The Journal of Economics

Volume XXI, No. 1, 1995

DO ANNOUNCED MONETARY TARGETS ENHANCE FEDERAL RESERVE CREDIBILITY?

Dennis Andrew Petruska

Since 1978 the Federal Reserve has been announcing target ranges for the rate of monetary growth for several monetary aggregates. This paper examines whether the monetary growth targets for the M1 and M2 definitions of money enhance Fed credibility with major money market participants. Money Market Services, Inc. surveys securities dealers on their projections of the value of the money supply. Specification tests are performed to determine if the money market participants surveyed employ the information on the announced target ranges when they formulate their expectations. If the tests indicate that the value of the announced target is an important part of the information set that money market participants employ in formulating their expectations. That is, that the announced targets enhance the creditability of the Federal Reserve with major money market participants. (E52 and E58)


THE MONETARY MODEL OF THE BALANCE OF PAYMENTS: APPLICATIONS TO TAIWAN

Raouf S. Hanna and Michael G. Vogt

This paper estimates a monetary model of the balance of payments of Taiwan with quarterly data from 1966-1978. In contrast to previous studies, it estimates two forms of the model: with and without a central bank reaction function that assumes sterilization. The estimated coefficients of the models are compared to the estimates of previous studies, including studies that estimate income and interest rate elasticities of demand for money in Taiwan by the conventional approach. The results of the empirical work indicate that although the offset coefficients equal about -1.00, the Taiwan Central Bank attempts to sterilize all of the effects on the money supply of its intervention in the foreign exchange market. It is doubtful that such a policy is successful, and it is likely to lead to large fluctuations in international reserves. (f3)


ADJUSTMENT TO EQUILIBRIUM UNEMPLOYMENT IN LOCAL LABOR MARKETS

Ronald L. Moomaw

Unemployment rates for counties or other substate areas tend to be highly correlated with past unemployment rates. They persist over time. This study shows that this persistence is not an indication of a slow adjustment to equilibrium. Rather the persistence exists because the underlying determinants of county unemployment rates change but slowly over time. Because unemployment rates return quickly to their equilibrium values, regional policies aimed at boosting local demand are unlikely to succeed in reducing unemployment. Supply-side regional policies aimed at reducing equilibrium unemployment rates might have a long-term effect.


CONSTITUENT INTEREST AND SENATE VOTING BEHAVIOR: EVIDENCE FROM THE THOMAS CONFIRMATION AND THE GULF WAR RESOLUTION

Michael A. Zimmer

This study contributes to a body of literature concerning determinants of congressional voting behavior. The model hypothesizes that representatives choose their votes to maximize expected utility, which is a function of their preferences as well as those of their constituents. Estimates are based on 1991 Senate data from the confirmation of Clarence Thomas and the Gulf War resolution. Results provide evidence in support of the constituent preference hypothesis. Furthermore, evidence indicates that senators who deviated from their predicted votes in supporting the war resolution were more prone to subsequently reject the confirmation of Mr. Thomas.


AN ECONOMIC MODEL OF ENTREPRENEURIAL DECISIONS

Joseph G. Eisenhauer

This paper integrates three major traditions of economic thought into a model of entrepreneurial decision making. Insights into the behavior of individuals and the operation of markets are derived. Because it utilizes familiar microeconomic theory, the model is also suitable for use as a teaching devise. (M13,J24,B20)


THE INVESTMENT PERFORMANCE OF COMMON STOCKS IN RELATION TO THEIR PRICE-EARNINGS AND PRICE-EARNINGS-GROWTH RATIOS

R. Stafford Johnson

In this paper the relationship between the investment performances of equity securities and their price-earnings (P/e) and price-earnings to growth rate (PEG) ratios are examined using a back testing approach similar to the one employed by Base in a 1977 paper and Johnson, Fiore, and Zuber in a 1989 paper. From the tests on P/e portfolios we conclude that, for the period, there were some moderate excess rates of return earned by selecting stocks based on their price-earnings ratios, but that these excess rates were not obtained from investing in the popular low price-earnings stocks. From the PEG analysis we found that there were some moderate abnormal rates of return earned by selecting stocks based on their PEG ratios. (G14)


DOES MANAGEMENT MATTER FOR CONGLOMERATE MERGERS?

Michael J. Bischof

This paper examines the motivation that managers of acquiring firms show with respect to conglomerate merger behavior. The two existing theoretical motivations, the 'Corporate Control' theory and the 'Life-Cycle' theory, are contrasted and subsequently tested with a sample of U.S. merger cases from the 1980's. The results generally support the 'Life Cycle' model. (G34, L20)


THE EFFECTS OF DIFFERENT TYPES OF MERGERS ON UNION AND NON-UNION WAGES IN THE UNITED STATES

Ali Hekmat

Pooled individual and industry information was used to measure the wage effects of different types of mergers in 1980's. The results from this study showed that union wages in industries consisting of horizontally or vertically merged companies were not significantly higher than union wages in industries without mergers. Conversely, non-union wages were significantly higher in industries where horizontal or vertical mergers took place. These results also showed that the wages of union workers were significantly lower in industries composed of product extension or conglomerate mergers as compared to wages in industries without mergers. Furthermore, the wages of non-union workers were not influenced by product extension or conglomerate merged employers. (J31, J51)


THE EFFECT OF UNIONIZATION ON THE PROFITABILITY: THE U.S. MANUFACTURING FIRMS, 1986-88

Nebiye Karahasan

The impact of unionization on firm profitability is investigated regarding the alternative econometric techniques, the alternative definitions of profit and the alternative measures of unionization. Despite differences in methodology, the findings are consistent with most previous studies in supporting the hypothesis of a negative union effect on profitability. The results indicate that the size of the negative union effect on profitability differs depending on the measures of profitability and the alternative measures of unionization. (J50,J51)


THE THEORY OF LIST PRICE

Robert Scott and Edward Sattler

This paper presents a model of a firm with a list price and some negotiated sales. Consumers with demand prices higher than list will purchase without negotiating. A proportion (v) of those with demand prices below will be turned off, and the firm acts as a first degree price discriminator with the rest. The optimal price varies with v, marginal cost, and the firm's cost of negotiating. A lesser v raises price and causes more negotiated sales. If v or negotiation costs are too large the firm will cease to be a price discriminator. (D42, D43, L13)


EXECUTIVE COMPENSATION: PERFORMANCE, COMPLEXITY OR SUPPLY AND DEMAND?

Maneesh K. Sharma and Robert Fok

In this study we shed new light on the structure of executive compensations. Previous studies on this subject have found weak relationships between market performance variables and executive compensations. In this study, we respecify the traditional models to include effects of complexity of firms and a proxy variable to determine the supply-demand structure of the industry. With this specification, we found that both performance, measured by return on equity(ROE), and the structure of the market, measured by price/book ratio, significantly influence managerial compensations. The same was not true for the complexity variable. (G30,G32)


COMPETITION AND THE LEVEL OF EXPENDITURES: K THROUGH 12 PUBLIC SCHOOLS IN MICHIGAN

Alan J. Brokaw, James R. Gale and Thomas E. Merz

This study investigates the effect of private school competition on per pupil expenditure levels in 271 Michigan public school districts. A single equation estimation procedure is used to capture the effects of private school competition, wealth, ability to pay and state aid on per pupil expenditure levels across school districts. Results indicate the effect of private school competition is small, but statistically significant. (H70, I21)


OVERACHIEVERS AT AN OPEN ADMISSIONS UNIVERSITY

Richard H. Bee and Yih-Wu Liu

The purpose of this article is to differentiate between academically successful and unsuccessful high risk adult learners enrolled at an open admission university. Factor analysis and hypothesis testing statistical procedures were applied to a data set of 278 individuals to analyze the difficult choices made between the social question of student accessibility and the allocation of scarce economic resources. (I21, J24)