Knowledge that Transforms

Most OECD economies, including that of Canada, experienced a slowdown in economic growth from the 1961–1973 period to the 1973– 1988 period, and to the 1988–1995 period. Consequently, progress in the standard of living, as measured by GDP per capita, also slowed down in most OECD countries over the three subperiods. This paper analyses the sources of output growth in 122 industries and in the private business sector to gain an additional perspective on the slowdown of the Canadian economy. We adopt the constant-quality indexes of capital and labor inputs introduced by Dale W. Jorgenson and Zvi Griliches (1967) and later used extensively in Jorgenson et al. (1987), Jorgenson (1995a, b), and Jorgenson and Eric Yip (2000) to identify the sources of growth. These measures allow us to take into account the changing composition of the labor force and the capital stock. At the industry level, we adjust for capital quality by aggregating the capital stock across five asset types by means of the rental prices of capital rather than the asset prices of capital. The use of rental prices allows us to incorporate differences in depreciation rates and tax treatment across different asset types for each industry. At the same time, we combine hours worked by each type of worker using the share of labor compensation to reflect labor quality. At the aggregate level, we apply the same framework by aggregating the capital stock across different asset types and hours worked across different types of workers. A number of studies have compared Canada’s economic growth performance with that of its competitors using this framework (Chrysostom Dougherty, 1991; Dougherty and Jorgenson, 1997; Jorgenson and Yip, 2000). However, this is the first attempt at using this framework to assess Canada’s economic performance at the industry level.

The (S, s) model has enjoyed tremendous popularity over the past decade. It has been employed almost everywhere that discrete adjustment is observed. Today microeconomic rigidities are seen as an important influence on aggregate dynamics. In this paper we quickly characterize the microeconomic evidence for the model. To narrow the scope of our discussion, we will focus our attention on real variables, and we will comment on price inertia where appropriate. We conclude that, in spite of its popularity, the evidence for the importance of the (S, s) adjustment is surprisingly weak. We argue that discrete adjustment is, in and of itself, of little macroeconomic interest. To be important these frictions must coordinate agents to act together, thereby exacerbating deviations from the neoclassical benchmark. To date there have been few attempts at empirically identifying such interactions. In the last section, we present some results of our own. We test one of the main implications of (S, s) adjustment, that a greater variance in the forcing process leads to more frequent adjustment. Using data on automobiles from the Consumer Expenditure Survey, we find that more variable income leads to less frequent adjustment. We speculate that this correlation is indicative of a link between discrete adjustment and imperfect capital markets. This interaction could provide an important role for (S, s) frictions.

Central bank credibility plays a pivotal role in much of the modern literature on monetary policy, yet it is difficult to measure or even assess objectively. A survey of central bankers was conducted to determine their attitudes on two important issues: why credibility matters, and how credibility can be built. The central bankers' answers are compared with the responses of NBER-affiliated macro and monetary economists. The two groups agree much more than they disagree. They are particularly united in their evaluations of ways to make a central bank credible -- assigning high ratings to the central bank's track record and low ratings to theoretical ideas like precommitment and incentive-compatible contracts.

Output Fluctuations in the United States: What Has Changed since the Early 1980's? by Margaret M. McConnell and Gabriel Perez-Quiros. Published in volume 90, issue 5, pages 1464-1476 of American Economic Review, December 2000

The effect of insecure ownership on ordinary investment and natural resource use is examined. Insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability. The political determinants of economywide investment are estimated from cross-country data, and the results are used to form an index of ownership security. When introduced into empirical models of natural resource use, this index has a significant and quantitatively important effect on the use of forests and petroleum. Contrary to conventional wisdom, ownership risk slows resource use in some circumstances. (JEL Q20, Q30, E22)

Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care by Jacob Glazer and Thomas G. McGuire. Published in volume 90, issue 4, pages 1055-1071 of American Economic Review, September 2000

Garfinkel: Department of Economics, University of fornia, 3151 Social Science Plaza, Irvine, CA 92697; Lee: artment of Economics, University of California, 3151 SoScience Plaza, Irvine, CA 92697, and International MonFund, 700 19th Street, NW, Washington, DC 20431. We k, without implicating, Avinash Dixit, Amihai Glazer, chel Grossman, Luisa Lambertini, Stergios Skaperdas, an ymous referee, and seminar participants at the University alifornia-Los Angeles, California State Universityerton, and the 1998 Winter Meetings of the Econometociety for helpful comments on previous drafts of this r, which had been circulated under the title “Political ipline and the Dynamic Consistency of Policy.” The s expressed in this paper are those of the authors and ld not be attributed to the International Monetary Fund. See Torsten Persson and Guido Tabellini (1990) for a ul survey of this literature.

Nominal Wage Rigidity and Industry Characteristics in the Downturns of 1893, 1929, and 1981 by Christopher Hanes. Published in volume 90, issue 5, pages 1432-1446 of American Economic Review, December 2000