A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for United States time series 1981-1986: versions using real interest rate data. The results yield a metric to judge the relative importance of real dividend growth, measured real discount rates and unexplained factors in determining the dividend-price ratio.

The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors

A dividend-ratio model is introduced here that makes the log of the dividend-price ratio on a stock linear in optimallyforecastfuture one-period real discount rates andfuture one-period growth rates of real dividends. If expost discount rates are observable, this model can be tested by using vector autoregressive methods. Four versions of the linearized model, differing in the measure of discount rates, are tested for U.S. time series 1871-1986 and 1926-1986: a version that imposes constant real discount rates, and versions that measure discount rates from real interest rate data, aggregate real consumption data, and return variance data. The results yield a metric to judge the relatve importance of real dividend growth, measured real discount rates, and unexplained factors in determining the dividend-price ratio.

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Part 1 Empirical evidence on money and output: introduction some basic correlations estimating the effect of money on output summary. Part 2 Money in a general equilibrium framework: introduction the Tobin effect money in the utility function summary appendix - the MIU approximation problems. Part 3 Money and transactions: introduction shopping-time models cash-in-advance models other approaches summary appendix - the CIA approximation problems. Part 4 Money and public finance: introduction bugdet accounting equilibrium seigniorage optimal taxation and seigniorage Friedman's rule revisited nonindexed tax systems problems. Part 5 Money and output in the short run: introduction flexible prices sticky prices and wages a framework for monetary analysis inflation persistence summary appendix problems. Part 6 Money and the open economy: introduction the Obstfeld-Rogoff two-country model policy coordination the small open economy summary appendix problems. Part 7 The credit channel of monetary policy: introduction imperfect information in credit markets macroeconomic implications does credit matter? summary. Part 8 Discretionary policy and time inconsistency: introduction inflation under discretionary policy solutions to the inflation bias is the inflation bias important? do central banking institutions matter? lessons and conclusions problems. Part 9 Monetary-policy operating procedures: introduction from instruments to goals the instrument-choice problem operating procedures and policy measures problems. Part 10 Interest rates and monetary policy: introduction interest-rate rule and the price level interest rate policies in general equilibrium models the term structure of interest rates a model for policy analysis summary problems.

Monetary Theory and Policy

Yes. We construct a measure of aggregate technology change, controlling for varying utilization of capital and labor, non- constant returns and imperfect competition, and aggregation effects. On impact, when technology improves, input use and non- residential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. We discuss what models could be consistent with this evidence. For example, standard one-sector real-business-cycle models are not, since they generally predict that technology improvements are expansionary, with inputs and (especially) output rising immediately. However, the evidence is consistent with simple sticky-price models, which predict the results we find: When technology improves, input use and investment demand generally fall in the short run, and output itself may also fall.

/pdf/are-technology-improvements-contractionary-48p3eq6gbe.pdf

Are Technology Improvements Contractionary

A number of studies (e.g., Robert J. Shiller, 1981; Olivier J. Blanchard and Mark Watson, 1982; Kenneth D. West, 1988) have argued that dividend and stock price data are not consistent with the "market fundamentals" hypothesis, in which prices are given by the present discounted values of expected dividends. These results have often been construed as evidence for the existence of bubbles or fads. (Related arguments have been made with respect to gold, bonds, and foreign exchange). A major problem with such arguments (e.g., James Hamilton and Charles Whiteman, 1985) is that apparent evidence for bubbles can be reinterpreted in terms of market fundamentals that are unobserved by the researcher. Behzad T. Diba and Herschel I. Grossman (1984, 1988b) and Hamilton and Whiteman (1985) have recommended the alternative strategy of testing for rational bubbles by investigating the stationarity properties of asset prices and observable fundamentals.1 In essence, the argument for equities is that if stock prices are not more explosive than dividends then it can be concluded that rational bubbles are not present, since they would generate an explosive component to stock prices.2 Using unit-root tests, autocorrelation patterns, and cointegration tests to implement this procedure, Diba and Grossman (1988b p. 529) state that "the analysis supports the conclusion that stock prices do not contain explosive rational bubbles." This paper shows that the above battery of tests is in fact unable to detect an important class of rational bubbles. The point is demonstrated by constructing rational bubbles that appear to be stationary when unitroot tests are applied, even though they are explosive in the relevant sense. Simulations show that, when such bubbles are present, stock prices will not appear to be more explosive than dividends on the basis of these tests, even though the bubbles are substantial in magnitude and volatility. The presence of rational bubbles in actual stock prices thus remains an open question.

Pitfalls in Testing for Explosive Bubbles in Asset Prices

http://media.syracuse.com/cny/other/GabrieletalRegionalScienceandUrbanEconomics2003StateQoL.pdf

Compensating differentials and evolution in the quality-of-life among U.S. states

This paper provides the first application of the compensating differential paradigm to the evaluation of the extent and sources of evolution in state quality-of-life. The compensating differentials approach derives from early work by Rosen (1979) and Roback (1982), who showed how to extract quality-of-life measures from compensating differentials in wages and house prices. To date, however, empirical analysis of compensating differentials generally has been cross-sectional in nature and provides little insight as to the extent or determinants of changes over time in the quality of life. In this paper, we provide estimates of the evolution in quality-of-life rankings for U.S. states over the 1981- 1990 period. Our findings indicate that the quality-of-life rankings are relatively stable across model specifications and over time for certain poorly ranked, densely-populated Midwestern and eastern industrial states and also for other high quality-of-life rural western states. However, we find substantial deterioration in quality-of-life rankings in some states that experienced rapid population growth during the decade. Reduced spending on infrastructure, increased traffic congestion, and air pollution account for the bulk of the deterioration in quality-of-life in these states. As would be expected, improvement in those same factors is shown to result in marked ascension in quality-of-life ranks among other states.

Compensating Differentials and Evolution in the Quality-of-Life Among U.S. States

This paper summarizes the literature on estimation and testing of present value relations. Twenty-four test statistics are illustrated and compared in a simulation experiment utilizing six different data generation models. The test statistics are calculated for actual Standard and Poor's 500 annual stock price and dividend data, and the results are interpreted in light of the Monte Carlo experiments.

Empirical assessment of present value relations

Over the typical intervals of time studied in economic analysis, the flow of capital services is not a fixed proportion of the capital stock Much of the short-run variation in capital services comes from the duration of operations This paper presents new estimates of the workweek of capital from the Census Bureau' Survey of Plant Capacity (SPC), both for our own analytical use and to make workweek data more widely available to other researchers The paper uses these workweek estimates to reconsider various results in the literature on capital utilization and productivity growth

The Workweek of Capital and Capital Utilization in Manufacturing

Recent years have witnessed widespread media attention and policy debate regarding the causes and consequences of population flight from California. While some analysts' reports link the reversal in California migration flows to cyclical swings in the state economy, other commentaries focus on alleged deterioration in California amenities and quality of life. This paper employs a logistic migration model to evaluate the role of economic and other location-specific effects in the determination of California domestic migration flows. The model is estimated using data for each of the 50 U.S. states for the 1981-1992 period. Various simulations of the model for the California case are then undertaken to indicate the effect of evolution in economic conditions and other location-specific effects on California net migration. A baseline simulation predicated on a reversion in the state's unemployment rate, wage, and house price differentials to average levels observed in the 1981-1992 period suggests a substantial slowing in California out-migration. Further, deterioration in California location-specific fixed effects, as estimated from the otherwise unexplained portion of the acceleration of out-migration in the more recent 1989-1992 period, serves to dampen the simulated improvement in California net migration only modestly. Overall, our research findings suggest that a large part of the unprecedented and sizable domestic out-migration from California is temporary, to be largely reversed in the context of a rebound in the California economy.

Joe P. Mattey

Papers

Compensating differentials and evolution in the quality-of-life among U.S. states

Compensating Differentials and Evolution in the Quality-of-Life Among U.S. States

Empirical assessment of present value relations

The Workweek of Capital and Capital Utilization in Manufacturing

The demise of California reconsidered: interstate migration over the economic cycle