Knowledge that Transforms

The information value of central bank announcements of projected future money growth is shown to depend both on the accuracy of the announcements and the extent to which the announcements themselves are anticipated by the public. The authors construct a new data set on internal Federal Reserve money projections. These projections, which are kept secret while they are in force, are comparable in many important respects to publicly announced Bank of Japan money projections. Using a derivative of the law of iterated projections, the authors estimate the information value of disclosure on the part of the Bank of Japan and the cost of secrecy on the part of the Federal Reserve. They find that the value of the information provided by the Bank of Japan has been small in terms of reducing money surprises, but that disclosure by the Federal Reserve would have significantly reduced money surprises in the United States. Copyright 1992 by MIT Press.

This paper examines evidence about whether workers' compensation adjudicators "split the difference" between the parties' positions. It uses data from a workers' compensation system that provide information about the parties' final offers in both settled and adjudicated cases. Estimates of an "equitable settlement" offer fit the data quite well (R squared = 0.87). They are consistent with the hypothesis that only the parties' positions affected the adjudicator's decision and that the parties' position had equal weight. Adjudicator's did not rely less on more disparate positions. Still, other factors had a strong impact on the parties' positions, which in turn affected the final ratings. Copyright 1992 by MIT Press.

Econometric analysis of duration data raises difficult issues of statistical inference. Building on the work of Prentice (1974) and Farewell and Prentice (1977), Addison and Portugal (1987; henceforth, AP) use the extended generalized gamma (EGG) distribution to test the sensitivity of regression estimates to more restrictive distributional assumptions which frequently have been imposed by other studies. AP find that these restrictions are rejected by data from the 1984 Displaced Worker Survey (DWS) and that imposing them creates large and variable biases in the estimated effects of the independent variables. AP also find that very different distributional forms provide the best fit for two subsamples of displaced workers. Both results suggest that many findings from earlier studies using simple parametric hazard models of unemployment duration are not robust. In this comment, we show that the sensitivity of AP's estimation results to distributional assumptions is a consequence of using an endogenous criteria to stratify the estimation sample, namely, whether or not workers collect Ul. This is an especially serious problem for a sample of displaced workers, because (a) many workers report jobless spells of zero or very few weeks; and (b) most displaced workers are Ul eligible. We also identify several other limitations of the DWS data for estimating unemployment durations and perform sensitivity analysis.

This paper develops a separable functional form in which all the relevant aggregator functions are modeled.to the desired degree of approximation. This leads to separable structures that are more flexible than those implied by parametric restrictions of flexible functional forms. Tests of separability can then be accomplished in a nonnested framework. This approach is illustrated with an application to input-output separability for a multiproduct translog cost function using a robust likelihood ratio testing procedure. Copyright 1992 by MIT Press.

When the regression error variance is constant within subsets of data but differs across the subsets, grouped heteroskedasticity exists. Most tests for grouped heteroskedasticity are based on an asymptotic chi squared variable, and how well they perform in small samples is unknown. In this stud y, the performance of several of these, along with Breusch-Pagan tests, is examined using Monte Carlo methods. Generally, it is found that the tests that tend to be the easiest to apply and use the fewest assumptions are at least as good as somewhat more elaborate procedures. Copyright 1992 by MIT Press.

Thomas P. Frazier, Matthew S. Goldberg, Thomas R. Gulledge, Jr., Department of Defense Profit Policy and Capital Investment in the Military Aircraft Industry, The Review of Economics and Statistics, Vol. 74, No. 3 (Aug., 1992), pp. 394-403

The ability of planners in Poland and the U.S.S.R. to recognize and act to eliminate market disequilibrium in the markets for grain and meat is tested by means of an econometric model of grain and meat production, consumption, and trade. Planners' perceptions of excess demand for grain, meat, and foreign exchange are shown to influence production and trade decisions in a way that tends to reduce excess demand or supply. Nevertheless, the markets for grain, meat, and foreign exchange are shown to be characterized by excess demand or supply for much of the sample period. Copyright 1992 by MIT Press.

McDonald, James B., and Richard J. Butler, Some Generalized Mixture Distributions with an Application to Unemployment Duration, this REVIEW 69 (May 1987), 232-240. Podgursky, Michael, and Paul Swaim, Duration of Joblessness Following Displacement, Industrial Relations 26 (Fall 1987), 213-226. Prentice, Ross L., A Log Gamma Model and Its Maximum Likelihood Estimation, Biometrika 61 (Dec. 1974), 539-544. Swaim, Paul, and Michael Podgursky, Advance Notice and Job Search: The Value of an Early Start, Journal of Human Resources 25 (Spring 1990), 148-178.

This paper examines money-income causality using band spectral filtering techniques. The paper's central finding is that relatively low frequency movements in outside money are responsible for the relationship between money and economic activity. This result is inconsistent with theoretical models in which unanticipated changes in money are responsible for movements in real activity. Reverse causality is also examined. The results are not supportive of a strong feedback relationship from income to inside money. However, there is evidence of strong feedback from income to outside money.

Persons' expectations regarding their ultimate life span provide a tractable empirical opportunity to test for rational expectations. To the extent people only utilize information from "current life tables, " they underestimate the more relevant ultimate life expectancy that results from on-going improvements in mortality experience not reflected in these tables. The expectations observed in the authors' empirical work are not consistent with rational-expectations models. All available information about life expectancies and their trends were not used by the surveyed households in forming life-span expectations. This deficiency precludes correct estimation of the ultimate life expectancy necessary for informed life-cycle choices. Copyright 1992 by MIT Press.