[This paper extends the empirical version of a job-search model to permit heterogeneity in the location of wage offer distributions. Population variance in wage offers is decomposed into variance due to heterogeneity and variance facing each individual. Heterogeneity is found to be an important source of offer variance in the population. The amount of "pure wage offer dispersion" facing individuals is found to contribute little to population variance.]
Recently there has been a growing interest in the scenario model of covariance as an alternative to the one‐factor or many‐factor models. We show how the covariance matrix resulting from the scenario model can easily be made diagonal by adding new variables linearly related to the amounts invested; note the meanings of these new variables; note how portfolio variance divides itself into “within scenario” and “between scenario” variances; and extend the results to models in which scenarios and factors both appear where factor distributions and effects may or may not be scenario sensitive.
In recent years, the nonoperating income account, Allowance for Funds Used During Construction (AFC), has become a large percentage of earnings available for common in the electric utility industry. Industry observers have disagreed as to the "quality" of AFC earnings and have linked AFC to depressed common equity values. A cross-sectional equity valuation model is used to operationalize the notion of earnings "quality" and to test empirically the relative impact of AFC and operating earnings on the valuation of electric utility shares. A secondary objective is to improve the specification of prior valuation models. It is concluded that the AFC component is of positive economic value but is generally less valuable per dollar than operating earnings. Evidence is also provided (1) on the extent to which AFC is discounted relative to operating earnings, and (2) on the reduction of specification error in the valuation model.
Central to the notion of money as the medium of exchange is the concept that all transactions are conducted using money balances. This notion, expounded most explicitly by Robert Clower (1967, 1970), has led to the development over the past decade of interesting models of the transactions and precautionary demand for money.' These have examined optimal behavior of the economic agent in steady state. Although there has been much gained by examining money balance behavior in this way, money demand models so far have ignored the behavior of money during periods of disequilibrium. An adequate understanding of total money balances is possible only by incorporating both equilibrium and disequilibrium behavior into an overall view. In this regard, Michael Darby (1972) is exceptional in explicitly treating disequilibrium money demand behavior. Darby's paper is mainly empirical, but it contains an interesting intuitive discussion of money's role as a during periods of disequilibrium. In the present study, we address both the theoretical foundation and empirical importance of the shock absorber effect. We construct a model of optimal behavior by the economic agent, showing the necessary conditions for the existence of partial adjustment and indicating how the intensity of adjustment behaves over time and in response to changes in economic variables. This appears to be the first such attempt in the money demand literature, although there is related work in the investment literature on the flexible accelerator. We test the model on U.S. quarterly data to estimate the existence and magnitude of partial adjustment. We find a significant but small effect for both Ml and M2; furthermore, the effect dies out within one and two quarters for the respective definitions of money. The results thus support, but disagree in magnitude, with those of Darby (1972), who found a larger and longer-lasting partial adjustment effect. Our finding of so short an effect is especially important in light of Robert Barro's (1978) paper which relies on Darby's long-lasting effect to explain price behavior.