Immigrant Wage Adjustment in Australia: Cross Section and Time-Series Estimates*

Cross-sectional estimates of the comparative wage performance of natives and immigrants can be distorted if there are changes in labour market quality between immigrant cohorts. This question is investigated with a study of 1973 and 1981 cross-sections of Australian migrants. We find that migrants from non-English-speaking countries entering Australia about 1965 perform significantly better between 1973 and 1981 than predicted from the 1973 cross-section. Migrants from English-speaking countries time-series wage performance is consistent with the 1973 cross-section prediction. The paper interprets the analytic importance of these results.     

Residential Electricity Demand in Rural Areas: The Role of Conservation Actions,Engineering Factors and Economic Variables

A model of residential electricity demand using economic, engineering, and conservation variables was tested using data from a sample of rural residential customers served by eighteen rural electric membership cooperatives in central and southern Indiana. Electricity usage was found to be dependent upon past energy conservation efforts, even when household income, electricity prices, appliance stocks, space heating and cooling stocks, and housing characteristics were taken into account. The investigation also developed a ranking of receptivity to alternative conservation strategies. It supports public and private policies which are directed toward improving consumer attitudes toward energy conservation.     

Arbitrage With Holding Costs: A Utility-Based Approach

Unit time costs, or holding costs, are incurred in many arbitrage contexts. Examples include losing the use of short sale proceeds and lending funds at below market rates in reverse repurchase agreements. This paper analyzes the investment problem of a risk averse arbitrageur who faces holding costs. The model allows prices to deviate from “fundamental” values without allowing for riskless arbitrage opportunities. After characterizing an arbitrageur's optimal strategy, the model is examined in the context of the Treasury market. The analysis reveals that holding costs are an important friction in this market and that they can significantly affect arbitrageur behavior.     

Interest‐Rate Pegs in New Keynesian Models

The conventional policy perspective is that lowering the interest rate increases output and inflation in the short run, while maintaining inflation at a higher level requires a higher interest rate in the long run. In contrast, it has been argued that a Neo‐Fisherian policy of setting an interest‐rate peg at a fixed higher level will increase the inflation rate. We show that adaptive learning argues against the Neo‐Fisherian approach. Pegging the interest rate at a higher level will induce instability and most likely lead to falling inflation and output over time. Eventually, this would precipitate a change of policy.     

Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons

The authors' main goal in this paper is to ascertain whether conventional measures of abnormal mutual fund performance are sensitive to the benchmark chosen to measure normal performance. They employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. They find little similarity between the absolute and relative mutual fund rankings obtained from these alternative benchmarks, which suggests the importance of knowing the appropriate model for risk and return in this context. In addition, the rankings are not insensitive to the method used to construct the APT benchmark. Finally, they find statistically significant measured abnormal performance using all the benchmarks. The economic explanation for this phenomenon appears to be an open question.     

Orthogonal Frontiers and Alternative Mean-Variance Efficiency Tests

This paper catalogues properties of minimum norm orthogonal portfolios: portfolios which minimize a quadratic objective function and have returns uncorrelated with those of a candidate portfolio that is not mean-variance efficient. The analysis shows that the dollar versions of these portfolios correspond to estimators of zero beta rates based on alternative statistical criteria and grouping procedures while costless orthogonal portfolios represent candidate mean-variance efficiency tests. It also develops inference procedures for zero and unit net investment portfolios of individual securities (instead of grouped portfolios) that have zero expected betas. The resulting mean-variance efficiency tests are reasonably insensitive to the underlying statistical assumptions.     

The Interdependence of Australian and Foreign Real Interest Rates

We assess the interdependence of the Australian and foreign (USA, Japan, UK, Canada, Germany, NZ) short-term real rates of interest using a quarterly time series: 1970(1) to 1997(4). Applying Zivot and Andrews (1992) tests for stationarity subject to structural breaks we find all series to be 1(1). Structural breaks occurring in each series at different times are explained by policy changes, institutional characteristics or shocks such as the second oil crisis. Conventional bivariate cointegration tests (without breaks) provide limited evidence of interdependence, however using the Gregory Hansen (1996a,b) technique it is clear that foreign and Australian rates are interrelated once structural breaks are accommodated. Multivariate cointegration and error correction modelling confirm this finding. Policy implications are indicated.