Most current empirical work finds no evidence that money shocks lower interest rates. The authors show that these nonresults are mainly due to a failure to model the conditional heteroskedasticity of interest rates. Autoregressive conditional heteroskedasiticity (ARCH) models find a significant liquidity effect where ordinary least squares (OLS) models do not. The existence of a liquidity effect is found using different models and sample periods when ARCH models are used in estimation but never when OLS is employed.

We analyze how ownership concentration affects firm value and control of public companies by examining effects of deaths of inside blockholders. We find shareholder wealth increases, ownership concentration falls, and extensive corporate control activity ensues. Share price responses are related to the deceased's equity stake. Control group holdings fall for two‐thirds of the firms due to either the estate's dispersal or inheritors selling stock. A majority of firms become targets of control bids: three‐quarters of bids are successful; one‐third are hostile. Our evidence is broadly consistent with Stulz's (1988) model of the relationship between ownership concentration and firm value.

A limit theory for Wald tests of Granger causality in levels vector autoregressions (VAR's) and error correction models (ECM's) is developed, which allows for stochastic trends and cointegration. Earlier work is extended to the general case, thereby characterizing when these Wald tests are asymptotically valid as 'x'(superscript 2) criteria. Our results for inference from unrestricted levels VAR are not encouraging: the limit theory often involves nuisance parameters and nonstandard distributions, a situation offering no satisfactory statistical basis for these tests. Granger causality tests in ECM's also suffer from nuisance parameter dependencies asymptotically and in some cases nonstandard limit theory. Both these results are somewhat surprising in light of earlier research.

New developments in development in the 1980's contravened several widely held tenets about how labor markets and other institutional arrangements affect the performance of low-income countries. If you believe that massive urban-rural earnings differentials due to bias plague Developia, new evidence will ease your concerns: urban workers suffered mightily in the lost-growth decade in many countries. If you fear that government or union interventions in labor markets impede stabilization or structural adjustment, think again: countries with diverse interventions reduced real wages under the gun of economic crisis. If you believe that clear property rules and privatization are necessary for rational economic behavior and transition to a market economy, the decade's growth success, China, should challenge your priors. If you fear that industrial policy is the road to disaster, state interventions in Taiwan, Korea, and Singapore tell a different story. Finally, if you think that military dictatorships that suppress labor necessarily produce high income inequality, the income distributions of Korea and Taiwan should give you pause. These emerging patterns and facts run so counter to conventional views on development as to raise major doubts about the depth of our knowledge and the extent to which narrow perfect competition or political economy perspectives illuminate the growth process.

We compare the geographic location of patent citations with that of the cited patents, as evidence of the extent to which knowledge spillovers are geographically localized. We find that citations to domestic patents are more likely to be domestic, and more likely to come from the same state and SMSA as the cited patents, compared with a “control frequency” reflecting the pre-existing concentration of related research activity. These effects are particularly significant at the local (SMSA) level. Localization fades over time, but only very slowly. There is no evidence that more “basic” inventions diffuse more rapidly than others.

We derive and investigate empirically arbitrage pricing restrictions among three bonds of RJR Nabisco Holdings Capital Corporation. The three RJR bonds are virtually identical in all respects, except for the form in which interest is paid. We document large and persistent errors in the market pricing of the three bonds over a two-year period. The cash-paying bond was consistently more expensive than either the pay-in-kind or deferred-coupon bonds. The magnitude of the pricing errors is too large to be explained by market imperfections.