The volatility of interest rates and the deregulation of the mortgage lending sector have meant that many homeowners also own mortgages at terms more favorable than current interest rates. This paper presents a model of residential mobility decisions and an empirical analysis that evaluates the importance of the ownership of these mortgages upon the mobility of homeowners. The results, based upon proportional and nonproportional hazard models, indicate that these effects are quite large. The empirical analysis distinguishes between different regulatory regimes that govern the assumption of existing mortgages, and indicates the implications of these findings for the pricing and valuation of mortgage-backed securities.

Ralph M. Bradburd, Richard E. Caves, Transaction-Cost Influences on the Adjustment of Industries' Prices and Outputs, The Review of Economics and Statistics, Vol. 69, No. 4 (Nov., 1987), pp. 575-583

Previous research has found that union standard rate policies lower the dispersion of union wages and that unions indirectly raise nonunion wage levels, as firms weigh the probability of unionizing and wage costs. These two findings imply that unions lower the dispersion of nonunion wages since, for a given payroll, a nonunion firm can achieve the greatest reduction in the probability of unionism by giving raises to those who would benefit most from a union. This hypothesis is confirmed on Current Population Survey data: taking into account the endogeneity of unionism, ceteris paribus, nonunion wage dispersion is lower in more highly unionized industries.

The results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets. The auth ors review the relevant theory and test this hypothesis with a large sample of firm data. The results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on Dale Jorgenson's neoclassical model, w ith a CAPM specification for the firm's cost of capital, and a sales- accelerator model. The analysis, therefore, links recent theoretical work on capital markets to long-standing empirical debates in the inv estment literature.

The paper first reconciles a variety of specification tests for partial adjustment money demand models and points out a fundamental identification problem which makes it impossible to distinguish between the real and nominal partial adjustment models if inflation has an independent effect on the long-run demand for money. The paper also finds that empirical estimates of simple partial adjustment models have some undesirable properties and then considers the shortand long-run effects of inflation in a more general distributed lag model.

Arnold Zellner and Franz Palm (1974) show that comparing the actual with the implied stochastic process es generating the endogenous variables in a system of dynamic structu ral equations provides important information about the system's corre ct specification. The authors apply their methodology to structural e xchange-rate models. They find that the log of the bilateral exchange rate is generally well approximated by a random-walk model. Thus, th e stochastic processes generating the exogenous variables should also be random-walk models, which in not borne out by our empirical resul ts. They suggest a reconciliation of their results based on a decompo sition technique developed by Stephen Beveridge and Charles R. Nelson (1981).

Varouj A. Aivazian, Jeffrey L. Callen, M. W. Luke Chan, Dean C. Mountain, Economies of Scale Versus Technological Change in the Natural Gas Transmission Industry, The Review of Economics and Statistics, Vol. 69, No. 3 (Aug., 1987), pp. 556-561

Measurement error may be an important source of bias in studies using self-reported health indicators to explain work behavior. As a test of measurement error, the tetrachoric correlation coefficient is used to examine the relationship between two alternative measures of arthritis, a standard self-reported measure and a simulated clinical measure. While the two measures are highly correlated, measurement error is found. Regression analysis demonstrates that it varies systematically across different socioeconomic groups. In particular, individuals who are not working tend to report their health incorrectly, perhaps owing to social pressure to justify not having a job. Coauthors are Richard V. Burkhauser, Jean M. Mitchell, and Theodore P. Pincus.