Using data on stock price and dividends, and on long-term and short-term interest rates, the authors test an important implication of present value models--that current value is a linear function of the conditional expectations of the next-period value and the current determining variable . This implication, combined with rational expectations, is strongly rejected. Combined with adaptive expectations, it is accepted. The latter model can also explain the observed negative relation between the rate of return and stock price. Thus the rational expectations assumption should be used with caution; the adaptive expectations assumption may be useful in econometric practice. Copyright 1989 by MIT Press.(This abstract was borrowed from another version of this item.)

Are financial ratios an observed quantity that is influenced by firms or capital and product markets? The current body of empirical research concentrates on the time series behavior of such ratios when corporate distress is revealed. In this study the time series properties of joint-concern firms is examined. It is shown that for six financial ratios under examination, the data are consistent with partial adjustment process with finite adjustment durations. These durations are estimated through a methodology that does not require an a priori knowledge of the level toward which ratios are adjusted. Furthermore, the order of the six discerned durations is consistent with common wisdom.

The informational content of different forecasts can be compared by regressing the actual change in a variable to be forecasted on forecasts of the change. We use the procedure in Fair and Shiller (1987) to examine the informational content of three sets of ex ant. forecasts: the American Statistical Association and National Bureau of Economic Research Survey (ASA), Data Resources Incorporated (DRI), and Wharton Economic Forecasting Associates (UEFA). We compare these forecasts to each other and to quasi ex ante forecasts generated from a vector autoregressive model, an autoregressive components model, and a large-scale structural model (the Fair model).

Ordered-probit analyses of National Federation of Independent Business survey data show that individual firms generally conform to the stock adjustment model of inventory investment, with the predicted response more likely when inventories are perceived as excessive than when deficient. Contrary to inferences about slow adjustment speeds from aggregate data, inventory adjustments by individual firms do not tend to take more than three months to complete. There is no evidence that price is used to achieve desired inventory targets, but prices are sticky in that changes set in motion one quarter tend to continue into the next quarter.

Stephen C. Farber, Robert J. Newman, Regional Wage Differentials and the Spatial Convergence of Worker Characteristic Prices, The Review of Economics and Statistics, Vol. 71, No. 2 (May, 1989), pp. 224-231

Subal C. Kumbhakar, Basudeb Biswas, DeeVon Bailey, A Study of Economic Efficiency of Utah Dairy Farmers: A System Approach, The Review of Economics and Statistics, Vol. 71, No. 4 (Nov., 1989), pp. 595-604

Based on the decision to file an escape clause petition by a firm, a Poisson regression model of the macroeconomic determinants of the total number of these petitions yearly is developed and estimated. The Poisson specification conforms to the fact that the number of escape clause petitions is a non-negative integer with a skewed probability distribution. In addition, the number of potential petitioners is controlled for in the specification. The empirical results suggest that both domestic and international factors affect the decision to file an escape clause petition. The legal environment is found to be a determinant as well.

Elchanan Cohn, Sherrie L. W. Rhine, Maria C. Santos, Institutions of Higher Education as Multi-Product Firms: Economies of Scale and Scope, The Review of Economics and Statistics, Vol. 71, No. 2 (May, 1989), pp. 284-290

To what extent has the increased supply by government of certain union-like services reduced the demand for union membership and thereby contributed to the decline in trade union density? The existing empirical evidence is meager and conflicting. The puropse of our paper is to reexamine the government substitution hypothesis, specifically with respect to the relationship between government welfare spending and union density. We test the hypothesis with time-series data using three alternative models of union growth. The advantage of this approach is that it will permit an assessment of how sensitive the results are to both specification and sample period changes. In all, we find the time-series evidence of a negative welfare effect on union density to be mixed.