Knowledge that Transforms

Blume, Marshall E., On the Assessment of Risk, Journal of Finance 26 (Mar. 1971), 1-10. Conn, Robert L., of Firms: Comment, Journal of Finance 28 (June 1973), 754758. Friend, Irwin, and Marshall E. Blume, Measurement of Portfolio Performance Under Uncertainty, American Economic Review 60 (Sept. 1970), 561-575. Johnston, J., Econometric Methods (New York: McGrawHill, 1972). Melicher, Ronald W., and David F. Rush, The Performance of Firms: Recent Risk and Return Experience, Journal of Finance 28 (May 1973), 381388. , Evidence on the Acquisition-Related Performance of Firms, Journal of Finance 29 (Mar. 1974), 141-149. Pogue, Gerald A., and Walter Conway, On the Stability of Mutual Fund Beta Values, unpublished working paper described in Franco Modigliani and Gerald A. Pogue, An Introduction to Risk and Return, Financial Analysts Journal (May-June 1974), 69-85. Reid, Samuel R., Mergers, Managers and the Economy (New York: McGraw-Hill, 1968). Rosenberg, Barr, and Michael Houglet, Error Rates in CRSP and Compustat Data Bases and Their Implications, Journal of Finance 29 (Sept. 1974), 1303 -13 10. Smith, Keith V., and J. Fred Weston, Further Evaluation of Performance, Journal of Business Research 5 (Mar. 1977), 5-14. U.S. Federal Trade Commission, Large Mergers in Manufacturing and Mining 1948-1971, Bureau of Economics, Statistical Report No. 1 (May 1972). Weston, J. Fred, and Surendra K. Mansinghka, Tests of the Efficiency Performance of Firms, Journal of Finance 26 (Sept. 1971), 919-936. Weston, J. Fred, Keith V. Smith, and Ronald E. Shrieves, Conglomerate Performance Using the Capital Asset Pricing Model, this REVIEW 54 (Nov. 1972), 357-363.

on CRMID continues to be insignificant. The growth variable is also robust, retaining its value and significance. The conclusions are that highly concentrated industries adjust faster than either competitive or partially oligopolistic industries, while the partially oligopolistic industries adjust significantly faster than the competitive industries. When growth is introduced into the equation, the highly concentrated industries retain their significantly faster adjustment speed, but there is no significant difference between the competitive and partially oligopolistic industries. This implies that there is a relationship (in the data-not necessarily causal) between partial oligopolies and growth, but not between highly concentrated industries and growth.

Study in Macroeconomic 2nd ed. (New York McGraw-Hill, 1971). Barro, Robert J., Are Government Bonds Net Wealth?, Journal of Political Economy 82 (Nov./Dec. 1974), 1095-1118. ,Reply to Feldstein and Journal of Political Economy 84 (Apr. 1976), 343-349. , Impact of Security on Private SavingEvidence from the U.S. Time Series, American Enterprise Institute, 1978. Buchanan, James M., Barro on the Ricardian Equivalence Theorem, Journal of Political Economy 84 (Apr. 1976), 337-342. Darby, Michael R., The Consumer Expenditure Function, Explorations in Economic Research 4 (1977/78), 645674. David, Paul A., and John L. Scadding, 'Private Savings,' Ultra-rationality, Aggregation, and 'Denison' s Law,' Journal of Political Economy 82 (Mar./Apr. 1974), 225-249. Eisner, Robert, Fiscal and Monetary Policy Reconsidered, American Economic Review 59 (Dec. 1969). 897-905. Feldstein, Martin S., Social Security, Induced Retirement, and Aggregate Capital Accumulation, Journal of Political Economy 82 (Sept./Oct. 1974), 905-926. Perceived Wealth in Bonds and Security: A Comment, Journal of Political Economy 84 (Apr. 1976), 331-336. Feldstein, Martin S., and George Fane, Taxes, Corporate Dividend Policy and Personal Savings: British Postwar Experience, this REVIEW 55 (Nov. 1973), 399-411. Kochin, Levis A., Are Future Taxes Anticipated by Consumers? Journal of Money, Credit, and Banking 6 (Aug. 1974), 385-394. Miller, Merton H., and Charles W. Upton, Macroeconomics: A Neoclassical Introduction (Homewood, Ill.: Irwin, 1974). Munnell, Alicia, Effect of Security on Personal Saving (Cambridge, Mass.: Ballinger, 1974). Musgrave, John C., Fixed Nonresidential Business and Residential Capital in the United States, 1925-75, Survey of Current Business 56 (Apr. 1976), 46-52. Tanner, J. Ernest, Empirical Evidence on the Short Run Real Balance Effect in Canada, Journal of Money, Credit, and Banking 2 (Nov. 1970), 473-485. Thompson, Earl A., Debt Instruments in Both Macroeconomic Theory and Capital Theory, American Economic Review 57 (Dec. 1967), 1196-1210.

The issues raised by Steven Kohlhagen (1979) are interesting and merit careful consideration. I believe that such consideration leads to the conclusion that one of the problems that he describes is illusory but that the other is of wider applicability than his paper indicates. Before turning to these problems, however, I would like to point out that much of Kohlhagen's discussion proceeds under the presumption that of the future spot rate are incorrectly modelled-in my study (McCallum, 1977) or in others. But his analysis provides no particular justification for that presumption: the existence of expectations does not imply that are formed in any specific manner.I Consequently, this part of his discussion amounts to a reiteration of the fact that estimation of misspecified models is likely to produce misleading results. Since there is no dispute on that point, this aspect of Kohlhagen's discussion will henceforth be ignored. The interesting issues at hand concern estimation of the MT (modern theory) forward rate equationwith correctly modelled-when two particular conditions prevail. The conditions in question are as follows: (a) expected changes in spot exchange rates are related to expected inflation rates according to purchasing-power-parity considerations; (b) real interest rates are equalized across countries. Together (a) and (b) provide the case that Kohlhagen terms purely Fisherian expectations. In addition, he considers the case in which (a) holds but (b) does not. For reference, let us write the MT equation as2

1970s (Laidler, 1977, p. 134). If this lack of difference is due to the omission of a risk variable then, since our results indicate a bias toward zero in the estimated partial elasticity for a 1970s-like case, the current demand for money may be more interest elastic than it appears and also it may be more elastic than in the 1930s. The policy implication of a greater interest elasticity in the demand for money is that a given increase in the money supply has less impact upon income.

Charles C. Baker, Jr., Anthony J. Vignola, Market Liquidity, Security Trading, and the Estimation of Empirical Yield Curves, The Review of Economics and Statistics, Vol. 61, No. 1 (Feb., 1979), pp. 131-135

Yoram C. Peles, Marshall Sarnat, Corporate Taxes and Capital Structure: Some Evidence Drawn from the British Experience, The Review of Economics and Statistics, Vol. 61, No. 1 (Feb., 1979), pp. 118-120

Bailey, Martin J., Gains and Income Taxation, in A. C. Harberger and M. J. Bailey (eds.), Taxation of Income from Capital (Washington, D.C.: Brookings Institution, 1969), 11-49. Diamond, P. A., Inflation and the Comprehensive Tax Base, Journal of Public Economics 4 (1975), 227244. Feldstein, Martin S., and Amy Taylor, The Income Tax and Charitable Contributions: Estimates and Simulations with the Treasury Tax File, Econometrica 44 (Nov. 1976), 1201-1223. Feldstein, Martin S., and Shlomo Yitzhaki, The Effect of the Capital Gains Tax on the Selling and Switching of Common Stock, Journal of Public Economics 9 (1978), 17-36. Hinrichs, Harley H., Unreporting of Capital Gains on Tax Returns or How to Succeed in Gainsmanship without Actually Paying Taxes, National Tax Journal 17 (June 1964), 158-163. Holt, Charles C., and John P. Shelton, The Lock-in Effect of the Capital Gains Tax, National Tax Journal 15 (Dec. 1962), 337-352, Internal Revenue Service, Sales of Capital Assets Reported on Individual Tax Returns, supplemental report of Statistics of Income, Washington, D.C., 1962.