A cubic estimte of the term structure of interest rates for a money demand function

Heller and Khan (1979) estimate the term structure of interest rates by a quadratic equation in order to employ the estimated parameters of the term structure in a demand-for-money function. An important improvement of their estimates can be made by specifying a cubic rather than a quadratic equation in order to estimate “humped” term structures. Furthermore, the ordinal numbering of the maturities must be changed to the actual length of the maturity of each security to avoid estimation error.     

A longitudinal analysis of earnings change in Canada

Abstract.  We use tax‐based longitudinal microdata for 1982–99 to (i) examine how earnings distributions have shifted, (ii) identify changes in earnings mobility patterns, and (iii) replicate and update Beaudry and Green's cohort analysis of age‐earnings profiles. We find: (i) increased polarization of men's earnings and marked decline in real earnings of workers aged 20–4; (ii) general decline in men's earnings mobility, while women's mobility has increased for young and prime‐age workers; and (iii) upward drift in earnings profiles of 1960s–1970s entry cohorts and downward shifts for 1980s–1990s cohorts (largely confirming Beaudry and Green's findings), but suggestive of steepening profiles for the 1990s cohorts. JEL classification code : J31,O33     

SATELLITE TELEVISION AND THE DEMAND FOR FOOTBALL: A WHOLE NEW BALL GAME?

A recent development in the UK television industry has been the emergence of satellite coverage of sporting events. This paper examines the relationship between broadcasting and football, culminating in the 1992 joint BBC and BSkyB contract to televise the English Premier League. A demand function is estimated which exteds the familiar model of attendance to incorporate television together with quadratic functions. We find that, although live transmission reduces attendance, the net financial consequences are positive for Premier League teams. Moreover, significant estimators are found for the quadratic functions of pricel earnings, distance, seasonal trend and length of Premier League status.     

Toward an Understanding of the Risky Choice Behavior of Professional Financial Analysts

Several studies have reported inefficiencies and/or biases in analysts' ability to incorporate new information into their earnings forecasts. We propose that an important psychological factor associated with optimistic earnings forecasts is the propensity of analysts to engage in risky choice behavior as described by prospect theory. Furthermore, the motivational incentives faced by analysts may exacerbate risky choice behavior during forecast revision, thereby magnifying overestimates of earnings.

Sixty professional financial analysts were asked to issue a first quarter and then an annual EPS forecast of a company. The analysts were randomly assigned to two initial forecast accuracy conditions that indicated their initial forecast earnings was 1) essentially the same as actual earnings, or 2) substantially higher than actual earnings. Analysts were also assigned to one of three motivational incentive conditions indicating the analyst and brokerage firm would 1) have no future contact with the forecast firm, 2) begin to follow the forecast firm, or 3) establish an underwriting relationship with the forecast firm.

The results indicate that analysts who perceived a loss function due to the inaccuracy of prior earnings forecasts tended to choose riskier prospects in subsequent forecast revisions than analysts who perceived their prior earnings forecasts to be accurate. These riskier prospects translate into greater overestimates of earnings. Furthermore, while the average risk attitude of the analysts was optimistic, higher levels of motivational incentives were associated with greater risk-seeking behavior by the analysts who perceive a loss function. It appears that the motivational incentives inherent in brokerage firms can exacerbate the risky choice behavior of financial analysts during forecast revision. These findings support the utility of incorporating both cognitive and motivational factors into the prediction of analyst behavior.     

Reconsidering the welfare cost of inflation in the US: a nonparametric estimation of the nonlinear long-run money-demand equation using projection pursuit regressions

This paper, first, estimates the appropriate, log–log or semi-log, linear long-run money-demand relationship capturing the behavior US money demand over the period of 1980:Q1–2010:Q4, using the standard linear cointegration procedures found in the literature, and the corresponding nonparametric version of the same based on projection pursuit regression (PPR) methods. We then, compare the resulting welfare costs of inflation obtained from the linear and nonlinear money-demand cointegrating equations. We make the following observations: (i) the appropriate money-demand relationship for the period of 1980:Q1–2010:Q4 is captured by a semi-log function; (ii) based on the estimation of semi-log cointegrating equations, the welfare cost of inflation was found to at the most lie between 0.0131 % of GDP and 0.2186 % of GDP for inflation rates between 0 and 10 %, and; (iii) in comparison, the welfare cost of inflation obtained from the semi-log non-linear long-run money-demand function, derived using the PPR method, for 0–10 % of inflation ranges between 0.4930 and 1.9468 % of GDP. However, the standard errors associated with the welfare cost estimates obtained from PPR relative to the linear models tend to indicate that the nonlinear money demand provides more precise estimates of the welfare costs primarily for higher rates of inflation.     

Four decades of Asian American women's earnings: Japanese, Chinese, and Filipino American women's earnings 1960–1990

This article examines the earnings progress of Asian American women from 1960 through 1990 by comparing their actual hourly wage and salary earnings to simulated earnings. The simulated earnings are obtained by using parameter estimates obtained from human capital models of white women corrected for sample selection bias. Data come from the decennial census Public Use Micro Samples data. American-born Asian American women appear to have made dramatic gains in the 1970s. The 1980s and 1990s show some fluctuations in actual earings relative to simulated earnings between Asian American and white women. These fluctuations may be due to problems measuring experience as opposed to differences in discrimination over time.     

Review Essay on Economics for the Common Good

The initial stage of labor market activity for young adults influences their labor market engagement and earnings profiles over their life cycle. I examine earnings inequality among young adults in a dynamic setting. Education, marital status, race are contributors to the observed earnings inequality. Earnings equalization is observed in the long run, and the proportion of earnings inequality attributed to education, marital status, and race is found to be significant.     

对外投资业务中的盈余管理及其评价浅探

本文分析了在对外投资业务中进行盈余管理的空间,并以具体的上市公司进行分析,最后指出适当的盈余管理能给企业带来好处,但是这种好处只是暂时的,并不能增加公司的实际盈余,改变的只是实际盈余在不同的会计期间的分布。     

Lifetime Earnings, Discount Rate, Ability and the Demand for Post–compulsory Education in Men in England and Wales

Human capital theory suggests educational investments are made based on expected returns over the lifetime. Most other work in this field, particularly using British data, is based on demand models estimated in reduced form, with no earnings measures, or crudely constructed earnings measures, based on one or two earnings observations per individual.
We present a structural model of demand for educational investment which includes estimates of earnings paths for educational options as determinants of educational choice. This provides us with directly interpretable parameter estimates. The discount rate is also determined within our demand model.
Ability controlled earnings profiles are estimated by matching individuals from the General Household Survey to individuals in similar occupations from the National Child Development Survey (NCDS).
Our results show that expected earnings profiles vary according to observed ability and educational choice. Results from the demand model show that expected lifetime earnings have a significant impact on educational choice.
Other socio–demographic factors, particularly social class, also exhibit significant influences on the education decision. We estimate the discount rate to be lower than reported in other studies.     

Work experience,earnings and participation: evidence from the women and employment survey

This paper presents a probit model of labour force participation and a set of earnings equations estimated using data from the 1980 Women and Employment Survey. The results of the participation model compare with previous findings and the earnings models give typical results of human capital and job characteristics variables. Exclusion of the sample selection effect appears to be of importance and a linear piecewise experience variable outperforms the quadratic specification.     

On the persistence of income shocks over the life cycle: Evidence,theory, and implications

How does the persistence of earnings change over the life cycle? Do workers at different ages face the same variance of idiosyncratic earnings shocks? This paper proposes a novel specification for residual earnings that allows for an age profile in the persistence and variance of labor income shocks. We show that the statistical model is identified, and we estimate it using Panel Study of Income Dynamics data. We find that shocks to earnings are only moderately persistent (around 0.75) for young workers. Persistence rises with age, up to unity, until midway through life. The variance of persistent shocks exhibits a U-shaped profile over the life cycle (with a minimum of 0.01 and a maximum of 0.05). These results suggest that the standard specification in the literature (with age-invariant persistence and variance) cannot capture the earnings dynamics of young workers. We also argue that a calibrated job turnover model can account for these nonflat profiles. The key idea is that workers sort into better jobs and settle down as they age; in turn, magnitudes of wage growth rates decline, thereby decreasing the variance of shocks. Furthermore, the decline in job mobility results in higher persistence. Finally, we investigate the implications of age profiles for consumption–savings behavior. The welfare cost of idiosyncratic risk implied by the age-dependent income process is up to 1.6 percent of lifetime consumption lower compared with its age-invariant counterpart. This difference is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. These results suggest that age profiles of persistence and variances should be taken into account when calibrating life-cycle models.     

Earnings Dynamics and Profile Heterogeneity: Estimates from Japanese Panel Data

The recent empirical work on earnings processes using US panel data finds that ignoring heterogeneity in earnings profiles among individuals leads to an upward bias in the autoregressive parameter of earnings shocks. It then argues that the existing assumptions in incomplete markets and heterogeneous‐agent models, almost all of which require highly persistent earnings shocks and no individual‐specific and group‐specific differences in earnings growth rates, may be inappropriate. This paper investigates the applicability of this US data‐based debate to other developed countries by using a panel of Japanese male earnings. The results indicate that it is possible to corroborate the recent US arguments, despite some differences in the estimates.     

An expository note on depreciation and profitability under rate-of-return regulation

This note provides a simple, general proof that if a regulated firm is allowed to earn its actual (nominal) one-period cost of capital on the depreciated original cost of its investments, and if actual earnings equal allowed earnings, then the net present value of all investments is zero for any method of computing depreciation. Some implications and extensions of this Invariance Proposition are discussed.     

On the Use of Naive Expectations of Earnings per Share as Experimental Benchmarks*

Both martingale and submartingale processes have been used as experimental benchmarks for corporate earnings forecasts or expectations in a large number of studies. This paper investigates the relative accuracy of forecasts from these two processes for a sample of Australian'firms. Submartingale models incorporating drift factors estimated over a large number of past observations consistently outperformed those using fewer observations, while the martingale model always outperformed the submartingale with drift factors estimaied over less than six prior earnings changes. The relative superiority of the martingale versus the best submartingale models used depended on whether a quadratic or linear error metric was deemed appropriate.     

Assimilation,labour market experience and earnings profiles of temporary and permanent immigrant workers in Germany

We test the assimilation hypothesis, as initially proposed by Chiswick (1978), by making use of a rich panel-data set for Germany, which permits us to allow for unobserved population heterogeneity and potential selectivity bias arising from an individual's remigration decision and employment behaviour. To take into account the institutional aspects of the German guest-worker system we use information on an immigrant's expected duration of stay in Germany to distinguish between temporary and permanent migrants and to test for differences in earnings/experience profiles with respect to a foreigner's expected duration of stay. We find that years of schooling in Germany have a strong positive effect on earnings, that earnings/experience profiles of guest-workers differ by expected duration of stay, and that the renumeration of labour market experience in Germany is higher for natives than for most foreigners. The assimilation hypothesis is therefore not supported by the evidence for Germany.     

Union effects on wages and wage growth

This paper employs a pooled cross-section time-series error-variance-components model applied to panel data to present new estimates of the impact of unions on earnings profiles. It avoids union-status measurement errors alluded to by Freeman (1984) contained in current panel estimates by limiting analysis to a set of one-time union status switches for which union status data could be sufficiently cross-checked. It avoids heterogeneity biases by comparing entire earnings profiles for given workers before and after their union status change. Finally, potential selectivity biases in using a non-random sample of only union switchers, is found not to plague the reported results.     

Employment tenure,job expectancy,and earnings profile in Japan

The purpose of this study is to examine the relationships between employment tenure and earnings profile in Japan. Since the Japanese labour market has recently experienced substantial changes, it is natural for the Japanese employment and compensation system to be influenced by such changes. In this study, the changes that have happened to the Japanese employment and compensation system in recent years have been considered empirically by focusing on the relationships between employment tenure and earnings profiles. To do this, a forward-looking variable called ‘expected job tenure (or job expectancy)’ is introduced and the effects of it on earnings profile.     

Bounded dividends, earnings and fundamental stock values

This paper applies a model of fundamental share prices based on a bounded dividends process, with earnings as the upper bound, to assess the deviations of actual prices for over- and under-valuations. The fundamental model extends the traditional present value of future dividends analysis to allow for the effect of an earnings-dividends trade-off effect. The simple fundamental model includes a closed form share price solution which may be calibrated to generate fundamental values from which to assess actual prices for over or under valuations. The properties of the model are explored with a simulation example. The empirical example is based on S&P data and the analysis provides evidence of persistent over-valuations since the late 1990’s. Expressed another way, the analysis highlights the role of factors, other than dividends and earnings in the determination of actual asset prices since the late 1990s.     

How to Generate Good Profit Maximization Problems

In this article, the author considers the merits of two classes of profit maximization problems: those involving perfectly competitive firms with quadratic and cubic cost functions. While relatively easy to develop and solve, problems based on quadratic cost functions are too simple to address a number of important issues, such as the use of second-order conditions and the short-run shutdown condition. Problems based on cubic cost functions are mathematically richer but often involve messy arithmetic; furthermore, many are not plausible representations of a firm's costs. Finding cubic functions that do not suffer from these drawbacks can be a time-consuming process. The author addresses this issue by providing a procedure to generate profit maximization problems that are theoretically interesting, economically plausible, and computationally simple.     

Social identity and perceived income adequacy

Economists are increasingly interested in subjective well‐being, but the economic literature on perceptions of income adequacy, which is one of the factors that shape subjective well‐being, is little. Our paper fills this lacuna. We utilize nationally representative data on perceptions of amounts considered as remunerative earnings from self‐employment in India and examine how these are earnings shaped by social identity, namely, caste. We also investigate if institutional change such as the introduction of an employment guarantee scheme alters these perceptions. Finally, we examine the relationship between caste identity and actual earnings. We find that caste identity does shape both perceptions of income adequacy and actual earnings: lower‐ranked groups perceive lower amounts as being remunerative and also earn lower amounts. Further, the employment guarantee scheme alters self‐perceptions differentially for different caste groups, but in more nuanced ways than our ex‐ante beliefs.