Knowledge that Transforms

Dennis L. Hoffman, Don E. Schlagenhauf, An Econometric Investigation of the Monetary Neutrality and Rationality Propositions from an International Perspective, The Review of Economics and Statistics, Vol. 64, No. 4 (Nov., 1982), pp. 562-571

Data Resources, Inc., Regional Load-Curve Models, vols. 1 and 3 (Aug., Sept. 1981). Engle, Robert, Clive W. J. Granger, Allen Mitchem, and Ramu Ramanathan, Some Problems in the Estimation of Daily Load Shapes and Peaks, Modelling and Analysis ofElectricity Demand by Time-of-Day, Electric Power Research Institute (EPRI), EA-1304, Dec. 1979. Engle, Robert F., Clive W. J. Granger, and Ramu Ramanathan, Regional Load Curs e Models: QUERJ's Model Long Run Forecasts and Sensitidvity Analysis, EPRI, EA-1672, vol. 4 (Sept. 1981). Granger, Clive W. J., Robert F. Engle, Ramu Ramanathan, and Allan Andersen, Residential Load Curves and Time-of-Day Pricing: An Econometric Analysis,' Journal ofEconometrics 9 (1979), 13-32. Granger, Clive W. J., et al., A Regional Load Curve Model: Specification and Estimation, Electric Power Research Institute, forthcoming. Graybill, Franklin, Theory and Application of the Linear Model (North Scituate, MA: Duxbury Press, 1976). Hanushek, Eric A., Efficient Estimators for Regressing Regression Coefficients, The American Statistician 28 (May 1974), 66-67. Mitchem, Allen, A Regional Model of Time of Day Elasticity Demand: A Tiuo Stage Approach, unpublished PhD dissertation, University of California at San Diego, 1981. Poirier, Dale, Economic Issues in Land Forecasting, Modelling and Analysis of Electricity Demand by Time-oJ-Day, EPRI, EA-1304, Dec. 1979. Ramanathan, Ramu, Robert F. Engle, and Clive W. J. Granger, Regional Load Curlve Models: QUERJ's Model Long Run Forecasts and Sensitivity Analysis, EPRI, EA-1672, vol. 2 (Aug. 1981). University of Arizona Engineering Experiment Station, Modelling and Analysis of Electricity Demand by Time-of-Day, EPRI, EA-1304, Dec. 1979 (proceedings of the EPRI workshop at San Diego). U.S. Department of Commerce, Notes on TemperatureHumidity Index, L.S. 5922, June 1959.

One of the aspects of the economic difficulties Poland is experiencing is an acute shortage of consumer goods. Since the per capita consumption of particular goods has been relatively high, the source of trouble arises from the wrong structure of prices that are (administratively) set. The aim of this paper is to evaluate the equilibrium prices for main groups of commodities for the period 1965-1978. Concurrently, the estimates of the quantity-term disequilibria are computed. The analysis are based on the Extended Linear Expenditure Systems for Ireland and Italy adjusted to the historical data for Poland.

A recent survey on models of agricultural supply equations listed over 500 studies in which variants of Nerlove's adaptive expectations model were employed.' One might naively assume that the scientific evidence overwhelmingly favored the adaptive expectations hypothesis, but this inference would not be warranted. In particular, there have been very few studies which have even attempted to estimate a expectations version of the traditional agricultural supply models and none that have explicitly tested the expectations hypothesis.2 In this paper we estimate a model of agricultural supply and demand for the chicken broiler industry under the maintained assumption of expectations in the sense of Muth (1961) and provide a series of tests of the model specification. We find that, in this case, the hypothesis of Muth rationality receives strong support. In recent years there has been increasing interest in models in which economic actors are assumed to form expectations of variables rationally. For the most part, empirical applications of the expectations hypothesis have employed single-equation econometric methods. These methods have permitted consistent estimation of equations under the assumption of the expectations hypothesis but do not allow for any explicit testing of the maintained hypothesis of rationality. This paper presents estimates of a simultaneous equation model of the chicken broiler industry using maximum likelihood methods and provides a joint test of the expectations hypothesis and the model specification. Our econometric procedure is related to the recent theoretical work of Wallis (1980) and combines time series analysis with traditional econometric estimation techniques. Under the assumption of expectations, the model can be solved for the expected price as a function of the expected values of the exogenous variables. This function can then be substituted into the model leading to a specification which contains the original endogenous and exogenous variables plus the expected values of the exogenous variables. In general, following this substitution, the model will contain overidentifying restrictions. Time series analysis is utilized to generate the necessary forecasts of the exogenous variables. The complete system of equations is estimated by full-information maximum likelihood, and the constraints are tested by a log-likelihood ratio test. The overidentifying constraints arise in the model because the suppliers are assumed to act as if they know both the underlying structure of the model and the stochastic processes governing the exogenous variables, the two requirements of expectations. While the expected price enters only the supply equation of our model, it is necessary, in the econometric formulation, to specify the demand equation. The instrumental variable procedures of McCallum (1976) and Nelson (1975b) are single-equation methods and do not permit a test of the expectations hypothesis. By specifying the complete model, the additional structure imposed on the problem allows us to estimate the coefficients and test the implied restrictions. There has not been universal agreement that the expectations hypothesis is the best theoretical device to model rational behavior. According to Muth's original formulation, economic actors forecast endogenous variables according to the true reduced form equations of the model. DeCanio (1979) and Friedman (1979) have argued that the economic actors actually Received for publication August 24, 1981. Revision accepted for publication March 2, 1982. ' University of New Mexico and University of California, Davis, respectively. We wish to thank G. King, R. L. Huntzinger, R. Pope, and L. Wegge for advice on this project. A. Nelson and E. Shaw contributed useful research assistance. I The paper by Askari and Cummings (1977) provides references for these studies. 2 Huntzinger's (1979) paper is one of the first attempts at estimatitng a expectations model of agricultural supply.

Separate demand equations for imports from less-developed countries (LDCs) and imports from developed countries (DCs) were estimated for each of eleven representative product groups. Imports were found to compete quite readily with domestically produced goods, with plausible own-price and cross-price elasticities. Whereas the quantity of each type of import was found to be quite responsive to changes in the price of US home goods, each appears to be less sensitive to the price of the alternative import. An explanation that is consistent with this observation, and that finds support from detailed industry information, is that DCs and LDCs supply goods that are at different stages in the product or technology cycle, whereas US producers compete in all submarkets. This suggests that trade creation rather than trade diversion provides the predominant inroad for LDCs into the US market. 25 references, 3 tables.

Arthur S. De Vany, Thomas R. Saving, Life-Cycle Job Choice and the Demand and Supply of Entry Level Jobs: Some Evidence from the Air Force, The Review of Economics and Statistics, Vol. 64, No. 3 (Aug., 1982), pp. 457-465

This discussion begins with a review of the basic features of the Western neoclassical models of human capital and fertility and their counterparts that are employed in this study. This contrasts leads to the conclusion that the Western and Eastern models (in their contemporary forms) are basically identical. The agreement on the theoretical foundations of human capital analysis is bolstered by substantial agreement in the empirical results. The major comparative study of fertility and family in Eastern and Western Europe (UN 1976) failed to reveal a distinctive pattern of behavior for Eastern Europe other than its steeper decline in fertility since the mid 1950s. In general Soviet and Eastern European research (and Western studies) has yielded partial relationships similar to those found in Western countries. A simulatenous equation model of fertility female labor participation and marriage was specified and estimated using a combined time series cross section of Eastern European countries including the Soviet Union. Homogeneity tests required pooling over time and countries (except in the case of the participation equation) and the model was estimated using OLS 2SLS and Zellner-iterative techniques. The estimated equations revealed no major surprises. The labor supply of women was retarded by high fertility; higher wages drew additional women into the labor force; reductions in infant mortality lowered fertility; narrowing of the female wage differentials reduced fertility as did increases in marital instability. If there are surprises they were the positive impact of education upon fertility and the insignificant effect of female labor force participation on fertility. Simulations of the reduced form of the system revealed the direct and indirect effects of changes in exogenous variables and of shocks to intercepts. Forecasts of fertility female labor force behavior and marriage were made for the year 1990 on the basis of certain likely scenarios. All of these scenarios predicted further reductions in fertility and marriage rates and increases in female participation rates. The exercise suggests that there is no unique socialist model of population growth and labor force behavior suggesting instead that families behave similarly under radically different economic systems. There are reservations to this conclusion and the unexpected positive education effect on fertility and the insignificant female participation effect on fertility may suggest that differences in economic systems do matter in household decision making.

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