Knowledge that Transforms

This paper considers the effects for offering a “would-not-vote” option in contingent valuation (CV) questions framed using the referendum format. This approach arises from a suggestion made by the National Oceanic and Atmospheric Administration's (NOAA) panel on contingent valuation. The NOAA panel was asked to evaluate the use of this method for estimating the economic value of nonmarketed environmental resources in the context of natural resource damage assessments. This test used the CV questionnaire developed for the study of the Exxon Valdez oil spill conducted by the State of Alaska with in-person interviews. The findings suggest that when those selecting the “would-not-vote” response are treated as having voted “against” the program (a conservative coding), offering this option does not alter (1) the distribution of “for” and “against” responses (2) the estimates of willingness to pay derived from these choices, or (3) the construct validity of the results.

In this paper we examine a number of recent studies that claim to have obtained a well-defined liquidity effect using structural VAR models based on broad measures of money. These studies can be distinguished in terms of the identifying restrictions, sample periods, and frequency of data used. We show that estimation of the structural coefficients of all these models can be achieved by instrumental-variable methods, where the instruments are predetermined variables and the estimated structural errors from other equations in the system. Overall, our judgment is that the evidence for a liquidity effect from these studies is much less certain than suggested in the original papers, primarily because of the poor quality of the instruments used in estimation and the sensitivity of the estimates to the sample period used.

This paper uses data from the Luxembourg Income Study to explore the role of differences in supply shifts in explaining cross-national differences in the rise in earnings inequality. Changes in returns to age and education are estimated for eight countries using a common specification of earnings functions across years and countries. We find that the small overall increase in earnings inequality in many countries reflects large but offsetting changes in returns to skill and changes in inequality within age education cells. Furthermore, these differences in returns to skill can largely be explained by differences in supply shifts.

Empirical investigations of the U.S. macroeconomy often examine only the post-World War II period because very few key data series exist for earlier years. However, this brief time period misses major economic shocks like the Great Depression and World War II. Using a previously unknown data set, this paper solves part of the problem by creating a long-run job vacancy series from 1923 to 1994 based on help-wanted advertising data. Analysis suggests that the series is consistent and has no significant biases.

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Federal Reserve Regulation A imposes formal guidelines on borrowing from the discount window and ensures that the facility is used for appropriate purposes. In a way, this regulation imposes a nonprice mechanism that compels depository institutions to be more prudent in exercising their borrowing privileges. In the 1980s, however, banks became increasingly more reluctant to borrow adjustment credit from the discount window. This behavior is puzzling because discount window guidelines have not changed. This paper investigates the reasons behind the weakened demand for borrowed reserves. Our empirical findings suggest that the growing reluctance to borrow stems from the deteriorating financial position of banks during this period. In particular, banks avoided the discount window because they feared that market participants might have interpreted their visits as a signal of serious funding difficulties.

We show that bank branching tends to mitigate localized market power by broadening the geographic scope of competition among banks, even though branch banking allows banks to differentiate themselves through their choices of branch locations. Banking services at peripheral locations will be priced more competitively when those locales are served by branch networks. We develop a theoretical model in support of this view and offer empirical evidence.

In this paper we examine whether the requirements that workers must satisfy to qualify for unemployment insurance (UI) benefits in any succeeding period of joblessness affect the duration of employment spells. This behavioral consequence of a UI system has been neglected in empirical research, which has instead focused on the effects of UI parameters on the actions of the unemployed. The effect is identified by a unique change in the eligibility requirements of the Canadian UI system in 1990, which increased the weeks of employment required to establish UI eligibility. We provide a variety of estimates of this behavioral effect. In our preferred set of results, we find a significant increase in the employment hazard in the week that an individual satisfies the eligibility requirement in many regions of the country. In the spirit of Feldstein's (1976) study of temporary layoffs, the results provide new evidence of the impact of UI system parameters on the actions of employers and workers.

We estimate a multivariate ARFIMA model to illustrate a cointegration testing methodology based on joint estimates of the fractional orders of integration of a cointegrating vector and its parent series. Previous cointegration tests relied on a two-step testing procedure and maintained the assumption in the second step that the parent series were known to have a unit root. In our empirical example of fractional cointegration, we illustrate how uncertainty regarding the order of integration of the parent series can be even more important than uncertainty regarding the order of integration of the cointegrating vector when testing for cointegration.

This study used a 1976–1992 panel data set to test whether farm machinery investors face finance constraints. Tests were based on fundamental q investment equations in which cash flow was added as an additional explanatory variable. Results indicated that (1) credit constraints were generally not a problem during the 1970s boom, (2) credit constraints became a problem during the 1980s and early 1990s because of tighter credit and/or more conservative financial managerial styles, (3) the investment-cash flow relationships of low-debt and older-operator farms were not significantly affected by farm business cycles, and (4) the investment-cash flow relationships of high-debt and young-operator farms were affected strongly by business cycles. Debt level was the strongest determinant of credit constraints; asset size and operator age were less important.