Knowledge that Transforms

Historically, the effect of interstate banking on the risk and profitability of commercial banks has been a controversial issue. Using capital market data and an event study methodology, the author tests the effects of interstate banking. The findings of this paper reject the hypothesis that interstate banking has no effect on banks' risk and profitability. The evidence supports the argument that interstate banking benefits commercial banks in terms of increased profitability, but the increase in profitability is also associated with significant increases in the banks' exposure to market risk.

The authors obtain expressions for the restricted least squares estimator and its covariance matrix in the classical regression model when the matrix of regressors is not necessarily of full rank. The standard expressions for the restricted least squares estimator are not usable in the short rank case because they rely on the unrestricted estimator. But, in the presence of restrictions, the restricted least squares estimator may be computable even if the unrestricted estimator is not. The authors' derivation produces some additional, useful algebraic results for least squares computation.

We analyze the degree of policy convergence of EMS member countries relative to that of some non-EMS countries. Interestingly, we find convergence for the nominal and real exchange rates and money supplies of the EMS members but not for the non-EMS countries. We also provide some evidence to support the "German leadership hypothesis" in the context of intra-EMS monetary policy convergence.

Almost all labor-supply models are estimated under the assumption that workers are free to choose their hours. However, theory, casual empiricism, and survey data suggest that many workers are not free to vary the hours within a job. Consequently, labor-supply estimates based on actual hours of work may be biased. Using Canadian data on desired hours of work, the authors find that using actual hours causes labor-supply estimates to be biased upwards.

Numerous studies have estimated hedonic price functions for durable goods. In this paper we apply the methodology to breakfast cereals, a nondurable good. We employ maximum likelihood to estimate the hedonic price functions using data from three large supermarkets. The price function depends on characteristics that provide tastes, nutrition and convenience to consumers, and the estimates yield insights into pricing policies, consumer preferences and consumer use of information.

Ky-hyang Yuhn, Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis, The Review of Economics and Statistics, Vol. 73, No. 2 (May, 1991), pp. 340-346

Jean-Claude Bosch, E. Woodrow Eckard, Jr., The Profitability of Price Fixing: Evidence From Stock Market Reaction to Federal Indictments, The Review of Economics and Statistics, Vol. 73, No. 2 (May, 1991), pp. 309-317

A central question in industrial organization is why profit rates differ so dramatically across firms and industries. One of the many explanations offered for this phenomenon is the failure of conventional accounting methods to adjust for intangible capital stocks, i.e., it is argued that profit rates do not differ dramatically when capital stocks are correctly calculated to include intangible R&D and advertising capital. To test this hypothesis individual advertising capital stocks are calculated for firms in the toys, distilled beverages, cosmetics, and pharmaceuticals industries, and R&D stocks are calculated for the pharmaceuticals firms. The adjustments do not eliminate the wide dispersion in profit rates.

Commodity prices often provide signals about the future direction of the economy, especially inflation. It has been argued, therefore, that the information in commodity prices should be used in formulating monetary policy. This paper investigates whether a systematic monetary policy response to contemporaneous commodity price shocks would have helped stabilize the postwar U.S. economy. The authors' findings suggest that responding to unexpected commodity price movements would have lowered the average rate of inflation and reduced its variability, while the path of real growth would be relatively unchanged.

Two contributions are made toward understanding variation in marginal value of safety estimates from labor-market studies. First, marginal safety values are obtained from direct measurement of workers' perceived job-related accidental death rates. Second, wage-risk relationships are explored for several categories of workers using the hedonic price method. Statistically significant relationships found for unionized, blue collar, and blue collar-unionized workers imply marginal safety values of 1.5, 1.18, and 2.10 million dollars, respectively. Further results in this paper suggest that alternative methods are needed to measure marginal safety values for workers in other categories.