A case study of radioisotopes in U.S. hospitals is used to explore how technological innovations are diffused among nonprofit organizations and the impact of high technology on a hospital's economic behavior. The diffusion process has been described and modeled in various ways to consider the public demand for high-quality service and the motivations for specific hospitals to adopt innovations. A regression analysis using cross-section data by states indicates the S-shaped curve of earlier studies is not appropriate for nuclear medicine. The reasons for a faster diffusion of nuclear technology could include hospital competition, the availability of doctors, and the inclination of teaching hospitals to be more innovative. A slower diffusion rate was indicated for hospitals affiliated with a medical school, although there is no clear explanation for this. 10 references.
This study investigates the determinants of new firm entry with data disaggregated by 1-digit SIC industry and by state. The results indicate that the growth in industry GNP, the growth in state disposable income, the state unemployment rate, and the percentage of the state's population living in urban areas have a positive effect on new firm entry, while the state average wage rate and the state average tax rate have a negative impact on new firm entry. These effects appear to vary with the extent to which industry output is traded across state borders.
The purpose of this paper is to determine if there are inherent differences in business failure rates between 18 major U.S. cities. First, an economic model is used to control for different economic conditions. Then the model is estimated using a pooled cross-section time series approach. The advantage of this econometric approach is that it controls for autoregression errors, as well as testing for differences between the cities. The conclusion is that even after eliminating the major economic effects, there is still a difference in failure rates between the cities. Hence, the conclusions of this study are important to corporate management, commercial lenders, and retail businesses that operate in different cities.
Recent studies have found evidence suggesting that US Real GNP is trend-stationary over a long period of time. This paper presents an analysis of US real GNP over the period 1875–1993 and finds that neither simple trend-stationary nor difference-stationary specifications are adequate. We find very strong evidence against a common fixed trend-stationary representation in the periods 1875–1929 and 1950–1993. If a choice between difference-stationarity and trend-stationarity must be made, we prefer the former, as it implies less stringent assumptions. Our analysis provides a new diagnostic testing procedure that practitioners can employ when faced with conflicting results concerning trend-stationary versus difference-stationary specifications.
This paper presents a reappraisal of Gordon's empirical evidence for price inertia in the United States (R.J. Gordon, Journal of Political Economy, 90, 1087–1117). From his extended quarterly data file, updated and revised, separate short-run and long-run cyclical output regressions are estimated. In contrast to Gordon's results, however, estimation over several samples generally reveals no price inertia. Moreover, prewar and postwar periods appear to differe significantly. Also, it appears that anticipated policies do not influence output growth unless one is unconcerned about the choice of the sample period. Finally, lagged unanticipated aggregate demand shocks influence output growth, possibly with fairly long lags. Overall, then, the results are unfavorable to Gordon's earlier evidence and are more sympathetic to the Policy Ineffectiveness Proposition of Lucas, Sargent, and Wallace.
This paper investigates the role of bank branching restrictions in explaining the likelihood of state bank failure during 1925–1929 by comparing the experiences of Virginia (which allowed bank branching) and West Virginia (which did not). The results indicate that branching restrictions were associated with a higher incidence of bank failures, even after controlling for banks’ financial health, market structure, regulatory environments, and economic conditions in the markets in which the banks operated. The relationship between the lower incidence of bank failures and branching appears to come from the fact that branching allowed banks to exploit cost advantages by becoming larger and better diversified institutions, and by extending their depository base. The results are consistent with the notion that bank branching restrictions were an important cause of the bank failure experience of the late 1920s.
Although the importance and rank stability of the 100 or 200 largest industrial corporations has been the subject of several studies, no comparable studies have been conducted in banking. Questions about the position and role of the 100 largest banks are beginning to emerge as a result of the 1980 thrift institution legislation and the prospect of interstate banking in the not too distant future. Data constructed for this study reveal that 1) concentration of deposits in the 100 largest banks increased from 33.7 percent in 1925 to 51.4 percent in 1978, 2) the pattern of change and the absolute level of concentration are remarkably similar for the 100 largest industrials, 3) deposits have become increasingly concentrated within the top 100 banks, 4) mobility and turnover have been relatively stable since 1925, 5) merger activity is partly responsible for the increased concentration and observed mobility and turnover, and 6) there has been a notable increase in the geographical dispersion of banks among the top 100.
We study whether regulation, after controlling for several explanatory variables, has influenced the total factor productivity (TFP) growth of U.S. commercial banking during 1946–1995. We report: 1) that the overall impact on TFP growth of regulation has been negative; 2) that the FDIA of 1950, the CEBA of 1987, the DIA of 1982, and the DIDMCA of 1980 have been the most influential regulatory initiatives; 3) that TFP growth has been negatively related to both population growth and real GDP growth, and 4) weak evidence that technological investment has been positively related to TFP growth.
A joint study of the natural rate hypothesis and Fisher effect is conducted using an errors-in-variables model. The model accommodates both measurement errors in the survey data on price expectations and an autoregressive formulation for the same. It is estimated by various methods for the United States for the period 1953–1978. The following are the conclusions: 1.1. The results on the Phillip's relation are mixed and inconclusive.2.2. There is a strong relationship between nominal interest rates and the expected rate of inflation except during 1953–1960.
This paper deals with business cycle synchronization and clustering in Europe. It makes an attempt to answer some fundamental economic questions regarding European countries’ business cycles in the 1960–2009 time span, by breaking the period down into three sub-periods based on major institutional changes (i.e. 1960–1991, 1992–1999, 2000–2009) and other relevant criteria. In this context, various techniques have been used, including pair-wise correlation and the so-called rolling window approach, spectral analysis and k-means clustering. Our results seem to suggest a core–periphery distinction in Europe. Also, the paper argues that European countries increased their synchronization in the time period 1992–1999, while the 2000–2009 time span is, in general, characterised by decreasing synchronization and an increase in the number of clusters. Our findings deserve careful screening and thus future research on the subject would be of great interest.
External borrowing by debtors in Latin America has followed a rollercoaster pattern during the past two decades. From 1970–1981, the growth of external borrowing averaged 27% per year across the region, while from 1982–1992 foreign debt grew at a rate of 4.3% per year. This paper analyzed the factors which contributed to this pattern of borrowing, from the perspectives of both the lenders (particularly commercial banks) and the borrowers (particularly national governments). A pooled cross-section, time series model was estimated to explain the growth of foreign debt in 18 Latin American countries during the period 1970–1992. In the full period and in one or both sub-periods individually, the growth of foreign debt was significantly positively correlated with GNP and per capita GNP. Debt growth was significantly negatively correlated with the country's trade balance.
We examine the effect of monetary policy on the stock market during the period 3efore the change in Federal Reserve operating procedures in October 1979. We do this by investigating how changes in the federal funds rate target during the 1974–1979 period affected stock prices. This period was unique because the Federal Reserve controlled its operating instrument, the federal funds rate, so closely that market participants were able to discern a change in the target on the day it occurred. We find that increases (decreases) in the funds rate target lowered (raised) stock prices. This provides evidence of a liquidity effect for the period before October 1979.
Understanding the degree of error in estimates of the output gap available to policymakers in “real time” aids the formulation of monetary policy and the study of inflation behavior. For the UK, no official gap series exists, but an approximate series can be deduced from statistical releases and policymakers’ statements. On this basis, we construct a real-time UK output gap series and obtain estimates of the extent of real-time output gap mismeasurement in the 1970s and 1980s. We find that errors in real-time estimates of the gap were severe, and greater on average than in the US. The errors peaked in the 1970s, and appear to have contributed substantially to monetary policy mistakes in that decade; nevertheless, policy appears loose in the 1970s even using real-time data, so other sources of error were also important.
There is some concern among regulators that the present case-by-case approach to the determination of the appropriate rate of return for rate-making purposes should be replaced by generic rate of return methodologies. This paper presents empirical evidence that the rate of return regulation for electric utilities in the United States may be ineffective. The evidence presented suggests that requested and allowed returns on equity are not based on market cost of equity criteria and do not appear to be affected by the company specific regulatory adjustments. Generic rate of return methodologies are, therefore, likely to produce rate decisions at least as fair and reasonable as the decisions that are presently being rendered.
The full-cost pricing model predicts that firms with market power will facilitate the transmission of inflation during a cost shock. Regression analysis is used on data from the first OPEC oil crisis to test the full-cost pricing model for this time period. Market structure and the dependence on petroleum are used to predict price increases across industries. The results suggest the following. The greater the importance of petroleum products as an input to the industry, the greater was the industry's price increase, but not proportionately so, owing to a substitution effect. The coefficient on industry concentration is negative, suggesting that firms with market power did not unduly contribute to inflation during this time period.
This paper presents an econometric assessment of the Canadian Wage and Price Control Program. The assessment is specifically designed to determine whether controls have been effective in reducing the long-run inflation rate in Canada. The method of evaluation of the control program is to compare the behavior of inflation under controls to the behavior which would have occurred in the absence of controls. In addition, the paper analyzes inflation in the post-control period to test for the “catch-up” phenomenon. The results suggest that the control program exercised a permanent effect on the inflation rate.
This article reports an investigation of the behavior of stock prices in major world stock exchanges based on univariate and multivariate approaches. The evidence shows that each series of stock prices in the New York, London, Tokyo, and Frankfurt stock exchanges during the period from January 1975 through March 1990 has a unit root. The multivariate tests for unit roots, however, show that there are three unit roots in a system of stock prices in the world's four largest stock exchanges, suggesting the existance of a common stochastic trend in the system. The subsample estimation results are consistent with greater globalization of world stock markets during the 1980s.
This article explores the market response of deep discount corporate bonds to the reduction in the capital gains tax rate incorporated into the Revenue Act of 1978. Such tax change should have increased the desirability of assets acquired for capital gains potential, such as deep discount bonds. Examining a time series of prices and returns for a sample of deep discount corporate bonds and a control group of comparable duration and credit risk corporate bonds selling at or near par did indeed provide evidence of a market price reaction. Moreover, the price changes for the deep discount bonds occurred well in advance of the implementation of the tax change.
This paper develops a theoretical model of Federal Reserve policy adoption to test the hypothesis that the objectives and priorities of monetary policy changed in October 1979 when the Fed announced a reserve targeting strategy. An estimation of the implied monetary policy reaction function is performed for the two subperiods of January 1974 through September 1979 and October 1979 through May 1984. The results of structural change tests on the reaction function indicate that the objectives and priorities of monetary policy changed in October 1979.
The good macroeconomic performance of the US economy since the early 1980s has sparked interest in determining how the Fed has conducted the monetary policy. One widely shared view is that actual policy has broadly been consistent empirically with Taylor-type policy rules in which the funds rate responds to actual or expected inflation and the level of the output gap. In particular, as shown in Mehra (2001), a policy rule in which the funds rate responds to expected inflation, the bond rate, and the level of the output gap predicts actual policy well. It is shown here that the growth version of this rule in which the funds rate responds to the growth rate of the output gap instead of its level predicts actual policy almost as well. Hence, uncertainty that exists in measuring the current level of the output gap may not have mattered much in the conduct of policy, in contrast to the view focused on level policy rules.
We study output and inflation in Turkey in the last two decades using a dynamic aggregate supply and aggregate demand model with imperfect capital mobility and structural Vector Autoregressions (VAR). Empirical results show terms of trade, monetary, and balance of payments shocks figure prominently in the inflationary process. Output is mostly driven by terms of trade and supply shocks. The results highlight the importance of a credible disinflation program and structural reforms that restrain discretionary aggregate demand policies.
The close correlation between the monetary aggregates and many measures of economic activity appear to have broken down during the 1980s. Indeed, most simple correlations between the M1 definition of money and inflation are of opposite signs during the 1980s from those of the 1960–1979 time period. However, if the determinants of money demand, widely discussed during the 1950s, are taken into account, then the money to economic activity relationship remains very strong and significant during the 1980s. In this regard, monetary policy seems to have become significantly more contracyclical in recent years, and this accounts for much of the different simple correlations in the 1980s from the earlier post-World War II periods.
Models of US M1 demand have been subjected to repeated stability tests. The 1982 introduction of NOW accounts was only the final in a long series of apparent challenges for modeling. But traditional stability tests repeated over time inevitably lead to improper rejection of stability. The sup-F stability test controls for repeated testing and has been extensively studied in the econometrics literature but has been seldom applied. This paper applies the test to standard error-correction models 1948–1981. Stability cannot be rejected. Thus the apparent instabilities encountered in the 1970s can be removed from the agenda of challenges for empirical model specification.
Intraday minute-by-minute data for the entire month of October 1987, were used to investigate the linkages between the S & P 500 index futures market and the underlying cash market before and after the crash. This study used cointegration and error-correction estimation techniques, and found, with the exception of October 16 and 19, that the two markets were highly cointegrated and operated as one market for most trading days in the month of October. Further, the results show that the stock and futures markets converged immediately after the crash and that the price-discovery process originated in the futures market instead of the stock market, as the two markets are linked by index arbitrage. Finally, the evidence also suggests that the delinkage of the futures market from its underlying stock market started on Friday, October 16, implying that the crash originated in the United States and not in Asia as suggested by Roll (1988)
An examination of the market reaction to Federal Reserve policy easings from 1989 to 1992 suggests that these actions were mostly unexpected and were not viewed to be persistent. Changes in the intended trading range for the federal funds rate had their greatest impact on the near-term outlook, but those effects diminished as the investing horizon lengthened. By this interpretation, any change in longer-term interest rates was mostly owed to the consequences of lower near-term rates, not to any substantial revision to the longer-run outlook. Most significantly, the range of reaction was remarkably wide across all markets.
Following the thrift crisis, the early 1990s witnessed a resurgence in conversion activity in the thrift sector. This paper compares the recent wave of mutual-to-stock conversions to the conversion wave which occurred in 1984–1988. We found that mutual-to-stock conversions in the 1990s were driven by different financial circumstances than those of the 1980s. Specifically, whereas mutuals in the 1980s were driven to convert as part of a general program to increase loanable funds for the purpose of increasing investment returns, conversions in the 1990s were driven more by the need to raise equity capital.
We survey three countries — New Zealand, Canada, and the United Kingdom—that have announced inflation targets. Although each country has attained its inflation goals thus far, bond yields suggest that long-term inflation expectations generally have exceeded the targets, as have short-term survey inflation expectations. The results of a simulation exercise suggest that the cost of inflation reduction was substantial in New Zealand. So far, a lack of inflationary pressures of nonmonetary origin has relieved the Banks of Canada and England of any need to implement tight monetary policy in pursuit of their inflation targets.
The present paper estimates Total Factor Productivity (TFP) change for the Russian economy in the time period 1994–2006. It also calculates potential output and output gap using a Cobb-Douglas (CD) production function and a Hodrick–Prescott filter, as well as the Non-Accelerating Wage Rate of Unemployment (NAWRU), and the Non-Accelerating Inflation Rate of Capacity Utilization (NAICU) concepts. The results show that despite the severe economic crisis TFP has contributed to strong economic growth in the country after 1998, while the output gap, although negative between 1999 and 2003, has recently become positive. The relationship between output gap and inflation is examined and the results suggest that there is a strong (causal) relationship between output gap and inflation in the Russian economy.
To what extent do managers account for rivals’ advertising responses? We employ static and dynamic panel techniques to derive estimates that are used to test whether the Dorfman-Steiner optimality condition held in the UK multipurpose vehicle (MPV) market between 1995 and 2002. We show that omitting the response of own advertising to rivals’ advertising leads to substantially lower optimal levels of advertising expenditure compatible with non-retaliation strategies. When recognition of interdependence by the members of the oligopoly is taken into account, the Dorfman-Steiner condition holds. To complete the analysis of the advertising-sales relationship we also examine advertising determinants and find that rival advertising is also a significant determinant of own firm advertising behaviour.
The Vancouver Composite Index fell by over 25% in less than six weeks during spring 1997 as the junior mining sector collapsed. We argue that this market collapse was triggered by the failure of Bre-X Minerals when that company’s Indonesian claims, previously believed to contain the world’s largest gold deposit, were shown to be pure fraud. Our event study, based on market returns for the Vancouver Composite Index and for a portfolio of 59 gold stocks, shows the effects of the Bre-X scandal to be both sizeable and significant. There is also some evidence that smaller exploration companies were hardest hit.
This article examines the real convergence hypothesis in 43 African countries (both towards an African average and the U.S. economy) by means of using time series techniques. When applying unit root tests allowing for a structural break, we only find evidence of conditional convergence towards the U.S. economy for the case of Seychelles. When the catch-up hypothesis is analyzed, we find more evidence of convergence both towards the African average (Benin, Cameroon, Cape Verde, Djibouti, Egypt, Ghana, Kenya, Mali, Uganda and Zimbabwe) and towards the U.S. economy (Cape Verde, Egypt, Mauritius, Seychelles and Tunisia).
A recent study of Lucas' natural rate hypothesis relies on a false normality assumption. Thus, the inferences drawn from the study are statistically invalid. We use a nonparametric bootstrap procedure to test the hypothesis. The results of the bootstrap analysis support the hypothesis and demonstrate that some of the inferences drawn in the previous study are wrong.
This article examines the responsiveness of real output to the variability of inflation and aggregate demand. In the manner of Lucas (1973), estimates of the output-inflation tradeoff are computed for a large sample of countries. This measure is then correlated with the variances of the inflation rate and the growth rate in nominal income. Because differences in inflation variance (and hence the tradeoff) are viewed as the outcomes of differences in demand variance, correlations between these two variables are also reported. Cross-time and cross-country results provide a good measure of support for Lucas and the notion that attempts to exploit the tradeoff weaken it.
The objective of this article is to provide a solution to the capital deepening (optimal economic life) problem encountered in capital budgeting under conditions of uncertainty. Specifically, we address the capital deepening problem where project cash flows, the terminal value of the asset, and the opportunity cost of funds are all random variables. In addition, we consider the impact of risk averse behavior on the solution to the problem, much as Sandmo has done with respect to the capital widening decision.
This study evaluates the forecasting ability of implied and econometric forecasting models under statistical and financial evaluation measures. The econometric models outperform the implied model on all criteria. Overall, the exponentially weighted moving average model is the best forecasting model since it produces hedged portfolios with the lowest variance. It also has the ability to time market fluctuations while maintaining minimal capital allocation, and thus enhances profitability when employed as a tool for trading strategies. Our empirical results suggest that firms should explore the use of dynamic statistical forecasting models rather than relying on the implied model.
This paper examines abnormal returns and changes in risk for transportation firms immediately around the Iraqi invasion of Kuwait. Further, it tests whether the variation in the abnormal returns can be explained cross-sectionally with standard financial and industry-descriptive variables. The results indicate that transportation firms suffered a −2.09% abnormal return and increases in unsystematic risk. The cross sectional regression explains 31% of the variation in the abnormal returns, with firm size, liquidity, leverage, percentage of sales to the Department of Defense, and dummy variables denoting firms producing recreational vehicles or owning oil-producing subsidiaries contributing significantly to the regression.
Previous theoretical literature on malfeasance provides the basis for a theoretical model of absenteeism that incorporates both labor demand and supply side influences. This paper uses this theoretical framework as the basis for an analysis of the link between absenteeism, aggregate production and unemployment, using monthly US data for 1979–93. Tests are carried out for unit roots at seasonal and nonseasonal frequencies. Cointegration tests suggest a long run relationship consistent with the theoretical model.
This study, apparently the first of its kind, looks at the relation between unemployment and absenteeism. It is hypothesized that high unemployment is associated with low absenteeism for two reasons: (1) when unemployment is high, layoffs are high and workers laid off are more likely to have been absence-prone than retained workers, and (2) when unemployment is high, currently employed workers, fearing job loss, will avoid absences to decrease their chances of becoming unemployed. Data from the Panel Study of Income Dynamics support both hypotheses.
How did investors holding assets backed by subprime residential mortgages react when Treasury Secretary Paulson announced the so-called "teaser freezer" plan to modify mortgages in December 2007? We apply event-study methodology to the ABX index, the only source of daily securities prices in subprime mortgage markets. Our results show that investors initially perceived that the Paulson Plan would improve conditions in subprime housing markets. Specifically, those investors who held the riskiest securities backed by subprime residential housing benefited the most from the Paulson Plan. These findings do not extend to the longer term, suggesting that any positive effects from Paulson Plan loan modifications were overwhelmed by the continued deterioration in housing markets. ; WP 10-06 replaces an earlier version listed as WP 09-7
This note provides new information regarding the market reaction toward electric utility stocks that resulted both from the accident at Three Mile Island, and the events predating and postdating the accident. The results suggest that some of the market reaction heretofore ascribed to the accident resulted instead from regulatory activity occurring before the accident. We also provide results suggesting that regulatory activity by the Pennsylvania Public Utilities Commission in the wake of the accident served to offset a majority of the increased systematic risk resulting from the accident. Our results imply that previously reported lingering effects of the accident at Three Mile Island may be regulatory effects from events predating the accident.
This article examines the stability of alpha and beta in the market model resulting from the Three Mile Island accident. The data consist of weekly returns on 70 utility stocks. Both a dummy variable test and the Fisher F statistics are utilized to test for stability. In addition to the individual stocks, the 70 utilities are partitioned into two portfolios for the test—nuclear and non-nuclear. The main conclusions are 1) for the non-nuclear portfolio, no change is observed; 2) for the nuclear portfolio, alpha fell and beta rose—the impact, however, is transitory and insignificant; and 3) the behavior of the residuals suggests that the result is consistent with an efficient market.
This study investigates the impact of venture capital (VC), ownership structure, and accounting standards on initial public offering (IPO) underpricing in Germany. Using data from Germany's Neuer Markt (NM), we test two key hypotheses regarding IPO underpricing; first, whether VC ownership and higher levels of post-IPO insider ownership result in lower underpricing, and second, whether additional information disclosure results in lower underpricing. Besides the standard underpricing measure, we also use a modified underpricing measure to better assess true entrepreneurial wealth loss. Robust findings indicate that none of these factors are significant in lowering IPO underpricing, which suggests the importance of examining standard theories within alternative institutional environments. Results are consistent with the stylized fact that Germany's NM firms had relatively minimal use of VC financing, which may point to not only a weaker role for venture capitalists in Germany but fewer incentives to reduce information asymmetry arising from outside ownership.
This study compares five forecasting models in predicting seven accounting variable for a firm in the rubber and plastics industry. The five models consist of an econometric model (OLS), two time series models (univariate, and multivariate), and two combined models (combinations of the econometric model and one of the time series models). Seventy-six monthly observations were used to estimate the models. Each estimated model was used to forecast each of the sever variables over a 14-month period. There forecasts were then tested for accuracy. The test involves a comparison of Theil's "inequality coefficient." The multivariate time series model and one composite model, i.e., the OLS-multivariate time series model, performed well. The multivariate time series model, however, achieved better results than the other models.
This paper proposes a generalized CVP model including both demand and average cost functions and incorporating very general allowance for stochastic elements. The relationship between expected profit and break-even probability in the general model is developed. A decision-making criterion for the model is suggested that integrates economic and accounting approaches to decision making under uncertainty. Finally, an example of application of the generalized model is given, using hypothetical data.