Knowledge that Transforms

Even if You's method for accounting for capital employment could be successfully implemented, his claim that his results support Okun's original estimate of the link between unemployment and the GNP gap would be incorrect. His claim of support for a three to one link between the employment ratio and output gap results from a failure to distinguish the response of real GNP and of PBS output to a change in the employment ratio. When his estimates are corrected for this, the results are in line with the significantly smaller link which others have recently observed. An alternative method of including capital in the production function-used by Rasche and Tatom (1977), among others-indicates that the Federal Reserve Board index of capacity utilization is an adequate measure of the capital employment ratio. Tatom (1980) has shown that the capital-labor ratio is procyclical in the context of this approach-a claim made by You, but not supportable by his analysis.

part of the analysis undertaken in Smyth (1980). A comparison of the mean values of X for the countries with the positive /3s, those with /3s that are negative and significant at the 5% level, and all those with negative /3s fails to support Otani's hypothesis. The mean values of X for the countries with positive /3s are greater than for the corresponding means for the negative /8 countries in three of the four comparisons, and trivially less (0.28 compared to 0.29) for Xs when the significantly negative /8 countries are used in the comparison. Table 1 also reports the coefficients obtained when /8 and XB and /8 and XS are correlated. The Otani hypothesis predicts negative correlation. However, the product moment and rank correlation coefficients are all positive; none are significant at the 5% level. The evidence, then, does not support Otani's explanation of the inter-country differences in his estimates of the relationship between real wages and output in the manufacturing sectors of industrialized countries. REFERENCES

, Returns to Research and Development in the Private Sector, in J. Kendrick and B. Vaccara (eds.), New Developments in Productivity Measurement and Analysis (Chicago: University of Chicago Press, 1980). National Science Foundation, Research and Development in Industry (Washington: Government Printing Office, an-nual issues). Pakes, Ariel, and Mark Schankerman, The Rate of Obsolescence of Knowledge, Research Gestation Lags, and the Private Rate of Return to Research Resources, Harvard Institute of Economic Research, Paper No. 659, Oct. 1978.

David J. Smyth, Real Wages, Business Cycles and the Speed of Adjustment of Employment in Manufacturing Sectors of Industrialized Countries, The Review of Economics and Statistics, Vol. 63, No. 2 (May, 1981), pp. 311-312

Edgar L. Feige, Kenneth J. Singleton, Multinational Inflation under Fixed Exchange Rates: Some Empirical Evidence from Latent Variable Models, The Review of Economics and Statistics, Vol. 63, No. 1 (Feb., 1981), pp. 11-19

REFORMING welfare programs targeted on low income households will change the disposable income of families and individuals affected by the reform. Financing the new program with an increase in personal taxes redistributes income, on net, from high and middle income households to low income ones. This empirical study investigates expenditure responses elicited by these changes in disposable, income. Regression equations for a complete set of 22 individual expenditure items are estimated with the 1960-61 Bureau of Labor Statistics Survey of Consumer Expenditures (SCE) data, described in U.S. Department of Labor (1971). Income coefficients from these equations are used to predict household expenditure responses to microsimulated disposable income changes in the SCE data from two separate surtax-financed negative income tax (NIT) programs. The regression analysis tracks nonlinear in income Engel curves for each of the commodities. The two simulated NIT programs redistribute $3.04 billion and $33.4 billion in disposable income from surtaxpayers to NIT recipients. About one third of this new disposable income is spent on basic necessities (food, clothing, and shelter) by program beneficiaries. A deficitfinanced NIT program provides relatively strong stimulation to only clothing markets among the necessity items, but a surtax-financed program injects a relatively large stimulus into both food and shelter markets. In general, markets for nondurables are relatively stimulated while durable good markets either grow less than normal or contract under a modest guarantee surtaxfinanced NIT program. From a macroeconomic perspective, a deficit-financed NIT program increases total consumer expenditure by between 75% and 100lo of program net costs, while a surtax-financed program generally stimulates the economy by raising aggregate consumption by between 10% and 50% of the net program cost. The paper is organized as follows. Section II presents the expenditure regression models and reports regression statistics, income elasticities, and selected income spending propensities from the full set of expenditure equations estimated under both current and permanent income models of consumer behavior. Section III discusses the NIT simulations, and section IV reports and analyzes the expenditure response predictions to the simulated NIT programs. Conclusions and suggestions for future research appear in section V.

egalitarian than the slave South or urban areas of its time, it does not follow that this region represented a classic egalitarian society. Although wealth was greater in the older, more settled areas of the country, the median wealthholding, particularly in the nonslave states, was remarkably uniform across states, suggesting that migration took place from households lying toward the middle of the eastern states' wealth distributions, which together with the flow of immigrants would explain both the similarities between East and West and the differences in wealth patterns and in the social and demographic characteristics of the wealthholders. The patterns of age and wealth accumulation were consistent with the Life Cycle hypothesis, while the social characteristics of the wealthholders are consistent with a hypothesis of racial and sexual discrimination. To be wealthy in this egalitarian society of historical tradition was to be a middle-aged, native-born, white, literate, male farmer.

where F and S are, respectively, the forward and spot prices of foreign exchange and r(*), the domestic (foreign) interest rate. Empirically, however, condition (1) does not always appear to have been satisfied, thus raising questions regarding the existence of unexploited profit opportunities in the foreign exchange market. Previous studies have attempted to offer explanations for these apparent deviations from interest parity. For example, Prachowny (1970) emphasized the role of capital market imperfections, Aliber (1973) stressed measurement error and political risk, while Branson (1969) and later Frenkel and Levich (1975) argued that departures from interest parity were due to transactions costs. In Canada, three of these factors have, with perhaps varying degree, had some influence on developments in financial markets during the 1970s. First, as evidence of capital market imperfections, there was the Winnipeg Agreement between the Bank of Canada and the chartered banks which imposed ceilings on large Canadian-dollar short-term bank deposits. Second, there was the potential for an increase in the political riskiness of Canadian-dollar denominated assets following the election of the separatist government in Quebec in late 1976. Finally, there was the market turbulence accompanying the sharp depreciation of the Canadian dollar during 1977 and 1978 and its potential for increased transactions costs in the market for foreign exchange resulting from greater uncertainty regarding exchange rate movements. But how important have these factors been as far as the robustness of the interest parity theorem is concerned? Indeed, have variations in the degree of capital market imperfection, in political risk or in transactions costs been sufficient to cause statistically significant breakdowns in the basic relationship given by equation (1)? This note attempts to throw some light on this question by testing for the stability of the parameters in the regression relationship,

that final demand of 55 units for commodity one generates 45.29 units of pollution, and final demand of 30 units for commodity two generates 18.44 units of pollution. From the appropriate elements in the last row of the inverse, we can calculate the coefficients of pollution generated per unit of final demand. These coefficients are 0.823 for commodity one and 0.615 for commodity two. It should be pointed out that the allocation of total pollution in (12) differs from that given by Leontief because he subdivides the total according to gross output figures rather than by final demand. REFERENCES