Knowledge that Transforms

This introduction to nonparametric regression emphasizes techniques that might be most accessible and useful to the applied economist. The paper begins with a brief overview of the class of models under study and central theoretical issues such as the curse of dimensionality, the bias-variance trade-off and rates of convergence. The paper then focuses on kernel and nonparametric least squares estimation of the nonparametric regression model, and optimal differencing estimation of the partial linear model. Constrained estimation and hypothesis testing is also discussed. Empirical examples include returns to scale in electricity distribution and hedonic pricing of housing attributes.

Nonrenewable resource theory often is summarized by Hotelling's rule. This paper reviews theoretical extensions and empirical investigations of resource extraction models. Observed data are often inconsistent with the Hotelling rule, suggesting that other characteristics of nonrenewable resource supply, including exploration, heterogeneous ore quality, technological progress, and capital investment, are important determinants of the dynamic behavior of resource prices. Given the persistent recurrence of concern about nonrenewable resource scarcity, measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed. Finally, the implications of nonrenewable resource scarcity for economic growth are examined.

This paper studies the origins of an import substitution strategy of development, summarizes the consequences of that strategy, and reviews the problems that led to its failure. The fundamental difficulty was its discouragement of the indigenous social learning necessary for sustained, independent development. The emergence of an outward-oriented, minimal-government strategy is due to the success of Korea and Taiwan. This strategy fails to recognize that social learning requires a strong role for national agents and that this role can be penalized by undue openness. An effective strategy must protect and induce domestic learning without penalizing exporting.

Economists and psychologists who study emotions have worked in near-total isolation from each other. The article discusses some areas in which economists might take account of emotions. After a survey of the main features of emotions as analyzed by psychologists and physiologists, the article discusses three aspects of the relation between emotion and choice. (1) Given that emotions may be intrinsically valuable or instrumentally useful, can one choose to have them? (2) Can emotions supplement rationality in cases where it yields indeterminate prescriptions for choice? (3) When an emotion and self-interest suggest different courses of action, how do they interact to produce a final decision?

After a very long hiatus, economists have begun again to study the relationship between economics and religion. This article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion. Although some of the research concerns the economic consequences of religiosity, most applies standard economic theory to the study of individual religious activity, the characteristics of religious groups, and the impact of regulation and competition on religious markets.

In the two years after the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell over 40%. To what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation? Partial and general equilibrium assessments indicate that the Smoot-Hawley tariff itself reduced imports by 4-8% (ceteris paribus), although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8-10%. A counterfactual simulation suggests that nearly a quarter of the observed 40% decline in imports can be attributed to the rise in the effective tariff (i.e., Smoot-Hawley plus deflation).

The actions of the novel bradycardiac agent ZD7288 [4-(N-ethyl-N-phenylamino)-1, 2-dimethyl-6-(methylamino)pyrimidinium chloride] were investigated on the hyperpolarization-activated cation current Ih and on network activity in spontaneously spindling ferret lateral geniculate (LGNd) slices in vitro using intracellular recording techniques. In voltage-clamp recordings, local application of ZD7288 (1 mM in micropipette) resulted in a complete block of Ih, whereas in current-clamp recordings, application of this agent resulted in an abolition of the depolarizing sag activated by hyperpolarization and decreased the frequency of intrinsic delta-oscillations for which Ih acts as a pacemaker current. In addition, block of Ih with ZD7288 resulted in an abolition of the afterdepolarization (ADP) that follows repetitive hyperpolarization and rebound burst firing as well as that occurring in between spindle waves. The block of the ADP was associated with a block of the spindle wave refractory period such that continuous 6- to 10-Hz oscillations were generated throughout the network. These findings give further support to the hypothesis that Ih is critically involved in the generation of slow rhythmicity in synchronized thalamic activity.

This paper proposes a Bayesian approach to incorporating specification and identification uncertainty into a VAR analysis of the dynamic effects of money supply shocks on the macroeconomy. The approach follows Poirier (1991) in averaging over discrete model specifications in forming posterior densities of the dynamic responses to such shocks. Two distinct means of identifying money supply shocks are considered here: one that imposes contemporaneous restrictions, and one that imposes long-run monetary neutrality. I estimate bounds on dynamic responses that account for specification and parameter uncertainty, and find strong evidence of short-run real effects of money on the economy, including a liquidity effect for both long-term and short-term interest rates. Furthermore, some results differ substantially across identifying restrictions if model uncertainty is ignored.

This paper numerically investigates the significance of rents for both the welfare costs and the optimal design of commodity taxes using a general-equilibrium model calibrated to 1986 Canadian data. In the data we use, Ricardian rents are concentrated in agriculture and utilities, with market structure rents concentrated in manufacturing. Different types of rents have different implications for the welfare cost of taxes, and hence also for appropriate tax design. Ricardian rents lower the cost of taxes; rents supported by imperfect competition (with no free entry) raise the cost of taxes; rents supported by regulation generate rent-seeking costs, and if taxed improve resource allocation. Model results show a markedly nonuniform optimal tax structure, and a substantial influence of the treatment of rents on the pattern of optimal tax rates by commodity.

The paper examines the role of stability constraints in estimation by dynamic simulation. In particular, it analyzes the behavior of the objective function on either side of the boundary of the stability region of the parameter space. The main finding is that stability constraints may be ignored because the simulation-based objective function contains a built-in penalty to enforce stability. A key caveat, however, is that the dynamic stability of the auxiliary model that defines the moment conditions must be checked and enforced. An attempt to fit via simulation to moments defined by a dynamically unstable auxiliary model can be expected to lead to an ill-behaved objective function.