Knowledge that Transforms

Which economics journal is most prestigious? and/or Which journal is most popular? are, for economists, some of the most hotly debated questions of coffee break discussions. In addition, which journal to subscribe to might be one of the most important decisions an economist makes. On the other hand, the proposition that the demand for a commodity depends on its price and its quality, among other things, is one of the (few!) propositions that every economist agrees with. In view of these facts, it seems rather curious to the present author that no one, so far as he knows, has ever estimated the demand function for economics journals. The purpose of this paper is to try to fill this gap and to estimate the demand function for economics journals by means of a cross section analysis. The result of the estimation will be presented in section III. Before that, however, the model used in our study will be explained.

It is well known that aggregation of input-output tables into smaller orders involves a trade-off between aggregation bias and reduction in the order of the table. The high cost of dealing with 367-order tables and the need for small-order tables in dynamic economic models are important reasons for selecting the optimal aggregation method and specifying the quantitative nature of the trade-off. In this note it is argued that significant aggregation of the 86-order input-output table may be possible without seriously affecting the power of the aggregated table to forecast energy sector output levels. An aggregation system is presented, using the 1963 86-order table in which non-energy sectors are merged while maintaining the energy sectors.

ONE of the most persistent and troublesome characteristics of the U.S. labor market has been the high unemployment rates of blacks and women relative to white males. These observed differentials have been studied by economists, who have focused primarily on analyzing the flows into and out of unemployment. In addition, the increase in labor market mobility, which has accompanied the shift in the labor force towards more women and youths, has been used to explain increasing levels of unemployment.' But these studies are inadequate on two grounds. First, for policy purposes, turnover that is voluntary must be separated from that which is involuntary. Furthermore, the impact of turnover on unemployment cannot be ascertained simply by looking at duration of unemployment. The interrelationship of duration, number of unemployment spells, and participation decisions require a more comprehensive approach. This article incorporates these points in exploring the impact of voluntary turnover on adult unemployment rates through a micro simulation of the labor market. The observed differences in group mobility patterns are decomposed into movements that reflect the unequal opportunities each group faces in the labor market and movements that reflect variation in the choices made in response to the same job opportunities. As the study shows, the relationship between turnover and unemployment depends upon the extent to which race and sex groups have equal access to jobs. As an interesting side-light, the simulation shows that white female participation rates vary inversely over the cycle because of the large increase in the stock of the unemployed rather than because of increases in the probabilities of leaving unemployment or employment or decreases in the probability of entering the labor market. The article concludes that voluntary turnover may explain a large part of the relatively higher unemployment rates for white females but not for blacks. The caveat is added that policies directed solely at reducing voluntary turnover may result in increasing the duration of unemployment.

Abramovitz, M., and P. A. David, Reinterpreting Economic Growth: Parables and Realities, American Economic Review 63 (May 1973), 428439. Arrow, K., H. B. Chenery, B. Minhas, and R. M. Solow, Capital-Labor Substitution and Economic Efficiency, this REVIEW 43 (Aug. 1961), 225-250. Baer, W., and M. E. A. Herve, Employment and Industrialization in Developing Countries, Quarterly Journal of Economics 80 (Feb. 1966), 88-107. Behrman, J. R., Sectoral of Substitution between Capital and Labor in a Developing Economy: Time Series Analysis in the Case of Postwar Chile, Econometrica 40 (Mar. 1972), 311-326. Dhrymes, P. J., and P. Zarembka, Elasticities of Substitution for Two-Digit Manufacturing Industries: A Correction, this REVIEW 52 (Feb. 1970), 115-117. Diamond, P. A., and D. McFadden, Identification of the Elasticity of Substitution and the of Technical Change: An Impossibility Theorem, Working Paper No. 62, University of California (Berkeley), 1965. Fuchs, V., Capital-Labor Substitution: A Note, this REVIEW 45 (Nov. 1963), 436-438. Gupta, S. B., Some Tests of the International Comparisons of Factor Efficiency with the CES Production Function, this REVIEW 50 (Nov. 1968), 470-476; Reply by Archen Minsol (ACMS), 477-479. Kelley, A. C., J. G. Williamson, and R. J. Cheetham, Dualistic Economic Development (Chicago: University of Chicago Press, 1972). Lucas, R. E., Jr., Labor-Capital Substitution in U.S. Manufacturing, in A. C. Harberger and M. J. Bailey (eds.), Taxation of Income and Capital (Washington, D.C.: Brookings Institution, 1969), 223-274. Moroney, J. R., Identification and Specification Analysis of Alternative Equations for Estimating the Elasticity of Substitution, Southern Economic Journal 37 (Jan. 1970), 287-299. Nerlove, M., Recent Empirical Studies of the CES and Related Production Functions, in M. Brown (ed.), Theory and Empirical Analysis of Production (New York: Columbia University Press, 1967), 55-122. Ranis, G., Sector Labor Absorption, Economic Development and Cultural Change 21 (Apr. 1973), 387-408. Sato, K., Production Functions and Aggregation (Amsterdam: North-Holland Publishing Company, 1975). Schydlowsky, D. M., and M. Syrquin, The Estimation of CES Production Functions and Neutral Efficiency Levels Using Effective Rates of Protection as Price Deflators, this REVIEW 54 (Feb. 1972), 78-83. Sveikauskas, L., Bias in Cross-Section Estimates of the Elasticity of Substitution, International Economic Review 15 (June 1974), 522-528. , The Productivity of Cities, Quarterly Journal of Economics 89 (Aug. 1975), 393-413. United Nations, Textile Industry in Latin America (New York, 1963). United Nations Industrial Development Organization, Textile Industry (New York, 1969). Zarembka, P., On the Empirical Relevance of the CES Production Function, this REVIEW 52 (Feb. 1970), 47-53.

THE quantitative analysis of some economic effects of changes in exchange rates of the world's key currencies has been the subject of a few recent empirical studies,1 inspired presumably by the greater flexibility in currency exchange rates among developed countries that was initiated in the early part of this decade. Relatively large-scale equation systems are employed that take into account the simultaneous interaction among prices, incomes and spending in the economy usually divided into a number of developed countries and a Crest of the world category, the latter subsuming the less developed countries (LDCs). In the context of a small LDC, however, the complexity of the problem is somewhat reduced by the exogeneity of export and import prices (expressed in foreign currency) and the market concentration of LDC foreign trade typically in only a few developed countries. The Philippines is a case in point, about three-fourths of its trade flows throughout most of the post-war period being accounted for by Japan and the United States; moreover, certain principal trade commodities are dependent to a significant degree on only one or two dominant markets. Currency realignments involving these two countries, as exemplified by the 1971 Smithsonian Agreement, represent, therefore, a new form of external economic disturbance which may have significant repercussions on the country's balance of payments, output growth, income distribution and other policy objective variables. In this paper we attempt an evaluation of the direct effects on Philippine merchandise trade of the 1971 realignment of major currencies and the Central Bank decision to keep the exchange rate of the domestic currency (peso) fixed with respect to the U.S. dollar. First, a simplified framework of analysis is presented that identifies the parameters to be estimated for a quantitative assessment of the trade effects. We then estimate export supply and import demand functions for various trade commodities using annual data in the postwar period. The price coefficient estimates, together with the geographic distribution of Philippine trade flows in 1970, provide the empirical basis for examining the quantitative effects on Philippine merchandise trade of the altered sets of peso export and import prices attributable to the 1971 exchange rate changes.

T he original capital asset pricing model (hereafter CAPM) developed by Sharpe (1964), Lintner (1965) and Mossin (1966) was advanced to explain the return differential between risky assets and a risk-free asset under conditions of uncertainty. The model demonstrates that in equilibrium the return differential on a risky asset is determined by two factors: the market price of (unit) risk (hereafter MPR) which is common to all risky assets, and a risk factor unique to each asset. The equilibrium return differential is

RESEARCHERS using the Almon lag method (Almon, 1965) are generally familiar with the work by Schmidt and Waud (1973), wherein several of the pitfalls of Almon's method are considered. Among other things, Schmidt and Waud (SW however, they select different models with contradictory findings.2 The primary purpose of this study is to demonstrate that existing specification error tests allow a researcher to empirically determine if an incorrect length of lag and/or degree of polynomial has been chosen in Almon's method. In other words, the existence of a lagged relationship is a testable proposition within Almon's method, and at the same time it is generally possible to detect the use of an incorrect degree polynomial. As the result of this finding, there is an inferentially sound method of selecting parameters within the Almon lag technique. Empirical research based upon this parameter selection criterion demonstrates that specification error tests form a viable method of obtaining consistent and theoretically pleasing results within Almon's method (see Harper, 1975 and Harper and Fry, 1976). At least this is the finding within the single equation approach to the monetary versus fiscal policy debate. This promising viable parameter selection criterion stands in contradiction to and provides an alternative to the generally accepted belief that there is no inferentially sound method for selecting parameters within Almon's method.3 A close examination reveals that it is not always meaningful to search for both the length of lag and the degree of polynomial. It may well be the situation that the lag length is in fact a policy parameter and is, consequently, known to the researcher. If this is the situation, the parameter selection technique should be utilized only to select the degree of polynomial to be inserted with the known length of lag. In this manner, the researcher can determine the effects upon the dependent variable of a given lag length or of altering the lag length. It is necessary to rely upon theory to determine whether the length of lag is a known policy parameter or an endogenous variable that must be estimated. Received for publication December 31, 1975. Revision accepted for publication August 2, 1976. *The author is indebted to Thomas R. Saving, Michael J. McDonough, Oral B. Crawford and two anonymous referees for many helpful comments on an earlier draft of this paper. 'Some of the participants in this debate are Andersen and Jordan (1968, 1969), Andersen (1969), De Leeuw and Kalchbrenner (1969), Corrigan (1970), Silber (1971), and Schmidt and Waud (1973). 2Actually, Schmidt and Waud minimize the standard error of the regression, but this is identical to maximizing R 2. Note that such model selection criteria are precarious at best, since each of these criteria is biased in an unknown direction and reliance on such criteria is inferentially unsound. See Barten (1962), Frost (1975), Gilbert (1969), and Goldberger (1964) for verification of this claim. 3This is not meant to imply that Almon's method is the best distributed lag technique under all circumstances. The more general Shiller lag procedure is probably superior to Almon's method in many cases, because Shiller's method lessens the multicollinearity problem and characteristically imposes a smooth pattern of weights. However, there is at least one severe limitation of Shiller's method in that units of measurement affect empirical results. Unless one is working with differences in logs, or the like, it is recommended to use Almon's over Shiller's method.

DESPITE historical importance of Populist uprising in late nineteenth century, causes of agrarian unrest which culminated in that movement remain obscure. Economic historians have become increasingly dubious of justifications advanced by Populists themselves, partly because many of Populist programs (such as Free Silver plan) were little more than schemes for an involuntary redistribution of wealth in favor of farmers, and partly because many of farmers' stated grievances fail to appear in aggregate economic statistics of period (Bowman, 1965; DeCanio, 1974a; Bowman and Keehn, 1974; North, 1974). The most comprehensive recent study concludes that the agrarian protest of late nineteenth century was not a simple, straightforward consequence of economic factors as many economic historians have believed (Klepper, 1974, p. 285). There is some evidence that cyclical economic fluctuations coincided with upsurges of protest (Bowman and Keehn 1974; Klepper 1974), but agrarian spokesmen of time (as well as subsequent historians) attempted to identify long-standing structural problems of agricultural sector as ultimate explanation of farmers' distress. One recurring theme in historical explanations of agrarian unrest locates source of farmers' difficulties in their perceptions of and responses to economic requirements of market. Thus, Mayhew suggests that protests of Grangers and Alliancemen were a reaction to commercialization of agriculture. This commercialization may have increased farm incomes, but it also made farmers subject to impersonal market forces (Mayhew, 1972). Farmers' failure to understand operation of markets for their products is featured in textbook accounts of Populist period (Davis, Hughes, and McDougall, 1969, p. 368; Gray and Peterson, 1974, p. 320; and North, 1974, p. 134). Econometric studies of price-responsiveness of late nineteenth and early twentieth century American agriculture have shown that sector as a whole responded properly to market prices in both choice of crop mix and choice of technique (Nerlove, 1958; Fisher and Temin, 1970; Hayami and Ruttan, 1971; DeCanio, 1973). These investigations of farmers' responses to output and input prices, however, do not indicate whether estimated agricultural response parameters were in any sense optimal, nor can their fixed-parameter estimation techniques reveal whether farmers' behavior changed in an appropriate manner as underlying market conditions changed. This paper goes beyond previous studies by testing directly a rational expectations hypothesis for American agriculture during Populist period. Using a varying-parameter estimation methodl it is possible to trace changes in supply response parameters over time, and to compare those parameter variations with variations implied by a model of rational price expectations. We will show that changes in farmers' price expectations were indeed consistent with theory of rational expectations. Since our estimates are based on same statewide aggregate data used in previous supply response studies, it is not possible to conclude from our results that all farmers formed rational expectations, but existence of rational expectations in aggregate leads us to reject notion that farmers as a group were unable to Received for publication October 10, 1975. Revision accepted for publication March 15, 1976. ' The helpful comments of Paul David, Stanley Engerman, Jacob Metzer, Joel Mokyr, Marc Nerlove, William Parker, Merton Peck, Edward Prescott, Joe D. Reid, Jr., Peter Temin, and participants in seminars at University of Pennsylvania and Columbia University are gratefully acknowledged. Responsibility for errors remains ours. The research was supported in part by NSF Grant GJ-l 154X3 to National Bureau of Economic Research, and by NSF Grant SOC75-08056. I Recent developments in theory of models with varying parameters are discussed in Cooley (1971) Rosenberg (1973) and Cooley and Prescott (1973a, 1973b, 1973c, and 1976).

John E. Roemer, The Effect of Sphere of Influence and Economic Distance on the Commodity Composition of Trade in Manufactures, The Review of Economics and Statistics, Vol. 59, No. 3 (Aug., 1977), pp. 318-327