Knowledge that Transforms

This study considers the relationship between market power and multinational involvement through use of a market-valuation approach. Estimation results for a sample of large US multinationals reveal superior valuation effects due to returns from foreign as opposed to domestic operations. This finding is consistent with the hypothesis that returns from the US market tend to be less secure, and therefore less valued, than are returns from foreign markets due to both real (market size, entry barriers, etc.) and institutional (antitrust policies, etc.) differences in competitive environments. Such findings are also consistent with previous suggestions that firms develop markets abroad in order to exploit economic-rent opportunities. These findings remain tentative, however, and await verification in future studies of data from both the United States and abroad. 13 references, 1 table.

John M. Trapani, C. Vincent Olson, An Analysis of the Impact of Open Entry on Price and the Quality of Service in the Airline Industry, The Review of Economics and Statistics, Vol. 64, No. 1 (Feb., 1982), pp. 67-76

Using a new set of directly observed wage expectations among firms, this paper finds that in general firms' forecasts fail the unbiasedness and efficiency requirements of weak-form rational expectations. These market participants consistently underestimate the wages they actually end up paying, and their expectations do not efficiently utilize the information in past realizations. The mean absolute forecast error of two percent compares with an error of only five percent if static expectations were held. The major source of wage fore-cast error seems to be errors in predicting demand, rather than in predicting supply or the general price level. Wage forecast errors are positively correlated across fields with distinct supply patterns, and are positively correlated with quantity forecast error. The properties of stochastically weighted expectations and the effectiveness of the wage and price controls of the early 1970's are also discussed.

Recent studies by Enzler, Johnson, and Paulus (1976), and Goldfeld (1976) have offered extensive evi. dence consistent with the claim that the demand for money function has shifted. In particular, both of these studies find that specifications of the demand for money equation, when fitted beyond 1973 consistently overpredict the actual demand for money and that the forecast errors are large. However, a recent paper by Hamburger (1977), using an alternative specification of the demand for money, provides evidence that shows improvement over the results given by Goldfeld. Clearly, the resolution of the question of stability has important implications for the appropriate conduct of monetary policy. The purpose of this paper is to show that the conventional demand for money equation which employs permanent GNP instead of measured GNP (as employed by Goldfeld) results in smaller forecast errors when the equation is extrapolated beyond 1973. It is also shown that while this result holds under a variety of parameter estimation techniques, demand equations estimated using more sophisticated techniques appear to perform better. Thus, the evidence in this paper has implications for the appropriate estimation as well as the proper specification of the demand for money. Since the main issue is the stability of the demand for the MI stock of money, the following analysis is restricted to estimating the money demand equation for MI only. There has been little controversy regarding the demand for the broader money stocks, M2 or M3. In section I, we specify our demand for money equation and estimate it using the familiar Cochrane-Orcutt (CORC) technique. We then extrapolate the estimated equation over the 1974:1 to 1979:4 post-sample period. In section II, we reestimate the demand for money using the estimation technique recently developed by Michio Hatanaka (1974) and again examine the postsample forecasts provided by this superior estimation procedure. The implications of these results and the major conclusions of the paper are discussed in section III. I.

The diffusion of industrial technology through its principal agents (firms) can have far-reaching effects on factor productivity, economic growth, and inflation in a market-oriented economy. Because of this, studies have sought to discover the conditions most favorable to technically-progressive decisions by individual firms. This paper, by exploring some important empirical relationships affecting the propensity of American textile mills to purchase textile machinery innovations in the postwar period, offers the opportunity to discover additional insights into the area from a new and extensive body of industry data, as well as to verify (or disavow) some earlier findings where economists have had only limited observations and industries to study. Moreover, a unique exposure to the process is provided by conducting an examination of a traditional, fragmented industry rather than the usual hightechnology, capital-intensive industry. The analysis begins by relating some important economic attributes of firms to decisions regarding adoption, and the timing of adoption, of thirty-three textile machinery innovations. The often dominating firm-size factor is examined along with the firm's competitive environment, its labor costs, and its foreign activity involvement. The paper then estimates the concentration of progressive behavior in textiles to determine if the same firms have repeatedly been the pioneers. This concentration is contrasted with experiences established in other industries. Finally, the timing of overall industry adoption is related to the industry's business cycle, to determine where in the cycle it is typical for firms to proceed with modernization efforts.

volvement by U.S. Manufacturing Industry, OxfJord Economic Papers 32 (Mar. 1980), 102-122. Lindenberg, Eric B., and Stephen A. Ross, Tobin's q Ratio and Industrial Organization, Journal of Business 54 (Jan. 1981), 1-32. Marvel, Howard P., Foreign Trade and Domestic Competition, Economic Inquiry 18 (Jan. 1980), 103-122. Thomadakis, Stavros B., A Value-Based Test of Profitability and Market Structure, this REVIEW 59 (May 1977), 179-185.

Albert Fries, John P. Hutton, Peter J. Lambert, The Elasticity of the U.S. Individual Income Tax: Its Calculation, Determinants and Behavior, The Review of Economics and Statistics, Vol. 64, No. 1 (Feb., 1982), pp. 147-151