On the Association Between Net Monetary Position and Equity Security Prices

As many of you know, Jerry Zimmerman and I are about to embark on an editorial career. In deciding whether to accept the editorial positions on and in preparing the publicity for the Journal of Accounting and Economics, we were forced to consider what constituted good research in accounting-what type of research we would publish. We decided that the prime criterion for a paper to be considered a good piece of research is that it have some potential to increase our understanding of observed accounting phenomena. When I apply that criterion to Robert Freeman's paper in its current state, I have a difficult time determining how the paper could increase our understanding of accounting. The paper is obviously in an early stage and has many problems, not the least of which is the writing style. In this discussion I will concentrate on a couple of major substantive issues and leave the minor errors and problems. One major problem is the objective of the paper and another is the validity of Freeman's estimate of net monetary position. 1. The Purpose of the Paper When refereeing a paper, the first thing I attempt to determine is the purpose of the paper. In this case, I had a very difficult time determining exactly why the author does what he does. Freeman informs us that the paper presents evidence relevant to the following questions: "(i) whether to recognize gains and losses due to changes in the purchasing power of the monetary unit when a firm is in a nonzero net monetary position (NMP), defined as monetary assets less