Knowledge that Transforms

The response of most stock variables (e.g., capital, housing, consumer durables, and prices) to exogenous impulses involves a dynamic-or 'short-run' - reaction, and a target - or 'long-run' - reaction. The difference between these two is typically attributed to some form of adjustment cost. In this paper I argue that the small sample problems of cointegrating procedures used to estimate the ' long'-run component are particularly severe when adjustment costs are important. More precisely, elasticity estimates will tend to be biased downward. I illustrate the empirical relevance of this by showing that the target elasticity of capital with respect to its cost is - severely downward biased when estimated with conventional OLS cointegration procedures. Once this is corrected, the elasticity of the U.S. capital-output ratio to the cost of capital is found to be large and close to (minus) one. Copyright 1994 by MIT Press.

This paper investigates the finite sample properties of likelihood ratio tests for 'stochastic cointegration' that have recently been proposed by S. Johansen and P. Perron and J. Y. Campbell. The author transforms the model into a canonical form and conducts a comprehensive simulation study. He finds that the test performance is very sensitive to the value of the stationary root(s) of the process and to the correlation between the innovations that drive the stationary and nonstationary components of the process. Unfortunately, the simulation results suggest that these asymptotic test procedures are not very powerful for sample sizes that are typical for economic time series. Copyright 1994 by MIT Press.

This study employs a stochastic model developed by G. Udny Yule and Herbert A. Simon as the probability mechanism underlying the consumer's choice of artistic products and predicts that artistic outputs will be concentrated among a few lucky individuals. We find that the probability distribution implied by the stochastic model provides an excellent description of the empirical data in the popular music industry, suggesting that the stochastic model may represent the process generating the superstar phenomenon. Because the stochastic model does not require differential talents among individuals, our empirical results support the notion that the superstar phenomenon could exist among individuals with equal talent. Copyright 1994 by MIT Press.

Yannis M. Ioannides, Stuart S. Rosenthal, Estimating the Consumption and Investment Demands for Housing and Their Effect on Housing Tenure Status, The Review of Economics and Statistics, Vol. 76, No. 1 (Feb., 1994), pp. 127-141

The authors extend Daniel McFadden's (1989) method of simulated moments to approximating efficient estimators in general estimation problems. The general approach applies a simulated bias correction to an approximation of the efficient score. They discuss a general trade-off in estimator inefficiency between bias correction and moment approximation. Copyright 1994 by MIT Press.

Julian M. Alston, Kenneth A. Foster, Richard D. Gree, Estimating Elasticities with the Linear Approximate Almost Ideal Demand System: Some Monte Carlo Results, The Review of Economics and Statistics, Vol. 76, No. 2 (May, 1994), pp. 351-356

Andrew D. Foster, Mark R. Rosenzweig, A Test for Moral Hazard in the Labor Market: Contractual Arrangements, Effort, and Health, The Review of Economics and Statistics, Vol. 76, No. 2 (May, 1994), pp. 213-227

This paper uses 1979-85 data on women from the National Longitudinal Survey of Youth to examine the eco-nomic, sociological, and institutional antecedents of adolescent childbearing and high school completion and to analyze the effect of early childbearing on school completion. Fertility and school completion are modeled as dichotomous outcomes, and their determinants are estimated using a bivariate probit specification. The paper finds evidence that adolescent childbearing is an endogenous determinant of high school completion and that failing to account for this endogeneity leads to an over-estimate of the schooling consequences of early childbearing.

Amos Golan, George Judge, Sherman Robinson, Recovering Information from Incomplete or Partial Multisectoral Economic Data, The Review of Economics and Statistics, Vol. 76, No. 3 (Aug., 1994), pp. 541-549

M. Ishaq Nadiri, Theofanis P. Mamuneas, The Effects of Public Infrastructure and R & D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries, The Review of Economics and Statistics, Vol. 76, No. 1 (Feb., 1994), pp. 22-37