councils: the Views of Students and Teachers). NSPCC conducted a survey of school councils in partnership with School Council UK and the Advisory Centre for Education (ACE). A questionnaire was sent to a random sample of teachers approx in 200 state primary schools and students and teachers in 600 state secondary schools in England and Wales. The findings were as follows (School Councils, retrieved on 28th April) The staff from 294 secondary schools and 89 primary schools responded; 226 of 240 secondary schools with councils also submitted a student response. Student replies were from 30 of the 54 secondary schools without councils. Three quarters of the council meetings were attended by a senior member of the schools management team. In 92% of the school councils in secondary schools and in 12 of the 16 councils in primary schools the student members were elected. The frequency of meetings varies enormously. In 4% of schools, meetings were held every week; in 9% they occurred once a month; and in the other 9%, three times a term; in 45% twice a term and in the remaining 27% once a term. 44% of schools meetings were held in that curriculum time; 35% were during the lunch break; 25% after school, and 2% before school and 2% in assembly time. In 91% cases students contributed to the agenda and in 66% the staff did. But there was, however, considerable variation in the consultation processes aro und these agendas. About 54% of council specific topics could not be discussed. (School Councils, retrieved on 28th April 2011). They were matters relating to members of staff (44% of councils) or individual pupils (19%). Areas other than that included uniform, the length of the school day, curriculum content and disciplinary matters. Most frequently mentioned agenda items were the matters related to canteen, uniforms and toilets. Twenty percent of the responding councils had discussed staff appointments, and majority of them had been involved in some way in the interviewing process. Comments from both staff and students indicated that most of them thought that councils played an important role in communicating. Student respondents in schools with councils rated the performance of their councils in relation to certain criteria. And the ratings showed that they were more optimistic about their potential for improving relationships between students (73%) than for securing an improvement in the relationships between staff and students (50%). The main advantage identified by the staff and students was that the cou ncils gave the students a voice, providing the link between staff and students, and also allowing the students to have a role in the management of school (School Councils, retrieved on 28th April 2011). The areas in which the staff wanted to see councils develop was in developing of a proactive student council, improved communication between councils and all other sections of the school community, particularly governing bodies, and student involvement in the development of school policies. Students placed more emphasis on raising the profile of councils in their schools, on contributing in areas where a student perspective was seen to be extremely important, such as the development of anti-bullying or discipline policies, and on obtaining appropriate training for student representatives so they could be more effective partners. The staff identified two main issues standing in the way of the development of some council, which were time constraints and staff resistance. The obstacle identified by students was to establish a higher level of trust between students and staff in many schools before real progress could be made. A third of the schools which responded did not have school cou ncils although the majority of them were willing to see one established. Staff and students alike viewed them as a way of giving the students a greater stake in their schools. Only few of the respondents opposed the introduction of a council in their schools. In the primary sector this was mainly because teachers thought their pupils were too young to participate effectively or because they felt staffs in these schools are already operating under extreme pressure which should not be augmented. Only a quarter of the staff respondents in schools without a council identified disadvantages in having one and that was related to the time that a staff would have to the council, if it were to develop into an effective force within the school (School Councils, retrieved on 28th April 2011). HISTORY OF SCHOOL COUNCIL Prior to the 1960s, political education was in the form of hard academic learning about constitutions and institutions especially for the high status students; or they were reminders of observing the rules by the low status students. Then with the introduction of the Program for Political Literacy (Lister 1987), procedure values and skills were being encouraged. (Ian Davis school council, retrieved on 28th April) During the 1980s a new era of education became prominent. Education based around global peace, gender, anti-racist etc were being emphasized upon. The focus was now on political literacy and specific political issues. In early 1990s citizenship education had was developed emphasized on voluntary activity by individual young people in the context of a declining welfare state. However the current version of citizenship education (from Cricks notion) is about social and moral responsibility; and also the community involvement and political literacy. A number of key thinkers have outlined the importance of school councils (Palmer; Davies, Gregory and McGuinn 2002). A few of them are mentioned as follows- Dewey postulated that thinking is the instrument for solving problems and that knowledge is the process of accumulation of wisdom gained in the problem solving process. (Westbrook 1993, p. 279). Rousseau outlines a number of key ideas like childhood is not just a preparation for adulthood but rather a stage of life in itself; individualization of education and also that children learn by discovering (Ian Davis, school council, retrieved on 28th April). Vygotsky argues that culture plays an important role and one cannot talk about learning as such, but has to judge the nature of learning in relation to the culture that produces it. Individuals can also develop their own learning by interacting with the environment and not waiting for learning to be imposed on them. (Ian Davis, school council, retrieved on 28th April). Rowes arguments for and against school councils FOR The students have the right to be heard and live in justice. They also learn how to serve each other. The council promotes citizenship learning and social confidence that will enable decision making in challenging situations. Its a democratic process which is effective and efficient in developing a consensus. AGAINST The Schools must not deceive the children into thinking that they have more power; its important that teachers exercise their professional responsibilities. It emphasizes service rather than rights. The councils create a low status and cynicism. ROWES CONCLUSION He concluded that its rather easy to underestimate the obstacles that come in between a good communication between teachers and students. The size of the council does matter. Momentum also is necessary because counselors will lose interest if nothing is happening. Also the staff needs to be responsible and make the students feel worthwhile. The head and administrative staff must make the counselors feel valued. The Staff must also be aware of vulnerable times of the year. SCHOOL COUNCILS IN OTHER COUNTRIES Danish Education Act 1996 requires that the secondary schools must create and maintain pupil councils when the majority of the students want to have one. The Irish Education Act (1998) The school board has to establish and maintain procedures for the purpose of informing students about the activities of the school. A procedure thats been established under section 1 will enable the involvement of the students in the operations of the school having regards for the age and experience of the students in association with their parents and teachers. A board of a post primary school should encourage the establishment of a student council and facilitate by giving assistance to The students who want to establish the council Councils when they have been established Australian secondary schools have a student representative council and in USA the National Association of Student Councils is active. DIFFERENT TYPES OF PARTICIPATION IN A COUNCIL Levels of participation (Hart 1992). Manipulation- The children are engaged for the benefit of their own interests, formulated by adults, but the children themselves do not understand the implications. Decoration- The children are called in to embellish adult actions. Adults do not pretend that all this is in the interest of the children themselves. Tokenism- Children are given a voice, to serve the child friendly image adults want to create, rather than the interest of the children themselves. Assigned but informed- Adults take the initiative to call in children but inform them on how and why. Only after the children understand the intentions of the project and the point of their involvement, the children decide whether or not to take part. Consulted and informed- Children are intensively consulted on a project designed by adults. Adult initiated shared decisions with children. In the case of projects concerned with community development, initiators such as community workers and local residents frequently involve various interest groups and age groups. Child initiated and directed- Children conceive, organize and direct a project themselves without adult interference. Child initiated shared decisions with adults Its up to the school to choose what they prefer (IAN DAVIS, SCHOOL COUNCIL, retrieved on 28th April). Methodology In order to investigate the functioning of the school council, a multi-method approach of gathering data (triangulation) is used to ensure maximum reliability and accuracy. The purpose of this is to ensure validity of data and ensure that the results of the research are a true a true representation of the school. INTERVIEWS All members of the school council are interviewed (one class at a time-two members per class-one male and one female providing all participants agree to participation). An interview of the person setting up the council was taken to find out what the aims for the council were. Also an interview of 3 staff members who are present at school council meetings was taken Pupils are approached during break time or lunch time, and are asked to answer if they agree or disagree with a series of statements. And depending on their answers, the questionnaire for further investigation is developed. The advantage of this method is that it yields good results and the researcher can be assured that he/she knows exactly what the pupils mean. Additionally the researcher can also notice the students reactions to the questions. The disadvantage however is that not so many results can be gathered by using only the interview method. For the interview to be successful, the children must have the freedom to describe their views; they must feel comfortable so that they answer accurately. (misconceptions in science education, retrieved on 28th April). OBSERVATION Observational techniques are a very important aspect of several research and case studies. In a way we all are already well versed in the art of observation. We all observe human behavior and tend to draw conclusions based on that. In research however its important to go beyond the subjective approach and eliminate bias. Also its important to be systematic and open about the procedures of the study, so that others can check the bases on which the conclusions have been reached. (ANDREW HANNAM,2006) Non-structured observations are used in this study because the aim is to measure staff influence in meetings and council agenda and this can be best measured only without the constraints of structured and semi-structured observation methods. PUPIL QUESTIONNAIRES A questionnaire provides a pool of questions that can be used to explore the barriers and supports for the pupils in school. It uses open and closed questions. It can use symbolic faces to rate their experiences or more conventional response options. It also helps explore a pupils feelings of the different events and happenings in the school. Therefore this method of data collection will help to find out a students problems. Even though the students complete the questionnaire by themselves, they still must be briefed initially about why they are being asked these questions; and who will have access to the information and how will it benefit in bringing about a desirable change. The questionnaire can be designed in an online format as pupils are more engaged with an online format and it also adds a feeling of anonymity. Whereas a black and white photocopy is completed as compliance without any personal thought or reflection. An important advantage of questionnaires is that the pupils responses are not influenced by an adult ( pupil questionnaire, retrieved on 28th April). This questionnaire that has been made for this study is anonymous with the option for pupils to write their name, especially if they wish to have a follow up conversation with an adult. QUESTIONAIRE 1. How many times did your school council meet during the current school year? 2. Does your school council meet the minimum membership requirements outlined by in the provincial regulation? Yes No 3. What efforts has your school council made to ensure that it has met the school council membership requirements? 4. What kinds of consultation and activities was your school council involved in during the current school year? (tick against the options you feel right) Consultation Activities Local school year calendar Fundraising School code of student conduct Workshops and/or seminars for parents Preparation of the school profile Extra ­curricular activities in the schools Input to the principal profile School community communication strategies School budget priorities Reporting to parents/guardians and the community Curriculum and program goals and priorities Local coordination of services for children andyouth Responses of the school/Board to achievement School ­based services and community partnerships, In provincial/Board assessment program such as social, health, recreational programs lunch/nutrition Development, implementation, and review of Community use of school facilities Board policies at the local level Others, please list below Others, please list below: 5. How does your school council seek input from parents and the school community? i- School council meetings ii- Sub ­committees iii- Casual Discussion iv- Parent e ­mail list v- Surveys 6- What were the top three priorities/goals for your school council for the current school year? a)Addressing School Transfer Procedures and winter line ­up problem. b) Investigate School Transfer Policy options. c) Establishing better communications (via more frequent Lisgar Links e ­newsletters and a new web site). 7. Were you successful in achieving these priorities/goals? Yes No 8. Why/why not? 9. How could we best communicate with school councils? 10. What are your school councils top three priorities for the coming year? 11. What are top three biggest challenges facing your school council for the coming year ? 12. Any additional comments or suggestions to improve our efforts to support school councils? 13. What should the focus of School Council be for the upcoming (year) school year? 14. We would like to increase involvement in the school and need new members of School Council. (OTTAWA CARELTON SURVEY)

Westward Expansion Essay -- essays research papers

WESTWARD EXPANSION The movement of people that has resulted in the settlement of America is one of the most fascinating and significant topics in the history of the United States. Nowhere else has an area of equal size been settled as a result of the initiative of small groups and individuals. Westward expansion helped stimulate the American economy. The first organized migration to California originated in Platte County, on the far western frontier of Missouri. Reports described California as "a perfect paradise, a perpetual spring." The people of Platte County formed the Western Emigration Society, which sent out information about California throughout the Mississippi Valley (Wexler,139). Several merchant and landowners were concerned about the number of prospective emigrants that they launched a campaign disparaging California. This act proved to be effective, in 1842 and 1843 relatively few emigrants followed the first migration to California. The first wagon train was led by John Bidwell, the organizer of the Western Emigration Society. Bidwell let the pioneers across the Rockies, a party of 69 adults and children who divided into two groups after crossing. One group headed north into Oregon, while the other, led by Bidwell continued west to California. By 1842, the currency system of the Republic of Texas was in such dire straits that even the government would not accept redbacks for payment of taxes. Other plans were attempted to get the republic fiscal house in order, but these plans achieved only slightly better results. However, as the economy in the United States improved and the Texas annexation movement gained momentum, currency in Texas slowly recovered some of its values before Texas was annexed in 1845(thewest@pbs.org). Slavery was a big issue, many anti-slavery leaders came out strong against adding another potential slave state to the Union. The basic concerns were - war with Mexico and the division over slavery(Remini). Clay argued against incorporating Texas into the Union when he was almost assured of the Whig Party's nomination for president. In the election Clay, who hedged on his annexation position, was narrowly defeated by James Polk, a former Tennessee senator who ran on a strong expansionist platform( Bender212). The Senate rejected the Texas annexation treaty submitted by John Tyler in 1844. Tyler resubmitted... ...overed gold on the American River at Coloma while building a lumber mill for John Sutter, in the lower Sacramento Valley. A brief report of the discovery appeared in a San Francisco newspaper in mid-March, where it went mostly unnoticed (thewest@pbs.org). By signing the Treaty of Guadalupe Hidalgo, on February 2, 1848, ending the Mexican- American War. The United States acquired an immense western territory stretching from Texas to the Pacific and north to Oregon, which included Upper California, Utah. The United States gained 1.2 million square miles, virtually doubling its territory. The human cost for the United States was 13,238 killed and 4,152 wounded. (6) The United States agreed to pay $13 million for land and assume payment of $3.25 million in claims that American had brought against Mexico (Wexler,210). The United States from the days of independence has adopted the project of extending its dominions, and since then, that line of policy has not deviated in the slightest degree. There is still considerable movement of people westward. In most respects the movement lost its typical characteristics when there could no longer be said to be a frontier line.

Unexpected Inflation

Unexpected In? ation and Redistribution of Wealth in Canada Cesaire A. Meh, Canadian Economic Analysis, and Yaz Terajima, Financial Stability One of the most important arguments in favour of price stability is that unexpected in? ation generates changes in the distribution of income and wealth among different economic agents. These redistributions occur because many loans in the economy are speci? ed in ? xed-dollar terms. Unexpected in? ation redistributes wealth from creditors to debtors by reducing the real value of nominal assets and liabilities. This article quanti? es the redistributional effects of unexpected in? ation in Canada.To this end, we ? rst provide comprehensive evidence of the nominal assets and liabilities of various economic sectors and household groups. We ? nd that the redistributional effects of unexpected in? ation are large even for episodes of low in? ation. The main winners are young, middleincome households, who are major holders of ? xed-rate mortgage deb t, and the government, since in? ation reduces the real burden of their debt for both groups. The losers are high-income households and middle-aged, middle-income households that hold long-term bonds and nonindexed pension wealth. T here is ongoing research on potential re? ements to monetary policy regimes in countries with low and stable in? ation. In Canada, for example, a systematic review of the current in? ationtargeting framework is underway (see the other articles in this issue). An issue that has received relatively less attention is the redistributional effects of unexpected in? ation. 1 Redistributional effects occur because many savings, investments, and loans in the economy are speci? ed in money terms (i. e. , not adjusted for in? ation); unexpected in? ation therefore redistributes wealth from lenders to borrowers by lowering the real value of nominal assets and liabilities. The analysis of these effects may be important since the welfare costs of in? ation depend not only on aggregate effects but also on potential redistributional consequences. Our calculations show that, even with an episode of low in? ation, the redistribution can be sizable. While this is a wealth transfer from one agent in the economy to another, a sense of who wins and who loses is essential in order to assess transitional costs and potential public support for reform. The goal of this article is to provide insight into the redistributional effects of in? tion in Canada. The article is a summary of the recent research of Meh and Terajima (2008). 3 The article proceeds as follows. The ? rst section documents nominal assets and liabilities (i. e. , ? nancial assets and liabilities that are denominated in Canadian dollars and not fully indexed to in? ation) held by different economic sectors and 1 2 . 3 In this article, we focus on in? ation that is either unexpected or partially unexpected. If in? ation were completely expected, the change in the real value of the nominal cl aim would be incorporated in the contract.Hence, there would not be any redistribution. On the other hand, lower-than-expected in? ation redistributes wealth from borrowers to lenders. Meh and Terajima (2008) build on Doepke and Schneider (2006) who document nominal assets and liabilities in the United States and develop a methodology to compute the redistribution of wealth caused by in? ation. UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 43 household groups, while the second part describes the methodology used to compute the redistribution of wealth induced by unexpected in? ation.Using this methodology and the documented nominal positions, the third section quantitatively assesses the redistribution of wealth under episodes of low and moderate in? ation. The ? nal part of the article concludes. Nominal Assets and Liabilities Unexpected in? ation generates redistributions because most ? nancial assets and liabilities are speci? ed in money terms. For example, payments on ? xedrate mortgage contracts, bank deposits, non-indexed de? ned-bene? t pension plans,4 government and corporate bonds, and other types of loans are generally not adjusted for unexpected in? ation.Hence, when in? ation is high, the value of these assets and liabilities falls in terms of purchasing power, since the prices of other goods and services go up with in? ation, but payments on these ? nancial claims are ? xed. The extent of the changes in the purchasing power of ? nancial assets and liabilities also depends on the term to maturity, as we will show later on. In this section, we document Canadian holdings by type and maturity in various categories of assets and liabilities. Speci? cally, we look at asset and liability positions for three sectors: household, government, and non-residents. We also consider different groups of households. The objective is to show that, among these different groups of agents, holdings of nominal assets and liabilities differ in both qualitatively and quantitatively important ways. Given that these differences exist, there is potential for redistribution among them following in? ation shocks. (SFS). The NBSA documents the ownership of ? nancial and non-? nancial assets and liabilities by sector. We use the NBSA to compute the net asset and liability positions of the household, government, and foreign sectors.The SFS is a household survey data set on income and wealth. We use the 2005 wave (the latest available), involving about 5,000 households, with weights to produce Canadian aggregates. It provides a comprehensive picture of assets and liabilities. For the sake of consistency, we use the 2005 NBSA and focus our analyses on the year 2005. Categories of nominal assets and liabilities Following Doepke and Schneider (2006), nominal assets and liabilities are de? ned as all ? nancial claims that are denominated in Canadian dollars and not fully indexed to in? ation.We report net nominal positions (i. e. , assets minus liabilities) in four categories, de? ned as follows:6 †¢ Short-term – ? nancial assets and liabilities with a term to maturity less than or equal to one year (e. g. , domestic currency, bank deposits, consumer credit, and short-term paper) †¢ Mortgages – all mortgage claims †¢ Bonds – non-mortgage and non-pension nominal claims with maturity greater than one year, including government and corporate bonds and bank loans †¢ Pensions – employer pension plans without provisions for indexing bene? ts to the cost of living, including both de? ed-contribution plans and non-indexed de? ned-bene? t plans7 We distinguish among these categories because they differ in maturity structure. Differences in maturity will emerge as a key factor in assessing the extent of potential redistribution. Unexpected in? ation generates redistributions because most ? nancial assets and liabilities are speci? ed in money terms. Sect oral positions Data We use two main data sets, both provided by Statistics Canada: the National Balance Sheet Accounts (NBSA) and the Survey of Financial Security 4 5 Non-indexed de? ned-bene? pension plans are those where retirees receive ? xed payments not adjusted for in? ation. Since all businesses are owned by their shareholders, we allocate business sector portfolios across the three sectors, based on each sector’s equity holdings. Table 1 shows net positions in each category, as well as the overall net nominal position (NNP) for each sector. Positions are expressed relative to gross domestic product (GDP) in 2005. Positive numbers indicate net lending; negative numbers, net borrowing. 6 7 For more details, see Meh and Terajima (2008). Another type of plan is the indexed de? ed-bene? t plan. These plans are treated as real assets, since in? ation will not affect them. 44 UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 We obs erve that households are the main net nominal lenders overall, with NNP at 40. 14 per cent of GDP. The government sector, at about 43 per cent of GDP, is the main counterparty borrowing from households. The foreign sector has a positive but small NNP of 2. 85 per cent of GDP. Households tend to lend through short-term claims, bonds, and pensions, and borrow through mortgages.The government sector borrows mainly through bonds; it also borrows through short-term claims and pensions. 8 The non-resident sector lends in mortgages and bonds and owes in pensions. 9 These observations suggest that households are the likely losers of unexpected in? ation, since it lowers the purchasing power of their lending (i. e. , savings). Table 1: Net Nominal Positions as a Percentage of GDP Sectors Short-term claims Mortgages Bonds Pensions NNP Households 12. 25 -11. 94 22. 14 17. 69 40. 14 Government -7. 60 3. 19 -29. 67 -8. 91 -42. 99 Non-residents -4. 65 8. 75 7. 53 -8. 79 2. 85Table 2: Nominal Posi tions as a Percentage of Net Worth by Age Age Cohort Under 36 36–45 Short-term claims Mortgages Bonds Pensions NNP 4. 83 -37. 95 -2. 63 -0. 05 -35. 80 -1. 01 -13. 57 4. 70 -1. 31 -11. 19 46–55 1. 48 0. 07 6. 50 5. 01 13. 06 56–65 2. 40 4. 48 7. 90 7. 36 22. 14 66–75 9. 00 3. 55 6. 70 8. 68 27. 93 Over 75 12. 27 3. 29 7. 68 8. 65 31. 89 Household groups We now look at the household sector in more detail, using the SFS data set. We examine three classes (low-income, middle-income, and high-income) and six age groups (under 36, 36–45, 46–55, 56–65, 66–75, and over 75) to observe differences within the sector. 0 Table 2 presents the overall positions for each age group as a percentage of the group’s net worth. We observe that the NNP increases with age, implying that households shift from being net borrowers to net lenders as they get older. Most of the borrowing of the young is from mortgages. With age, more lending (i. e. , saving) is observed in pensions and in liquid short-term claims. This implies that young households will gain from unexpected in? ation while older households will lose. Qualitatively, these patterns generally hold across different income classes, although with different magnitudes.Table 3 shows the positions of the three income classes, with the long-term category combining mortgages, bonds, and pensions. 11 The general pattern of â€Å"borrowing more when young and lending more with age† holds across different income classes. We observe, however, that levels of borrowing relative to their net worth among young middle-income and low-income households are relatively larger than they are for high-income households, mainly because the portfolios of low-income and middle-income households are concentrated in residential real estate (mortgages). This implies that while the young generally bene? from in? ation, bene? ts are likely concentrated among low-income and middleincome h ouseholds. Table 3: Nominal Positions as a Percentage of Net Worth by Age and Income Class Age Cohort Under 36 36–45 High-income Short-term claims Long-term claims Medium-income Short-term claims 5. 83 2. 24 -28. 71 4. 39 7. 01 5. 49 20. 55 9. 07 20. 29 14. 91 18. 97 3. 86 -6. 52 -3. 73 5. 89 -1. 97 18. 40 -2. 36 19. 89 8. 48 19. 03 8. 56 21. 26 46–55 56–65 66–75 Over 75 Long-term claims -95. 27 Low-income Short-term claims 18. 90 Long-term claims -71. 01 -0. 06 -27. 07 5. 04 -8. 30 13. 84 6. 89 12. 58 1. 7 10. 96 12. 79 8 The government sector is a borrower in pensions as it holds liabilities from employer pension plans to its employees. 9 The borrowing in pensions by the non-resident sector indirectly re? ects the pension liabilities of the business sector. As previously mentioned, we allocate business sector portfolios across the three sectors, based on each sector’s equity holdings. 10 The classes are de? ned based on a mix of income and wealth . For simplicity, we use the terms low-income, middle-income, and high-income to refer to each class. See Meh and Terajima (2008) for the details. 1 The distribution of households as well as that of net worth by age group and income class is shown in Meh and Terajima (2008). UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 45 How In? ation Causes Redistribution Given the observed differences in nominal positions among households, government, and non-residents, unexpected in? ation should induce redistributions of real wealth. But how do we begin to identify the pattern and quantify the extent of the redistributions? The size of wealth redistribution depends on how economic agents adjust their expectations to in? tion surprises. We follow Doepke and Schneider (2006) by considering two scenarios that provide upper and lower bounds on the redistribution of wealth. The upper bound is captured by a â€Å"full-surprise† scenario (hereaft er FS). In this scenario, during several years of experiencing in? ation shocks, agents do not anticipate that shocks will continue in subsequent periods; nominal interest rates remain unchanged and the in? ation shock lowers the real value of nominal positions each period, regardless of the duration of these positions. Wealth redistribution from in? tion The goal of this section is to use the nominal positions documented above, combined with the methodology just described, to estimate the redistribution of wealth for an in? ation episode. Historically, in? ation episodes with different magnitudes lasting for extended periods have occurred. For example, between 2000 and 2004, the average in? ation rate in Canada was generally higher than the in? ation target rate of two per cent. To illustrate the in? ation-induced redistribution of wealth, we will consider a hypothetical in? ation episode that lasts ? e years with an in? ation shock of one per cent, starting in the benchmark year 2 005. 12 Redistribution across sectors Table 4 summarizes the sectoral present-value gains and losses induced by an in? ation episode with one per cent shocks that continue for ? ve years, beginning in 2005, under the FS and IA in? ation scenarios. Table 4: Redistribution of Wealth across Sectors as a Percentage of GDP, with a One Per Cent In? ation Shock Lasting Five Years Households Sectors Net Full-surprise scenario -1. 95 -1. 26 Gains 12. 53 7. 61 Losses -14. 48 -8. 86 2. 09 1. 49 -0. 14 -0. 3 Government Non-residents The size of wealth redistribution depends on how economic agents adjust their expectations to in? ation surprises. The lower bound is given by an â€Å"indexing ASAP† scenario (hereafter IA), where agents adjust their expectations after the initial shock to take into account the full duration of the shock. This scenario is also known as a gradual in? ation episode, since in? ation is partially anticipated. Under the IA scenario, the nominal yield curve is adj usted upwards to incorporate the in? ation shock. As a result, under the IA scenario, in? tion-induced gains or losses depend on the maturity of the nominal position. The position is â€Å"locked-in† at the pre-shock nominal interest rate until its maturity date but must be discounted using the new nominal rate, resulting in a lower present value. Intuitively, present-value gains or losses for a claim are larger under the FS scenario because all the positions are affected equally by the in? ation episode. Under the IA scenario, however, long-term positions are affected more drastically than shorter positions. Agents are able to mitigate their losses on instruments that mature before the in? tion episode ends. Our calculations are based on a present-value analysis, described in Box 1. Box 2 discusses how we assign terms to maturity for each category of claims. Indexing ASAP scenario It is apparent from the table that, under the two scenarios, the household sector loses, while the government sector wins. The household sector loss and the government gain are both large. Under FS, the household losses amount to 1. 95 per cent of GDP (or $26. 8 billion), while the government gain is 2. 09 per cent (roughly 5 per cent of NNP). The non-resident sector loses, but the loss is small, just 0. 4 per cent of GDP. To understand these ? ndings, recall that, under FS, gains and losses are directly proportional to the initial nominal positions. Since the household sector is the economy’s main lender and the government sector is the main borrower, it is not surprising that these sectors are the most dramatically affected by the shock under the FS scenario. 12 Under the current in? ation-targeting framework, in? ation has not exceeded expectations by one per cent for ? ve consecutive years. However, as a hypothetical scenario, we suppose price-level shocks that push in? tion to the upper bound of the range speci? ed in the current framework. The current annual in? ation target is two per cent with the target range extending from one to three per cent. 46 UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 Box 1 Present-Value Analysis of Redistributions1 Full-surprise (FS) Scenario We start with an explanation of how unexpected in? ation changes the purchasing power of a nominal claim. Consider an -year, zero-coupon bond with a total nominal yield at time of . In the absence of unexpected in? tion, the present value of one dollar earned in periods through investment in this ? nancial claim is given by are then summed over all claims to derive the net redistribution. Indexing ASAP Scenario The indexing ASAP scenario corresponds to a onetime announcement at period that, starting from the current period , in? ation will be percent higher than expected during each period for the next periods. Assuming that the announcement is credible, bond markets will immediately revise their in? ation expectations and i ncorporate these updates into the nominal yield curve.Assuming that the real curve does not change after the shock and that the Fisher equation holds, the new nominal interest rate used to discount . Therefore, the present a claim is value, , of a claim under IA is , where indicates the exponential function to base . Suppose that at time , there is a one-time surprise increase in in? ation of per cent per year that lasts for periods. Under the FS scenario, since the in? ation shock in each subsequent period is unanticipated, market expectations do not adjust and the nominal term structure is unchanged.As a result, only a proportion, , of a position’s present value remains, and this proportion falls as the size and duration of the shock increase. The present value of , is thus given by this nominal claim under FS, This equation shows that the present value of a onedollar claim at time is independent of the term to maturity of that claim. The present-value gain or loss, , is gi ven by As can be seen from this equation, in contrast to the FS scenario, under IA, a ? nancial position of maturity will be affected only for the periods of its duration, before which the agent is assumed to reinvest at the pre-shock real yield.This is analogous to the agent’s reinvesting in a claim that offers a nominal rate of return that has been indexed to take the in? ation announcement into account. The present-value gain or loss of a claim of maturity under IA is given by: The net present value of gain or loss depends only on the size and duration of the shock and the initial nominal position. The gain is, indeed, proportional to the . pre-shock position, with a coef? cient of If , then there is a gain from the in? ation episode; otherwise, there is a loss. In order to derive the total gain or loss of an economic agent (e. g. , a sector r a household), is calculated for each claim with a term to maturity . The gains or losses 1 This methodology to calculate redistribu tion can be applied to compare the size of redistribution under different monetary policy regimes such as in? ation targeting and price-level targeting. This point is summarized in Crawford, Meh, and Terajima (this issue) and analyzed in detail in Meh, Rios-Rull, and Terajima (2008). Hence, under IA, the present-value gain or loss depends on (i) the size of the shock ( ), (ii) the duration of the shock ( ), (iii) the initial nominal position , and (iv) the maturity of the claim ( ).On the other hand, as mentioned above, the gain or loss under the FS scenario for any position is independent of its maturity. The IA scenario provides a lower bound for gain or loss on a claim, since it assumes full adjustment of expectations to the path of in? ation following the initial announcement. The total gain or loss of an economic agent is derived in the same way as in the FS scenario, based on the sum of the gains and losses from each claim. UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 47 Box 2 Term-to-Maturity StructureIn this box, we describe how terms to maturity are determined for each claim. For ? nancial short-term claims, we assume that they all have one-year terms to maturity, such that we set = 1. For mortgages, we apply the distribution of ? xed-rate mortgages by term in 2005. 1 The distribution is obtained using the Canadian Financial Monitor data set from Ipsos Reid Canada, which is compiled from a household survey containing detailed mortgage information. Chart A presents the distribution of mortgages across terms of mortgages, weighted by outstanding balances. It shows that the most common term of Canadian ? ed-rate mortgages is ? ve years. Based on the fractions we obtain from Chart A, we assign a weight for each . For example, we assign a 60 per cent weight to . We take a similar approach for bonds. We derive a maturity distribution from quarterly data on the maturity and face value of federal government deb t. 2 Chart B shows the distribution from the fourth quarter of 2005. We assume that the distribution of terms to maturity for federal government bonds approximates that for all instruments in this category. For pensions, we focus on two types of pension plans: de? ned-contribution and non-indexed de? ned-bene? t plans.For de? ned-contribution plans, we assume that the average investment portfolio is approximated by the holdings of Trusteed Pension Plans. 3 The assets of Trusteed Pension Plans are given in the NBSA. We compute the distributions of these assets over terms to maturity and use them to assign weights to each value. For non-indexed de? ned-bene? t plans, we assume a ? xed stream of annual post-retirement payments. When calculating the present-value 1 The term of mortgage is the length of the current mortgage agreement. A mortgage can have a long amortization period, such as 30 years, with a shorter term, such as 5 years.When the term expires, a new term agreement can begi n at the prevailing interest rate. The term of mortgage, rather than the amortization period, is relevant for our analysis. These data were obtained from the Bank of Canada’s Communication, Auction and Reporting System database. See Meh and Terajima (2008) for more details. Trusteed Pension Plans hold approximately 70–75 per cent of employer pension plan assets. See Meh and Terajima (2008) for more details. gains and losses of pension assets, we apply the formulas in Box 1 to each payment, then sum all the gains or losses.In assigning the term to maturity of each payment, we set based on the difference between the current age of the household and the age at the time of the payment. Chart A: Distribution of Fixed-Rate Mortgages by Term % 70 60 50 40 30 20 10 0 Six months One year Two years Three to four years Five years Seven years Ten or more years Chart B: Distribution of Government Bonds by Term to Maturity % 15 10 5 0 1 yr. 10 yr. 20 yr. 30 yr. 2 3 48 UNEXPECTED INF LATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 It is also clear that gains and losses are generally smaller under IA.The household sector loss under IA is 1. 26 per cent of GDP (or $17. 3 billion), compared with 1. 95 per cent under FS. This change is driven by a reduction in the losses associated with the sector’s net savings in long-term bonds and pensions relative to the FS case. The change is offset somewhat, since instruments with a shorter maturity are less sensitive to gradual in? ation, and the gains associated with the sector’s net debt in mortgage markets shrink relative to the FS case. The government gain drops from about 2. 1 per cent of GDP under the FS scenario to about 1. 5 per cent under the IA scenario—i. . , it shrinks by almost one-third. This occurs because the government borrows through some bonds that have maturities of less than ? ve years. The non-resident sector’s losses, although small, increase f rom 0. 14 per cent of GDP under FS to 0. 23 per cent of GDP under IA. Finally, Table 4 shows gross redistributions for the household sector—i. e. , it distinguishes between losses associated with lending and gains associated with borrowing. It should be clear from these results that net calculations substantially understate how much wealth is shifted around. Under FS, the household sector gains 12. 3 per cent of GDP and loses 14. 48 per cent, implying a total gross redistribution of 27. 01 per cent of GDP. In other words, household wealth worth 27 per cent of GDP is reshuf? ed. Under IA, the total gross redistribution is 16. 47 per cent of GDP. Table 5: Redistribution of Wealth across Households as a Percentage of Net Worth by Age and Income Class, with a One Per Cent In? ation Shock Lasting Five Years Age group Under 36 Full-surprise scenario All High-income Middle-income Low-income Indexing ASAP scenario All High-income Middle-income Low-income 1. 66 0. 26 3. 91 2. 66 0. 44 -0. 18 1. 15 1. 15 -0. 54 -0. 74 -0. 3 0. 28 -0. 84 -0. 76 -0. 94 -0. 42 -0. 83 -0. 82 -0. 89 -0. 17 -0. 82 -0. 86 -0. 81 -0. 56 -0. 34 -0. 55 -0. 19 0. 14 1. 74 0. 13 4. 34 2. 53 0. 54 -0. 10 1. 28 1. 32 -0. 63 -0. 80 -0. 55 0. 16 -1. 07 -0. 85 -1. 26 -1. 01 -1. 36 -1. 34 -1. 42 -0. 69 -1. 55 -1. 45 -1. 64 -1. 15 -0. 53 -0. 68 -0. 42 -0. 16 36–45 46–55 56–65 66–75 Over 75 All Redistribution between household types Even though the household sector as a whole loses from surprise in? ation, the loss (or gain) is not uniform across different types of households. For different groups of households, we calculate the redistribution of wealth induced by the in? tion episode described above. Table 5 reports the present-value gains and losses as a percentage of the average net worth of each group for FS and IA. Overall, with respect to age categories, young households bene? t from in? ation and older households lose. On the income dimension, the right column of t he table indicates that high-income households lose the most and the loss declines as income becomes lower. Speci? cally, the main winners are young, middleincome households with large, ? xed-rate mortgage debts. Their gain as a proportion of mean net worth is large: 4. 34 per cent under FS and 3. 1 per cent under IA. The second group of winners is the young, lowincome group, who enjoy, on average, gains between 2. 53 per cent and 2. 66 per cent of their average net worth. The gains of the young low-income group come largely from their holdings of student loans and mortgage debt. Note that this group actually experiences greater gains under IA. As in the case for the non-resident sector, this occurs when there is a maturity mismatch. More speci? cally, while the gains associated with their net borrowing positions in bonds and mortgages do not vary much between in? tion scenarios, the losses associated with their savings in short-term instruments are mitigated under IA, since these c laims mature before the shock has ended. The main winners are young, middleincome households with large, ? xed-rate mortgage debts. More age groups among low-income housholds bene? t from the in? ation episode than those among the middle class or the high-income under FS. This is because low-income households remain net borrowers through to age 56, and therefore the youngest three groups among the low-income are winners. In general, older middle- and high-income households bear most of the losses under the two in? tion scenarios. More speci? cally, under the FS scenario, high- and middle-income households over age 75 are the sector’s greatest losers, with losses accounting for 1. 45 per cent and 1. 64 per cent, respectively, of their respective average net worth. These losses are UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009 49 mainly owing to their large positions in bonds and non-indexed de? ned-bene? t pensions. Table 5 also shows that most high-income households lose from the in? ation episode. Older middle- and high-income households bear most of the losses . . owing to their large positions in bonds and non-indexed de? ned-bene? t pensions. Conclusion In this article, we quantify the redistributional effects of unexpected in? ation in Canada. To this end, we ? rst provide comprehensive evidence of the nominal assets and liabilities of various economic sectors and household groups. We then conduct experiments examining the redistributional consequences of various in? ation episodes. The key ? nding is that the redistributional effects of unexpected in? ation are large even for episodes of low in? ation. For example, during an episode of low in? tion, where in? ation is one per cent above expectations for ? ve consecutive years, the loss of wealth among the household sector as a whole could amount to the equivalent of two per cent of GDP, or $27 billion. Among the main winners are young, middle-income households, who are major holders of ? xed-rate mortgage debt, and the government, since in? ation reduces the real burden of their debts. The losers are a combination of highincome households; middle-aged, middle-income households; and old households, who hold long-term bonds and non-indexed pension wealth.Non-indexed pension assets play an important role in the losses of old households. A natural question arising from these results is whether these redistributions have implications for the aggregate economy and welfare. These issues are analyzed in recent research by Meh, Rios-Rull, and Terajima (2008), whose ? ndings are also summarized in Crawford, Meh, and Terajima (this issue). Literature Cited Crawford, A. , C. A. Meh, and Y. Terajima. 2009. â€Å"Price-Level Uncertainty, Price-Level Targeting, and Nominal Debt Contracts. † Bank of Canada Review, (Spring): 31-41. Doepke, M. nd M. Schneider. 2006. â€Å"In? ation and the Redistribution of Nominal Wealth. † Journa l of Political Economy 114 (6): 1069–97. Meh, C. A. , J. -V. Rios-Rull, and Y. Terajima. 2008. â€Å"Aggregate and Welfare Effects of Redistribution of Wealth under In? ation and Price-Level Targeting. † Bank of Canada Working Paper No. 2008-31. Meh, C. A. and Y. Terajima. 2008. â€Å"In? ation, Nominal Portfolios, and Wealth Redistribution in Canada. † Bank of Canada Working Paper No. 2008-19. 50 UNEXPECTED INFLATION AND REDISTRIBUTION OF WEALTH IN CANADA BANK OF CANADA REVIEW SPRING 2009

Yahoo Strategic Management Report

Yahoo! : Business on Internet Time Group 2: Aaron Duke Alejandro Reynoso Erin Moon Sophia Benevento February 21, 2012 Dr. Jay Lee GM 105 California State University, Sacramento Executive Summary Yahoo started out as a hobby between two Stanford students, Jerry Yang and David Filo, and turned from a simple website with categorized information to a powerful navigational tool for millions of users. It generated millions in revenue and helped shape the way the modern-day internet is used, both in terms of streaming information and streaming revenue.The U. S. military first used the internet in the 1960s as a way of safeguarding against centralized information. Decades later, it was used as a tool to help researchers share informaiton. In the 1990s, HTML language was created to help read documents easier. Within a few years, browsers, portals, and internet service providers (ISPs), along with the low price and easy access to computers had connected the world and the internet was born.As Y ang and Filo created a way to monetize the traffic created by the popular Yahoo portal, the attractiveness of the Yahoo model helped propel the global reach of the internet, and brought about intense competition, new tools, new models of monetization, and the need for new strategy. When using Porters five forces model to analyze the portal industry’s attractiveness, it is clear that attractiveness is low. The bargaining power of suppliers is high, bargaining power of the buyers is low, threat of new entrants is high, start-up costs cause high barriers to entry, alternative edia allow the threat of substitutes to be high, and the potential for revenue has saturated the industry with competitors. This competitive environment rapidly changed since Yahoo was first created. There was virtually no competition and it was able to quickly secure large market segments. Using a strategy of simplicity, independence and strategic partnerships, Yahoo created a user-friendly point-of-entry for consumers to find information on the internet while making millions of dollars. Yahoo led the portal industry from 1994 to 1998, during which its market capitalization grew to $30 billion.In 1999, the industry began to change further as mergers and acquisitions consolidated power. Media companies, ISPs, browser companies and content providers were merging and acquiring each other in a flurry of moves in order to retain competitive advantage. The strategy of independence that brought Yahoo success needed to be reevaluated. In an environment with such volatile and intense competition, what strategy should Yahoo implement? As leader of the internet portal industry, Yahoo’s position, both in terms of its external environment and internal resources and capabilities, should be exploited in order to bring about above-average returns.Both the Industrial Organization (I/O) and Resource-Based models of above-average returns can be utilized. It shows Yahoo to be in a favorable posit ion and the tools needed to effectively create new partnerships that will secure market share and long term profitability. Further, A SWOT analysis shows that Yahoo has strong brand image and opportunities for strategic partnerships, even though as first-mover in the industry, it lacked a long-term strategy and is threatened by intense competition.The story of Yahoo shows that a company’s strategy must always be evaluated for effectiveness in terms of its current external environment and its internal resources and capabilities. While effective strategy early on may bring about a favorable position in the industry, competitive forces will cause a company to seek out new strategies, new partnerships and new models in order to remain competitive and profitable. Background Jerry Yang and David Filo created the portal Yahoo in April of 1994. It was originally used as a hobby to track web addresses sent to them by friends.They were students at Stanford, but they gave up their educa tion to focus on running Yahoo. Jerry’s Guide to the World Wide Web was created by Yang and Filo as a guide to navigate though the web. These web sites were sorted into a database and thousands of users began to use their service. Yahoo officially became a business on March 5, 1995. They hired Tim Koogle as CEO, as well as a staff of six people which eventually grew. Yahoo’s operations had three separate departments: property development, marketing and sales, and international.Property development focused on production and engineering. Marketing and sales handled corporate marketing, business development, and sales. They also had customized Yahoo pages in 18 countries, which was run by their International departments. Yahoo was located in Silicon Valley, and they offered five main services (properties) to consumers such as navigation, community, personalization, e-commerce, and international. Navigation allowed consumers to find information. Community offered an addres s book, email, chat, and message boards for consumers.Personalization allowed users to personalize their web pages and e-commerce offered shopping and other online sales. International properties were designed for those in different countries and had each country’s language and local content. By 1998, Yahoo had an estimated 100 million connected consumers, 167 million page views per day, and a market value of $30 billion. By 1998, they had an increased revenue for 1. 5 years. Industry Evolution The Internet was first used in the U. S. Military for defense in 1960.In 1986, the National Science Foundation used it for transferring research files and exchanging electronic mail. In 1991, Hyper text markup language (HTML) was created by Tim Berners Lee. This language allowed documents to link to one another through a host computer, and people could view graphics, audio and text. In 1994, the first internet browser was created. This allowed people to view web documents easily. Navig ation sites, called â€Å"portals,† soon followed. Portals had two types of consumers: non-paying users and paying companies that wanted to advertise.Portal companies typically made revenue through advertising, and they often paid for information that would be exclusive to their site, such as news and sports. Click-thrus and referral fees made up a majority of their revenues from consumers, as well as targeted placements. During the 1990s, personal computers began to sell quickly for home use. Computers were sold with modems, software, a browser, and a way to access the internet. The two browsers that were commonly used were Netscape and MSN. Portals could be chosen by the consumer, but they often came included on the computers.Consumers also chose portals based on habit, quality of information, and brand. Access to the internet was usually done through the phone company, and later high-speed broadband was offered through cable providers. Internet usage began to increase at a fast pace and soon there were millions of people using the internet daily in many countries around the world. Industry Attractiveness Using Porter’s five forces model, we conclude that the bargaining power of the content providers varied depending on the relevance of the information.The bargaining power of suppliers of unique information, such as popular real-time news or sports, was high. Some of the portals paid companies a monthly rate up to $50,000 for information. However, that bargaining power of other suppliers of information such as specialized content, which was less crucial to the portal, is moderately high. This could range between $2,500 to $20,000 per month. Nevertheless, some of the smaller content providers would receive free placement in exchange for their information. Overall, the bargaining suppliers of the most important information is very high.Technology and labor were also suppliers. The threat of new entrants to the industry is high. However, the capit al requirements in order for a new entrant to compete is also very high. During the first few years after Yahoo was launched, many other entrants decided to enter the market. There would be even more entrants in the next few years. Yet, most of the companies that compete against Yahoo are not making money, they are actually losing money. There are many substitutes in the industry that users may prefer to use instead of a portal.Portals considered themselves to be media companies and not just a search engine. Some of the substitutes of portals are television, newspapers, movies, magazines, and even other non-portal websites. In addition, the bargaining power of major paying customers, those who want to advertise on the portals, is very high. In spite of this, the bargaining power of small paying customers is moderate. The smallest orders of advertisement were $1000. But all of the deals where typically negotiated. Moreover, the competitive rivalry is very intense. The only two portal s who were making money in 1998 are Yahoo and AOL.However, AOL was not only a portal, it also provided internet access, which provided the majority of their income. Yahoo was the only portal that was not also an ISP and was still profitable. In summary, the overall attractiveness to enter the industry is very low. The industry is saturated with many different types of competitors, and the start up cost for a new entrant is extremely high. Performance and Strategy When Yahoo invented the first internet â€Å"portal,† it also created the internet portal industry There was virtually no competition and it was able to quickly secure large market segments.It had the â€Å"blue ocean† at its feet as it created new demand in an uncontested market. Yahoo saw the value of creating a user-friendly Internet portal before anyone else. By moving quickly and efficiently, Yahoo was able to negotiate, and frequently dictate, pricing with partners which led to large amounts of revenue. Yahoo’s performance has been very effective, resulting in positive revenue gains leading to profitability in 1998. Yahoo chose a strategy based on forming strategic partnerships that simply added value to the company.They decidedly chose not to merge with other companies in order to retain full control of operations. This way, Yahoo executives were able to take full advantage of both its position and revenue streams and reinvest into the company. This would create value-adding â€Å"properties† and services and thus stay ahead of the competition. The strategy that Yahoo implemented proved very successful. This strategy was one of simplicity and independence compared with their other competitors. They had a maintained a business plan that was developed in 1995 and a one-year operating plan that showed their financial goals and top priorities.They did not have a detailed marketing plan. The employees worked in close quarters, although the structure of the firm was hierar chal. Employees worked in cubicles to save costs. Yahoo was the only portal, aside from AOL, to post profits in 1998. AOL’s profits were significantly larger than Yahoo’s due to the fact that they generated large amounts of revenue as an Internet service provider (ISP). By selling access to the internet, AOL gained revenue from both Internet use and access, while Yahoo generated revenue only from internet advertising.In 1998, it seemed that Yahoo was trending toward losing market share to AOL because would have been wise to invest money into becoming an ISP, however as we have seen, the dominant ISPs have become companies like AT&T and MCI, companies that control the means of communication, namely the phone lines and satellites. Yahoo has kept their basic strategy. Yahoo possesses in-house expertise in engineering. All in all, their strategy has been very successful until 1999. Mergers & Acquisitions of Competitors There were many mergers and acquisitions in the portal industry during 1998 and January 1999.Media sites such as Disney and NBC were partnering with portals such as Infoseek and Snap to gain a competitive advantage and market share. Internet service providers were also acquiring portals with the hopes of gaining more consumers and increasing their profits. For example, the service provider @Home acquired Yahoo’s main competitor Excite, while AOL acquired the very popular Netscape. The internet and portal industry was new for the public in the 1990s. Although there were billions of dollars being spent in e-commerce and by advertisers, the portal industry had only a few years of data to compare when creating a new strategy.Many companies relied on analysts’ predictions for revenue, which may not have been accurate. The strategies ranged from ISP’s hosting portals, media company mergers with portals, and portals acquiring numerous smaller businesses. While some of the strategies seemed to make logical sense, the only two portals that created a profit in 1998 were Yahoo and AOL. The problem with many of these acquisitions and mergers was the amount of money that was being spent at the risk of their stakeholders, particularly their capital market stakeholders. For example, @Home paid $6. billion for Excite, but only a few years later, @Home filed for bankruptcy (Source). These internet service providers and portals had a first-mover advantage so they were able to gain a large market share. Increased competition brought about mergers and acquisitions which consolidated power within fewer companies, in hopes of gaining more of a competitive advantage and greater market share. A Strategy Change? Koogle and his team were aware of the intense competition in the external environment and considered it’s options. Though they were successful and profitable, they were unsure of the future.Their strategy was basic and they had used one business plan, which never changed. They were an independent compa ny, unlike some of their competitors. The management at Yahoo should continue observing the market and begin to create a new business and marketing plan. The portal industry is growing and becoming fiercely competitive, and with Yahoo’s main competitor Excite flaunting their slogan, â€Å"Still with the same old Yahoo? † they should consider changing their strategy. Their high stock price has allowed them to hire some of the most skilled engineers. This, along with capital has allowed them the option to either â€Å"make† or â€Å"buy† companies.Partnering with other businesses that have interest in their company such as AT&T, MCI, Time Warner, and News Corporation may be good options. They also have the capital to acquire Geocities, which is another internet portal. They can also negotiate exclusive distribution deals with personal computer makers such as Compaq, Gateway, HP, and IBM in order to secure market share and increase its customer base. Yahoo s hould adjust their strategy because as their competitors continue to partner with other firms, their customers will likely choose to advertise with these larger companies and they risks losing millions in profits.The best option for Yahoo would be to approach News Corporation and negotiate a possible media partnership in the future. This will allow Yahoo to gain more consumers while leaving them with control of the company. It is not wise to sell because Yahoo has an estimated worth of $30 billion, and their rival Excite had just sold for less than $7 billion. (I/O) Model of Above-Average Returns Yahoo invented the internet portal industry. In 1994, the external environment of the industry was void of economies of scale and barriers to market entry.There was no need for diversification or product differentiation, and there were no other firms to compete with. Yahoo had a simple strategy that capitalized on its first-mover advantage, its access to top engineering talent in Silicon Va lley, and its vision that focused on creating a user-friendly entry point for the internet. This simple strategy was sufficient for above-average returns in the early days of the industry, but as the internet evolved and industry competition increased, Yahoo realized it needed to reevaluate their position in the industry in order to continue enjoying the same above-average returns. External Environment: Several mergers and acquisitions had consolidated ISPs, portals, media companies, and content providers. Yahoo had was the only portal not in talks with a major partner. †¢ Attractive Industry: Yahoo is still the largest portal in the industry. This position makes the industry attractive, however the growing competition makes the position unsecure. †¢ Strategy Formulation: Yahoo can no longer survive on its own. Its partnership with telecommunication giant AT&T is losing strength as AT&T looks to provide customers with web content, no longer needing the content provided by Yahoo.Yahoo needs to partner with traditional media companies, secure more distribution deals with computer companies, improve technologies that would enhance the speed and usability of their search engine. †¢ Assets and Skills: Yahoo has a reputation for independence and tough negotiations. Moving forward, executives will need to be able to build and maintain relationships with potential partners. Yahoo currently has access to the top engineering and management talent in Silicon Valley. Strategy Implementation: Meet with executives from telecommunication, traditional media, and personal computer companies with the goal of creating exclusive partnerships. This will boost brand recognition, increase customer base, increase market share and profitability. Building and maintaining these relationships will lead to future growth. Resource-Based Model of Above-Average Returns It was necessary for Yahoo to also evaluate their internal environment. Resources and capabilities were essen tial for the success of the company, as well as a competitive advantage, strategy formulation and implementation, and an attractive industry. Resources: Yahoo has the top engineering and management talent in Silicon Valley. It has a popular product with a loyal customer base. It has financial resources, a market capitalization valued at $30 billion. †¢ Capabilities: Yahoo was able to secure the position of industry leader, secure distribution deals and valuable partnerships, and create an internet portal that customers widely valued over the competition. †¢ Competitive Advantage: Internally, Yahoo’s resources and capabilities exceeds that of its competitors.Superior talent, better vision of what a portal should offer, and effective execution all contributed to Yahoo’s early success. However it needs to combine its resources and capabilities through strategic partnerships in order to maintain its competitive advantage. †¢ Attractive Industry: As the leade r in the internet portal industry, Yahoo executives can exploit opportunities to merge or form partnerships with any number of major industry companies. †¢ Strategy Formulation and Implementation: Yahoo’s early success is attributed to its executives utilizing its talent, industry position, partnerships and financial resources.Management needs to direct these resources and capabilities toward strategic partnerships with traditional media and personal computer companies in order to create value-adding partnerships, boost brand recognition, increase customer base, and increase market share and profitability. Building and maintaining these relationships will lead to future growth. The use of both the I/O model and the Resource Based Model are crucial for Yahoo to analyze and use as they formulate their strategy for earning high profits. SWOT Analysis When analyzing Yahoo, it is clear that they have many strengths.One of their main strengths is their strong brand image compa red to their competition. Yahoo is currently the second biggest business in the industry both in the United States and globally after Google. Also, Yahoo was the first business to enter into this new industry, with it’s portals, commonly known as search engines now. In addition, Yahoo built many strategic partnerships. These strategic partnerships were negotiated by the business development staff at Yahoo. One example of a strong strategic partnership was teaming up wit AT&T in order to combine Yahoo! s services with access to the Internet. Yahoo also had a few weaknesses. Yahoo was lacking a long-term strategy, and their unwillingness to embrace the changes in the industry. They also did not offer Internet access like other portals such as AOL and MSN. The company had many opportunities. For instance, they had the opportunity to do strategic acquisitions or partnerships with other companies in order to ensure that their leadership will not be taken away by other companies th at were involved in mergers and acquisitions. Additionally, Yahoo had the opportunity of the growing online advertising market.Expenditures for online advertising grew from $0 in 1994 to $2 billion in 1998, and they were expected to keep growing exponentially. A third opportunity that Yahoo had is to keep expanding to more countries. Yahoo had international properties in 18 countries, but there are many other countries where Yahoo can keep expanding. The threats that Yahoo was facing were the very intense competition and government regulations. As the Internet industry evolved, regulations became more strict and the government becomes more involved. References Cnet. Feb-21-2011. http://news. cnet. com/2100-1033-273689. html