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Copyright of Papers in Regional Science is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper relates the value of additional information to asset prices in a pure exchange setting. The price structure of interest revolves around a "pricing-hypothesis": the prices in an economy with less information are unbiased estimators of the prices that would obtain in a more informative economy. Two basic results are developed. First, if the incremental information is useless then the pricing-hypothesis applies. Second, if the pricing hypothesis is assumed valid, then the information is valuable in a weak sense. The results are also considered in the context of empirical research. The case is made for viewing statistical tests of association between prices and signals as tests of the social value of information. [ABSTRACT FROM AUTHOR]

This paper modifies the Black-Scholes option pricing model to include the effects of transaction costs and different borrowing and lending rates. The paper demonstrates that these market imperfections tend to offset each other yielding a bounded range of prices for each option. The paper also shows that under some conditions the option pricing hedge may be society's lowest cost financial intermediary. [ABSTRACT FROM AUTHOR]

Our understanding of why corporations pay dividends is currently unsatisfactory. On the one hand, received theory tells us that dividends are irrelevant (in the sense that any two arbitrarily chosen dividend policies have equivalent consequences), both in the absence of taxes (Miller and Modigliani) and in their presence (Miller and Scholes). On the other hand, dividends continue to flood the empirical world with cash as regularly and as consistently as the sun scorches the desert, and one is hard put to characterize this pattern (currently at an annual rate of about $63 billion) as being founded on irrelevance. Not surprisingly, the attendant anomaly has led some, notably Black, to suggest that we really don't know why companies pay dividends. Something is clearly amiss. The present paper will look to the information content of dividends as a substantive (although not necessarily complete) explanation for the prevalence and persistence of positive dividend policies in market economies. The notion that dividends may constitute a source of information is, of course, not new (see e.g., Miller and Modigliani, Black, Stern). The basic idea is that the raising and lowering of dividends communicates information over and beyond what is provided by (mandated and nonmandated historical cost-based) earnings reports, forecasts, and other announcements. By in effect merging extant dividend theory with the theory of public information, the present paper generates several noteworthy consequences. [ABSTRACT FROM AUTHOR]

This paper develops a consumption-oriented model of asset prices in a multigood economy that is, in principle, testable even when aggregate consumption of goods and their market prices are only partially observable. Previous studies show that, when there are m consumption goods, equilibrium expected excess returns on securities are functions of their covariances with m + 1 variables-aggregate consumption expenditure and market prices of consumption goods. Without making any further assumptions, the present model shows that a similar equilibrium relationship can be expressed in terms of covariances of asset returns with the following m + 1 variables: market prices of k consumption goods and aggregate consumption of m + 1 - k goods. Because the author's result provides researchers with some flexibility in choosing the set of m + 1 variables that measure riskiness of securities, it should lead to more powerful tests of the model. [ABSTRACT FROM AUTHOR]

This article presents the author's opinion on the article presented by Professors Brennan and Schwartz. The article distinguished between the book and market values of the assets and liabilities of a firm and financial constraints are posed in terms of plausible accounting ratios. The author discusses some concerns he had with the paper including that personal taxes are ignored and interest rates are assumed to be constant in their examination of the financial policy of an evolving firm.

This paper reports the results of controlled experiments designed to test the Harris-Raviv generalization of the Vickrey theory of bidding in multiple unit discriminative auctions. The paper also discusses further development of the theory—in a way suggested by the experimental results—to include bidders with distinct risk preferences. [ABSTRACT FROM AUTHOR]

The existence of transaction costs explains why investors do not fully diversify their portfolios. This paper examines the implications of such limited diversification on equilibrium asset prices in the framework of the capital asset pricing model. In the pricing equation obtained here an asset's risk premium depends on a weighted average of its covariance with the market and its own variance. [ABSTRACT FROM AUTHOR]

In an effort to better understand the dynamic market price adjustment process, this paper develops a model which describes the impact of new information on a financial market. The primary emphasis is on the price change-volume relationship in the presence of a margin requirement. We find that the margin requirement significantly affects the relation of price change to volume. Furthermore, this relationship is shown to be affected by the number of investors in the market, the degree of information dissemination, differences in interpretation of information and the implicit cost of the margin requirement. [ABSTRACT FROM AUTHOR]

The structure of security returns has been an object of constant attention in the financial economics literature. Several stochastic models for security returns have been proposed, and many of these subjected to strenuous empirical testing. Yet theory demands closure: security returns do not exist in isolation, but are intimately interconnected to all the other features of an economy in equilibrium. Of concern are the consistency of contemporaneous features, such as interest rates and prices, and importantly the dynamic characteristics, i.e., whether equilibrium is sustained over a multiperiod environment. In this paper, we develop a consistent, dynamic equilibrium for the Ross arbitrage model of capital asset pricing. Our objective is to develop a multi-period model which is consistent with the Ross K-factor linear return generating process and its associated single-period equilibrium. Section 2 of the paper gives the initial description of the Ross model. In section 3 we construct a dynamic equilibrium. The state space is given by current dividends and these in turn are mapped into current prices. Section 4 demonstrates that additional state variables of an "informational" nature can also be introduced without damaging the essential structure of equilibrium. Several of the points developed herein are also discussed in Garman and Ohlson where the focus centers on valuation in arbitrage-free markets generally; here we concentrate purely on the dynamic equilibrium nature of the Ross model in particular. [ABSTRACT FROM AUTHOR]

In a recent issue of this Journal, Frank Steindl (1974), drawing on his previous article in the Journal of Political Economy (Steindl, 1971) which contained a reduced form of Carl Christ's "A Simple Macroeconomic Model with a Government Budget Restraint" (Christ, 1968), purported to show that the money multiplier is negative. The purpose of this paper is to show that Steindl's definition of equilibrium might be theoretically as well as empirically uninteresting, both because his model is largely vacuous and because it depends on a reaction between the economy and the government which may make his solution unachievable. [ABSTRACT FROM AUTHOR]

This paper reviews various methods for evaluating the economic impacts of major events such as World (Catholic) Youth Day and the Football World Cup. The paper recommends cost-benefit analysis, which is surprisingly rarely used for such evaluations. A computable general equilibrium (CGE) model may provide estimates of national or regional output or consumption impacts. But CGE models are not usually designed to estimate very short-term impacts on economies or welfare effects, allowing, for example, for labour opportunity costs and non-market effects. A case study based on the Australian Formula 1 Grand Prix supports these observations. The paper also discusses and dismisses various other evaluation methods such as input-output or economic impact analysis and injected export expenditure that typically exaggerate the benefits of export income (the Mercantilist Fallacy). [ABSTRACT FROM AUTHOR]

Copyright of Papers in Regional Science is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The article presents commentary on a paper written by Sudipto Bhattacharya entitled "Aspects of Monetary and Banking Theory and Moral Hazard," which appeared in the May, 1982 edition of the "Journal of Finance." The author applauds Bhattacharya's efforts at assimilating fiat money theory with models of investment and intermediation, and believes his paper improves our understanding of the allocation of goods. However, the author generally thinks Bhattacharya includes too many unproven assumptions in his paper, which in his view should have been more narrowly focused and tightly reasoned.

This paper explores the impact of increased population and water demand and reduced water supply on sectoral and regional output and employment in Australia utilising a multi-regional computable general equilibrium model. The results indicate that the increase in water demand will significantly increase the shadow price (or opportunity cost) of water use in major urban centres. For cities predicted to have high growth rates such as Sydney, Brisbane and Perth, if rising water scarcity had not been supplemented by new water supplies, and if the price of water had reflected rising scarcity, the price of water would have risen by fivefold, sevenfold and eightfold per kilolitre respectively. However, allowing rural-urban water trading and developing new water sources would reduce water scarcity and the opportunity cost of water use and the economic impacts on the Australian economy. [ABSTRACT FROM AUTHOR]

This paper provides an equilibrium model in which expected real returns on common stocks are negatively related to expected inflation and money growth. It is shown that the fall in real wealth associated with an increase in expected inflation decreases the real rate of interest and the expected real rate of return of the market portfolio. The expected real rate of return of the market portfolio falls less, for a given increase in expected inflation, when the increase in expected inflation is caused by an increase in money growth rather than by a worsening of the investment opportunity set. The model has empirical implications for the effect of a change in expected inflation on the cross-sectional distribution of asset returns and can help to understand why assets whose return covaries positively with expected inflation may have lower expected returns. The model also agrees with explanations advanced by Fama [5] and Geske and Roll [10] for the negative relation between stock returns and inflation. [ABSTRACT FROM AUTHOR]

Utility-based models of asset pricing may be estimated with or without assuming a distribution for security returns; both approaches are developed and compared here. The chief strength of a parametric estimator lies in its computational simplicity and statistical efficiency when the added distributional assumption is true. In contrast, the nonparametric estimator is robust to departures from any particular distribution, and it is more consistent with the spirit underlying utility-based asset pricing models since the distribution of asset returns remains unspecified even in the empirical work. The nonparametric approach turns out to be easy to implement with precision nearly indistinguishable from its parametric counterpart in this particular application. The application shows that log utility is consistent with the data over the period 1926-1981. [ABSTRACT FROM AUTHOR]

This paper conducts a theoretical and empirical investigation of the pricing (and portfolio) implications of investment barriers in the context of international capital markets. The postulated market structure--labelled "mildly segmented"--leads to the existence of "super" risk premiums for a subset of securities and to a breakdown of the standard separation result. The empirical study uses an extended data base including LDC markets and provides tentative support for the mild segmentation hypothesis. [ABSTRACT FROM AUTHOR]

This paper models an individual's trading decision, given: (1) his/her demand function to hold shares of an asset, (2) his/her expectation on what the market clearing price will be, and (3) the design of the market which determines how orders will be translated into trades. The particular market design we consider is the batched trading (periodic call) regime. Assuming investors are distributed according to their propensities to hold shares, we model the aggregation of orders to obtain market clearing values of price and volume and to show the way in which, with trading friction, these solutions differ from Pareto efficient values. The importance of this analysis for various issues concerning market design is noted. [ABSTRACT FROM AUTHOR]

This paper tests the Arbitrage Pricing Theory (APT) by estimating the factor loadings that are consistent between two industry groups of securities. One of the pitfalls in the study by Roll and Ross is that the factors estimated in one group may not be the same with the factors estimated in another group. This raises some concerns on the acceptability of their conclusions. For our study, we employ inter-battery factor analysis which enables us to estimate factor loadings by constraining the factors to be the same between two different groups. Our results show that there seem to be five or six inter-group common factors that generate daily returns for two industry groups of securities, and these inter-group common factors do not seem to depend on the size of groups. Also, based on our cross-sectional tests on the risk premia, we conclude that the APT should not be rejected. [ABSTRACT FROM AUTHOR]

Richard Roll (8) changed our way of thinking about the CAPM model, both in terms of theoretical content and empirical testing. One of Roll's key contributions was to show that if the market portfolio were efficient, the Sharpe-Lintner-Mossin or zero beta form of the CAPM must follow. The purpose of this article is to extend Roll's work to non-standard forms of the CAPM. In recent years, the literature has contained over a dozen extensions of the simple CAPM. Of particular interest have been models which incorporate uncertain inflation, differential taxes on income and capital gains, heterogenous expectations, non-marketable assets, missing assets and international securities. In this article we will show that models that have been proposed in each of these areas follow directly from the assumption that investors act as if some particular market portfolio is efficient. We believe that doing so is important for several reasons. First, it is a generalization of Roll's work which shows that his analysis and many of his conclusions can be extended well beyond his initial contribution. Second, it allows us to derive alternative equilibrium models using only algebra in a very simple and straightforward way. Furthermore, since the derivations are almost exactly parallel, having mastered one, the reader can move easily through the others. Third, we show that the differences between most non-standard forms of the CAPM come about from a difference in which market portfolio is assumed efficient and an assumption about how to change from the definition of returns used to define the market portfolio to the usual meaning of returns (dividends plus capital gains). This analysis highlights exactly what are the differences between models and shows that many of the asserted differences are nonexistent. The final reason this paper is important is that it stresses that each model arises directly from the efficiency of a particular version of the market portfolio. Therefore, on... [ABSTRACT FROM AUTHOR]

In this paper we propose and analyze a new paradigm for monetary analysis that is considerably richer than the standard money multiplier models found in the literature. A general equilibrium approach to financial assets is developed that leads directly to a multiplier system that transcends the traditional dependence on demand deposits and is easily amenable to exposition and manipulation. The model incorporates financial innovation and regulatory changes easily and allows for the general equilibrium effects of the variation in financial ratios that result from induced movements in income, interest rates, or prices. [ABSTRACT FROM AUTHOR]

It is our purpose in this paper to generalize the Miller analysis in two important aspects which materially affect the nature of the demand and supply curves for corporate debt. First, we modify the demand curve by introducing costs associated with tax avoidance, thereby allowing for costly tax arbitrage by investors in an environment in which the tax on income may differ substantially across assets. Secondly, we introduce into the analysis agency costs associated with corporate debt financing. [ABSTRACT FROM AUTHOR]

The objective of this paper is to provide a microeconomic analysis of the Federal Home Loan Mortgage Corporation (FHLMC). It sets out a demand-supply model of FHLMC mortgage purchase activities. Estimates of several versions of the developed models are also discussed. Findings on the demand side of the model strongly support the view that the savings and loan association (SLA) demand for FHLMC commitments is responsive to relative cost considerations and that SLA's rely on the FHLMC to increase their loanable funds more heavily when mortgage credit markets are tight. On the supply side of the model, the findings indicate that the FHLMC's cost of capital is an important determinant of its required yields and that these required yields are affected by the liquidity needs of SLA's.

While the problem of pricing European put options on non-dividend paying stocks was solved under certain conditions by Black-Scholes [2] in their seminal article on option pricing, no closed form solution exists for the valuation of American put options which permit exercise prior to maturity, except for the case of a perpetual put option on a non-dividend paying stock: this was treated by Merton [6]. In this paper we present an algorithm for the put pricing problem when the put has a finite life and may or may not be protected against dividend payments on the underlying stock. The algorithm is then used to evaluate the pricing of put contracts traded in the New York dealer market. Black and Scholes [1] have previously examined the pricing of calls in this market, while Gould and Galai [3] have documented violations of put call parity. A recent paper by Parkinson [7] applies numerical integration to the pricing of puts. [ABSTRACT FROM AUTHOR]

In this paper, we investigate the properties of a version of the well-known macroeconomic model first introduced by Metzler [5] and since extensively modified and used in various forms by a number of authors. The continuing widespread interest in this model is sufficient cause to attempt to extend and generalize it; among others, Mundell [6] [7], Pesek and Saving [9], Phelps [10], and Waud [14] have applied versions of it to various problems. Beyond that, however, the model is of interest because it is the simplest macroeconomic framework within which problems of portfolio choice and the role of wealth can be treated adequately. The standard textbook comparative-static "IS-LM" characterization of the macroeconomic system is deficient in this dimension. In it, the distinction between investors in physical assets and holders of financial assets is ignored. While saving and investment are treated as separate flow decisions, the problem of lodging equity (or bond) issues in savers' portfolios to finance investment is not analyzed. Furthermore, wealth itself typically is omitted from the relevant behavioral relationships of the IS-LM model. Finally, the IS-LM analysis ordinarily overlooks the so-called "government budget constraint", or requirement that a budget imbalance be financed as long as it continues to exist, thereby generating continuing changes in the financial wealth of the private sector. This deficiency is particularly troublesome in underemployment models used for the analysis of stabilization policy, since either monetary or fiscal policy impulses will affect tax collections and the budget balance, and thus generate continuing changes in private wealth. [ABSTRACT FROM AUTHOR]

This paper shows that bank runs can be modeled as an equilibrium phenomenon. We demonstrate that some aspects of the intuitive "story" that bank runs start with fears of insolvency of banks can be rigorously modeled. If individuals observe long "lines" at the bank, they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run. However, bank runs occur even when no one has any adverse information. Extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations. [ABSTRACT FROM AUTHOR]

Abstract: This paper builds a dynamic, general equilibrium, open economy model that allows for ex ante homogeneous workers to experience different wage growth before and after trade liberalization. Key features of our model include a product market composed of heterogeneous firms and a labour market characterized by directed, on‐the‐job‐search and dynamic contracts. We characterize the complementarity of these two sources of wage dispersion in an open economy setting where trade liberalization affects the endogenous equilibrium set of producers and the structure of wages. We find that worker job‐to‐job transitions, through on‐the‐job search, increases the impact of trade liberalization on wage dispersion by 4%. Résumé: Recherche d’emploi en cours d’emploi, dispersion des salaires et libéralisation du commerce. Ce mémoire construit un modèle dynamique d’équilibre général d’une économie ouverte qui permet à des travailleurs ex ante homogènes de faire l’expérience de croissance différente des salaires avant et après la libéralisation du commerce. Les caractéristiques importantes du modèle incluent un marché du produit composé de firmes hétérogènes et un marché du travail caractérisé par une recherche dirigée d’emploi en cours d’emploi et des contrats de salaires dynamiques. On caractérise la complémentarité de ces deux sources de dispersion des salaires dans une économie ouverte où la libéralisation du commerce affecte l’équilibre endogène de l’ensemble des producteurs et la structure des salaires. On découvre que les transitions d’emploi à emploi des travailleurs, via la recherche d’emploi en cours d’emploi, accroîssent l’impact de la libéralisation du commerce sur la dispersion des salaires de 4 %. [ABSTRACT FROM AUTHOR]

This study develops a general equilibrium model in which the evolution of income inequality and output conforms with the Kuznets hypothesis. The paper presents a novel endogenous mechanism that generates the inverted-U relation between income inequality and per capita output, and captures the reciprocal influence between the two. Unlike previous attempts for a comprehensive theoretical modeling of this phenomenon, the evolution of the economy is consistent with another important empirical observation: namely, that output growth is accompanied in the early stages of development by a widening wage differential between skilled and unskilled labour, whereas in a later stage this wage differential declines. [ABSTRACT FROM AUTHOR]

The article presents commentary about a paper written by Anthony M. Santomero and Jeremy J. Siegel (S&S) entitled "A General Equilibrium Money and Banking Paradigm," which was published in the May, 1982 issue of the "Journal of Finance." The author believes S&S have achieved a technically correct synthesis of the general equilibrium portfolio and multiplier theories. In his view their work could be foundational to several future avenues of inquiry, including research into improvements in the structural models of the financial sector used by the U.S. Federal Reserve.

The article refers to research by Kon and Lau and focuses on the theoretical and statistical validity of the market model. The Capital Asset Pricing Model (CAPM) is a one-factor, ex ante model that summarizes the ex post return generating process, which has potential deficiencies because CAPM is equilibrium-based and does not include changing market factors. An alternative multi-factor model for the return generation process is suggested, which measures the impact of market factors, response coefficients, and unique firm factors on returns. Random coefficients and switching regression techniques are discussed.

The empirical success of Real Business Cycle (RBC) models is often judged by their ability to explain the behavior of a multitude of real macroeconomic variables using a single exogenous shock process. This paper shows that in a model with the same basic structure as the bare bones RBC model, monetary, cost-push or preference shocks are equally successful at explaining the behavior of macroeconomic variables. Thus, the empirical success of the RBC model with respect to standard RBC evaluation techniques arises from the basic form of the dynamic stochastic general equilibrium model, not from the specific role of the productivity shock. ( JEL E32, E37) [ABSTRACT FROM AUTHOR]

This paper develops a notion of consumer confidence within a dynamic competitive equilibrium framework. In any situation where multiple equilibrium prices on next‐period spot markets are equally supported by the state of the economy, confidence is encoded in the subjective probabilities consumers attach to these multiple future outcomes. Our approach characterizes the set of all equilibrium‐consistent subjective probabilities, and thereby endogenizes the extent of uncertainty faced by consumers. We use the structure of an economy with collateralized household debt and housing markets to develop and illustrate this concept. Our approach determines the specific range of debt levels at which this economy is vulnerable to crises of confidence, as well as the debt‐level‐specific extent of confidence‐driven house price fluctuations. [ABSTRACT FROM AUTHOR]

How much is purchasing power parity worth? In this note, I consider an individual with constant relative risk aversion who is engaged in currency speculation. The value of the PPP relationship is estimated by calculating the decline in the utility of the speculative strategy when the PPP relationship is withdrawn from the information set. This approach provides a different perspective for evaluating econometric tests of the relationship. Since there are many expositions of the PPP doctrine, I begin with a definition of the version with which this paper will be concerned. The PPP model is defined by the following assertions. A. The ratio of the consumer price index in one country to the consumer price index in another is proportional to the equilibrium exchange rate between the currencies of the two countries. B. If the actual exchange rate deviates from the equilibrium rate, there will be a predictable tendency for the actual exchange rate to adjust towards the equilibrium rate. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to theoretically and empirically examine the systematic risks of all contract maturities for 20 different commodities. The principal difference between this paper and those cited is in the measurement of systematic risk. This study considers risk in the context of the intertemporal asset pricing model of Breeden and Litzenberger (1978) and Breeden (1979). Their models derive equilibrium expected excess returns on assets for more general economies than those considered by Sharpe and Lintner. In particular, both papers are consistent with stochastic investment opportunities; more importantly for the present study, the Breedon continuous-time analysis derives equilibrium expected excess returns in a multi-good economy with uncertain commodity prices for individuals with general and diverse preferences for consumption bundles. The intertemporal pricing model states that the equilibrium expected excess return on an asset should be proportional to its covariance of returns with changes in aggregate real consumption, i.e., to its “consumption-beta”. Thus, although many commodity futures contracts may have price changes that are unrelated to those of stocks or to the market portfolio's return, they should earn risk premia if their real price changes are correlated with changes in aggregate real consumption, according to the intertemporal CAPM. A result of this paper that differs from previous empirical research in its economic predictions for futures is that some futures contracts have significant systematic risks that should result in risk premia in those markets. Perhaps a more important development is the presentation of some economic determinants of those systematic risks. The identification of those determinants of commodities' systematic risks aids the understanding of the risk estimates obtained and suggests revisions in them that may give more accurate estimates of subsequent futures market consumption-betas. The pu... [ABSTRACT FROM AUTHOR]

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Ageing populations in advanced economies are placing ever-increasing demands on government spending in the form of old-age benefits, particularly for health care. Economies that have promised substantially more benefits than they have made provision to finance are heading into a prolonged era of fiscal stress. Unresolved fiscal stress raises the possibility that the economies will hit their fiscal limits where taxes and spending no longer adjust to stabilise debt. In such economies, monetary policy may lose its ability to control inflation and influence the economy in the usual ways. The paper discusses models of fiscal limits and their implications and lays out a research agenda to integrate political economy and empirical considerations with general equilibrium models of monetary and fiscal interactions. [ABSTRACT FROM AUTHOR]

What was the role of uncertainty in the Great Depression? This paper uses a calibrated general equilibrium model to show that, in response to an increase in uncertainty, agents increase expenditure on irreversible durable goods and reduce investment in irreversible physical capital. These relative movements occur because durable goods provide a store of utility and are less irreversible than physical capital. These substitutions are unclear at the start of the Great Depression but are clearly visible at the deep end of it in 1932, when the volatility of stock returns is consistently high. [ABSTRACT FROM AUTHOR]

This paper aims to explain changes in real house prices in Australia from 1970 to 2003. We develop and estimate a long-run equilibrium model that shows the real long-run economic determinants of house prices and a short-run asymmetric error correction model to represent house price changes in the short run. We find that, in the long run, real house prices are determined significantly and positively by real disposable income and the consumer price index. They are also determined significantly and negatively by the unemployment rate, real mortgage rates, equity prices and the housing stock. Employing our short-run asymmetric error correction model, we find that there are significant lags in adjustment to equilibrium. When real house prices are rising at more than 2 per cent per annum, the housing market adjusts to equilibrium in approximately four quarters. When real house prices are static or falling, the adjustment process takes six quarters. [ABSTRACT FROM AUTHOR]

In this paper I present conditions under which the long run stock equilibrium in Patinkin's general equilibrium model exists, is unique and is globally stable. These conditions are basically that all goods are weak gross substitutes and noninferior The model is developed in Patinkin (1965); Archibald and Lipsey (1958) were, I think, the first writers to study its long run properties. The demonstration of the proposition is a straightforward application of Morishima's (1964) generalizations of the Perron-Frobenius theorems.
Actually, the analysis applies to a somewhat wider class of models than Patinkin's, since the properties of his model which we use are those concerning the homogeneity of the demand and excess demand functions. It is clear that these properties will be true of other money models as well.
I make no particular defense of this model against, for example, the criticisms of Hahn (1965) and Clower (1967). However, the properties of it that I use are standard assumptions in expositions of neoclassical monetary theory (see also Friedman, 1969, and Samuelson, 1968). For that reason alone it seems worthwhile to investigate its long run behavior since it is only in the long run that the principal results of that theory hold. [ABSTRACT FROM AUTHOR]

This paper analyzes the equilibrium of an economy where economic agents differ with respect to their information gathering and processing abilities. Our results depend on the magnitude of the relative risk aversion. We show that the unsophisticated (with respect to their information processing abilities) agents are disproportionately important in the cases of both large and small risk aversion. In the case of the relative risk aversion measure being greater than unity volatility of aggregate consumption is reduced. This supports the view that observed consumption in many countries fluctuates less than predicted by models with fully rational agents only. [ABSTRACT FROM AUTHOR]

The merit of international convergence of bank capital requirements in the presence of divergent closure policies of different central banks is examined. The lack of a complementary variation between minimum bank capital requirements and regulatory forbearance leads to a spillover from more forbearing to less forbearing economies and reduces the competitive advantage of banks in less forbearing economies. Linking the central bank's forbearance to its alignment with domestic bank owners, it is shown that in equilibrium, a regression toward the worst closure policy may result: The central banks of initially less forbearing economies also adopt greater forbearance. [ABSTRACT FROM AUTHOR]

This paper establishes existence of a stationary Markov perfect equilibrium in general stochastic games with noise-a component of the state that is nonatomically distributed and not directly affected by the previous period's state and actions. Noise may be simply a payoff-irrelevant public randomization device, delivering known results on the existence of correlated equilibrium as a special case. More generally, noise can take the form of shocks that enter into players' stage payoffs and the transition probability on states. The existence result is applied to a model of industry dynamics and to a model of dynamic electoral competition. [ABSTRACT FROM AUTHOR]

Repeated games with imperfect private monitoring have a wide range of applications, but a complete characterization of all equilibria in this class of games has yet to be obtained. The existing literature has identified a relatively tractable subset of equilibria. The present paper introduces the notion of weakly belief-free equilibria for repeated games with imperfect private monitoring. This is a tractable class which subsumes, as a special case, a major part of the existing literature (the belief-free equilibria). It is shown that this class can outperform the equilibria identified by the previous work. [ABSTRACT FROM AUTHOR]

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Economic models are often judged by the reality of their assumptions or their success at predicting realistic outcomes. In this paper I suggest a different criterion for judging models in international trade theory in competitive settings: (i) Does the model conform to common sense in leading to results that even suggest the model is not necessary, and yet (ii) Can the same model be used as a tool to reveal in simple terms why certain outcomes that may appear surprising (often labeled a paradox in trade theory) nonetheless are correct. Many trade theory paradoxes appear as the result of income effects in simple general equilibrium models. Here attention centers instead on two of the familiar production models: the specific factors model and the Heckscher-Ohlin model, either separately or when combined. It is shown that very basic properties of production underlie many of the surprising results in competitive trade theory. ( JEL F11, D50) [ABSTRACT FROM AUTHOR]

In markets in which sellers know more about product quality than buyers, but cannot convey their superior information either by directly issuing costly signals of the Spence type or by successfully funding the production of information, I suggest another way in which the informational asymmetry problem can be resolved; a third party can produce the necessary information at a cost and use it to price a service consumed by the sellers. Buyers can then observe a seller's choice of service consumption level and be well informed in equilibrium. In this framework I construct a model in which a borrower's choice of insurance coverage signals its default probability to lenders, and explore the properties of the resulting signaling equilibrium in a variety of cases. [ABSTRACT FROM AUTHOR]

Under heterogeneous expectations, the mean-variance model of capital market equilibrium is employed to determine the effect restricting short sales has on equilibrium asset prices. Two equivalent markets differing only with respect to short sale restrictions are compared. It is shown that, in general, risky asset prices can either rise or fall due to short sale constraints. However, under a homogeneity of beliefs for the covariance matrix of future prices, short sale constraints will only increase risky asset prices. [ABSTRACT FROM AUTHOR]

The article presents a portfolio-balance model of corporate working capital. The author's objective is to estimate disequilibrium models of the sub-sectors of the financial sector, motivated by a dissatisfaction with a single asset approach. The portfolio behavior and working capital management of nonfinancial corporations was studied to examine the short-term decision-making process of portfolio managers. Details related to the validity of the working capital demand equations presented are discussed.