Tests for Price Effects of New Issues of Seasoned Securities

Do new issues of seasoned securities cause significant price movements in the neighborhood of the issue day? This paper presents an empirical comparison of three competing hypotheses: the SEC view that a new issue causes a permanent price decline; the underwriter view that there is only a temporary price decline during the distribution period; and the efficient market hypothesis (EMH) that implies the absence of any price effects. Several empirical tests of the competing hypotheses using data on new issues of utility stocks traded on the NYSE reject the SEC and underwriter views in favor of the EMH.     

MULTIPOLLUTANT EFFICIENCY STANDARDS FOR ELECTRICITY PRODUCTION

This study contains a simulation of a coal-fired electric plant subject to multiple pollutant standards for SO₂ and NO _x . It shows that firms may not choose the lowest cost technology. The firm's cost-minimizing choice is compared for three increasingly stringent standards: the 1990 Clean Air Act Amendments, the 1997 New Source Performance Standards, and the 2002 North Carolina Clean Smokestacks Act. The study finds support on cost-benefit grounds for the 2002 North Carolina standard, which is the most stringent standard, but not for the 1997 NSPS. (JEL Q28 , Q25 , L94 )     

East-West Airlines' Sydney-Melbourne Service: Market Expansion or Demand Diversion?

Data on 1278 flights on the East-West Airlines Sydney-Albury-Melbourne services, beginning when the Sydney-Melbourne excursion fare was first offered, are used to estimate three demand curves for the jointly provided services. The elasticities of demand for the Sydney-Melbourne service suggest it expanded the market as much as it attracted passengers from the trunk carriers. The econometric problem of joint estimation with censored dependent variables should be of general interest.     

The Dynamic Effects of the US Productivity Boom on Australia*

How has the USA's ‘new economy’ productivity boom affected Australia? We consider this question using a dynamic multisector growth model of the Australian and US economies. We find that productivity growth in the US durables sector generates small but important gains to Australia. We find that the transmission of growth is generated through increased export demand for agriculture. Consequently, the USA's productivity growth tends to favour Australia's traditional export sectors. Likewise, it increases the relative demand for less skilled labour in Australia and reduces the demand for more skilled labour and higher education.     

Buying Australian

We investigate the short-run effects on the trade balance and on aggregate employment of persuading domestic residents to switch expenditure from imports to domestic commodities. Simulations with ORANI indicate that the favourable initial effects of such switches may be offset significantly by induced demand for imports as domestic production expands and by the inflationary effects of domestic expansion which erode the international competitiveness of exports and import-competing products .     

A Reconsideration of Keynes' Finance Motive*

Keynes' finance motive is a much neglected part of monetary theory. This paper reassesses the meaning and importance of the finance motive and examines the distinction between it and the transactions motive. A specification of the demand function for money is proposed that takes account of the finance motive. The advantages of this specification for analytical and empirical purposes are explained. Finally, it is shown that this specification provides a satisfactory theoretical explanation for the evidence on timing between the real and monetary sectors; evidence thought by some to be inconsistent with Keynes' theory of liquidity preference.