Knowledge that Transforms

A bstratAcross industry and country comparisons have found the speed of adjustment in short-run employment functions to be positively related to the rate of unemployment. The present paper develops a time-series model in which the reaction coefficient varies with unemployment, and estimates it for the manufacturing sectors of the eight OECD countries for which suitable data are available. The new model is non-linear and is estimated using full information maximum-likelihood procedures. Application of the log-likelihood ratio test finds that the new vanable reaction coefficient model is superior to the fixed reaction coefficient model for the United States, Canada, Australia, Austria, Ireland and the United Kingdom.

Boskin, Michael J., Mark Gertler, and Charles Taylor, Impact of Inflation on U.S. and International Competitiveness (Washington, D.C.: National Planning Association, 1980). Carlton, Dennis W., The Disruptive Effect of Inflation on the Organization of Markets, in Robert E. Hall (ed.), Inflation: Causes and Effects (Chicago: University of Chicago Press, 1982). Fama, Eugene, Short-term Interest Rates as Predictors of Inflation, American Economic Review 65 (June 1975), 269-282. Freund, William C., and Paul B. Manchester, Productivity and Inflation, in John D. Hogan (ed.), Dimensions of Research, Vol. I (Houston: American Center, 1980), 53-71. Geweke, John, Richard Meese, and Warren T. Dent, Comparing Alternative Tests of Causality in Temporal Systems: Analytic Results and Experimental Evidence, Journal of Econometrics 21 (Feb. 1983), 161-194. Granger, C. W. J., Investigating Causal Relations by Econometric Models and Cross-Spectral Methods, Econometrica 37 (July 1969), 424-438. Guilkey, David K., and Michael K. Salemi, Small Sample Properties of Three Tests for Granger-Causal Ordering in a Bivariate Stochastic System, this REVIEW 64 (Nov. 1982), 668-680. Houthakker, Hendrik S., Growth and Inflation: Analysis by Industry, Brookings Papers on Economic A ctivity (1979), 241-256. Hsiao, Cheng, Autoregressive Modelling and Money-Income Causality Detection, Journal of Monetary Economics 7 (1981), 85-106. , Autoregressive Modeling and Causal Ordering of Economic Variables, Journal of Economic Dynamics and Control 4 (1982), 243-259. Jarrett, J. Peter, and Jack G. Selody, The Productivity-Inflation Nexus in Canada, 1963-1979, this REVIEW 64 (Aug. 1982), 361-367. Kendrick, John W., and Elliot S. Grossman, in the United States: Trends and Cycles (Baltimore: Johns Hopkins University Press, 1980). Sims, Christopher A., Money, Income and Causality, American Economic Review 62 (Sept. 1972), 540-552. U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts of the United States, 1929-76, Statistical Tables (Washington, D.C.: Superintendent of Documents, 1981). U.S. Department of Labor, Bureau of Labor Statistics, tables headed Analytical Ratios for the Business Sector, All Indexes 1977 = 100, and Basic Industry Data for the Business Sector, All Persons, printout dated April 27, 1983.

This paper presents microeconomic estimates of substitution possibilities between capital-intensive, solar-produced energy and conventional, nonrenewable energy sources, while examining the conditions under which recently enacted tax incentives designed to accelerate solar's market penetration could result in an increase, rather than a reduction, in the consumption of nonrenewable energy sources. The empirical results imply that such counter-productive outcomes are possible, given long-run elasticities of demand for energy services around - 1.5.

Macroeconomics has always rested on the fiction that the behavior of aggregates was stable and, therefore, individual market phenomena could be safely ignored. In an important recent contribution, David M. Lilien challenged this fiction and argued that a large component of fluctuations in unemployment could be explained by the dispersion of employment growth across industries. This paper develops models of consumption and investment paper in which the dispersion of economic activity can play a role. The econometric evidence suggests an important role for the dispersion of economic activity in explaining aggregate consumption and investment.

Following the method of Hansen and Hodrick (1980) we test the efficiency of the Canada-U.S.A. foreign exchange market by pooling information from contracts of five lengths. The test is based on daily data from the period 1971 to 1980 inclusive. We show that these data reject the joint hypothesis of exchange market informational efficiency and no risk premlum. The degree to which foreign exchange markets are inefficient is of obvious importance. McKinnon (1976) has argued that a lack of speculative activity has led to excessive exchange rate turbulence and associated economic cost; this would be manifest in exchange inefficiency. Additionally, tests of the efficiency of the well organized foreign exchanges are of obvious value in the ongoing debate concerning the validity of the Rational Expectations Hypothesis. In this note we report the results of a test of the joint hypothesis of exchange market informational efficiency and no risk premium. The test is based on a generalized concept of the foreign exchange market. The study uses daily data on the Canada-U.S.A. market for the period 1971 to 1980 inclusive. In its most general form, Fama's condition for market efficiency is f(i,t) = E(f(i -j,t + j)14(t)) (1) where f (i, t) is the forward exchange rate prevailing at time t for a contract of i months; s1(t) is the information set available to market participints at time t; and E(-) is a conditional expectations operator. If condition (1) did not hold and transactions were Received for publication August 3, 1982. Revision accepted for publication February 10, 1984. *Nuffield College, Oxford, and Bank of Canada, respectively. The views expressed in this paper are those of the authors and no responsibility for them should be attributed to the Bank of Canada. We appreciate the comments and assistance of David Burton, Kevin Lynch, Donn Maccara, Barbara Macpherson, George Pickering, Heather Robertson, and two anonymous referees. This content downloaded from 157.55.39.163 on Wed, 21 Sep 2016 05:12:50 UTC All use subject to http://about.jstor.org/terms 670 THE REVIEW OF ECONOMICS AND STATISTICS costless, speculators could make risky profits by taking the appropriate long or short position. Thus the hypothesis of efficient markets which we test consists of two parts: the assertion that expectations are rational; and the postulation that speculators swiftly arbitrage away economic profits by exploiting valuable information. Equation (1) recognizes the fact that a speculator in the foreign exchange market has many trading strategies open to him (Caller, 1980). For instance, a speculator can buy a two month forward contract and hold it until it matures, in which case the corresponding speculative rate is the spot rate two months hence: alternatively one can buy a three month contract and match it with a one month contract which starts two months hence. If the foreign exchange market is efficient, the speculator should be indifferent between these two, and all other possible strategies, and no strategy should yield extraordinary profit. This formulation is in contrast to the more commonly used formulation of informational efficiency, f(i,t) = E(s(t + i) l4(t)), where s(t + i) is the spot exchange rate observed at time t + i. Clearly, this condition reflects merely a single instance of the general formulation (1). By examining the complete set of strategies implied by (1) we are better able to address the question of foreign exchange market efficiency. Consistent with the view that there exists a wide array of speculative strategies open to a speculator within the Canada-U.S.A. market, we model the speculator as basing decisions on prediction errors recently realized from various maturities of the same market. In previous studies of this nature, tests have often been based upon an information set involving a single and a single (Cornell and Dietrich, 1977; Levich, 1978; Blejer and Khan, 1980; and Longworth, 1981). Usually this has been done to avoid the problem of overlapping observations, which will be further discussed below. However, the choice of a relatively coarse data frequency makes these tests less powerful, if the phenomena of interest are of extremely short duration, as was proved by Hansen and Hodrick (1980). Alternatively, economists have modelled speculators as basing their decisions on the information from multiple markets, all of the same (Geweke and Feige, 1979; Hansen and Hodrick, 1980). This is the normal method of transforming a weakform test (a test which uses only lagged regressands as explanatory variables) into a semi-strong test (which in addition to lagged regressands incorporates into the test other publicly available information). Our test is composed by pooling information from varying maturities for the same currency, instead of pooling information from different currencies of identical maturities. Our procedure seems to be an interesting alternative, primarily because of the information costs associated with speculating with many currencies. Speculation may be pictured as being a currency activity (with arbitrage occurring readily between lengths of a given ratio), as well as a maturity length specific activity. I.e., speculators may concentrate their attention on the dollar-yen rate, rather than the three-month market. Thus, we would expect information to be disseminated quickly across lengths; finding that information from one is not quickly disseminated to other maturities would be strong evidence against market

A device is presented that allows the user of any input-output price model to induce modifications in some selected coefficients in response to changes in prices. These modifications are induced by specifying the values of some elasticities, whenever they are defined. These values may come from other studies, from the user's own knowledge or beliefs about the situation, or from those of experts. If subjective elasticities are used, a simple rationality rule greatly reduces the task of determining their values when the substitution between two inputs or two groups of inputs is assumed to be a function of their prices only. This assumption does not prevent there being, in a second stage, substitution between these two inputs treated as a group and other inputs or groups of inputs.

Fama, Eugene, and Richard Roll, Some Properties of Symmetric Stable Distributions, Journal of the American Statistical Association 63 (Sept. 1968), 817-838. ______ Parameter Estimates for Symmetric Stable Distributions, Journal of the American Statistical Association 66 (June 1971), 331-338. Friedman, Daniel, and Stoddard Vandersteel, Short-run Fluctuations in Foreign Exchange Rates: Evidence from the Data 1973-79, Journal of International Economics 13 (Aug. 1982), 171-186. Gnedenko, B. V., and A. N. Kolmogorov, Limit Distributions for Sums of Independent Random Variables (Reading, MA: Addison-Wesley, 1968). International Monetary Fund, International Monetary Fund Survev, various issues. Judge, George G., William E. Griffiths, R. Carter Hill, and Tsoung-Chao Lee, Theory and Practice of Econometrics (New York: John Wiley and Sons, 1980). Kendall, Maurice G., and Alan Stuart, Advanced Theory of Statistics, 2nd Edition, Vol. I (London: Charles Griffin and Co., 1963). Kindleberger, C. P., The Benefits of International Money, Journal of International Economics 2 (Sept. 1972), 425-442. Mandelbrot, Benoit, Variation of Certain Speculative Prices, Journal of Business 36 (Oct. 1963), 394-419. McFarland, James W., R. Richardson Pettit, and Sam K. Sung, The Distribution of Foreign Exchange Price Changes: Trading Day Effects and Risk Measurement, Journal of Finance 37 (June 1982), 693-715. Moulton (Westerfield), Janice, An Estimation of Foreign Exchange Risk Under Fixed and Floating Rate Regimes, Journal of International Economics 7 (June 1977), 181-200. Rogalski, Richard J., and Joseph D. Vinso, Empirical Properties of Foreign Exchange Rates, Journal of International Business Studies 9 (Fall 1978), 69-79. Roll, Richard, Behavior of Interest Rates (New York: Basic Books, Inc., 1970). Schmidt, Peter, Econometrics (New York: Marcell Dekker, Inc., 1976).

Recent theoretical developments on multiproduct firm costs have increased our understanding of these firms. Yet, to date, empirical analysis of the relationship between multiproduct firm costs and industry structure has been limited. In this paper, the multiproduct nature of US energy producers is explicitly recognized, and a multiproduct cost function estimated for the industry. The empirical results indicate that the multiproduct structure of large energy firms has, at least in part, been motivated by economies of scope between petroleum and coal operations. 27 references, 19 footnotes, 3 figures, 1 table.