The economic effects of advertising have been a much studied and hotly debated topic for a number of years. By now, there is fairly general agreement that, inter alia, advertising is important as a barrierto-entry (see Joe Bain, William Comanor and Thomas A. Wilson, Leonard Weiss) and that advertising does succeed in shifting demand for individual products (see Neil Borden, Nicholas Kaldor, Robert Dorfman and Peter Steiner, Lester Telser (1962), Kristian Palda), but there is little agreement as to the effect of advertising on aggregate consumption. John Kenneth Galbraith would have us believe that much of consumers' spending is managed from Madison Avenue,' but such a view has still to find universal acceptance.2 What is surprising, however, is that no one who has been party to the rather spirited debate generated by the Tall Gentleman's thesis has seen fit to examine by econometric methods the proposition that advertising has an impact on the aggregate consumption function. To undertake this is the purpose of this paper. In a modest, yet not insignificant, way, we feel that we have made some progress. Based on an analysis of advertising expenditures in the aggregate, our results suggest that advertising does in fact tend to increase consumption at the expense of saving. But as to what the causal mechanism underlying this is, we unfortunately cannot say. It may be that advertising actually succeeds in altering tastes a la Galbraith, but then again it may be that advertising is simply serving to bring new goods and services to the attention of consumers. As already noted, our analysis concentrates on the effects of advertising in the aggregate, and is conducted in the framework of the state-adjustment model of Hendrik Houthakker and Lester Taylor, as applied to aggregate consumption. Following Houthakker and Taylor, two variants of the model have been employed; the first focuses on consumption, and the second on personal saving. Section I presents a brief description of the Houthakker-Taylor (H-T) model and discusses the ways that it can be extended to accommodate advertising. This section also provides a short description of the data and methods of estimation. Sections II and III are empirical, Section II being devoted to a presentation of results and Section III to their critical evaluation. The paper is then concluded with some final observations in Section IV.

The real value of the US dollar has fluctuated widely during the global financial crisis and its aftermath. Beginning in early 2008 through early 2009, the dollar strengthened against most currencies but weakened considerably in the intervening months. We propose a decomposi tion of the forces driving the real exchange rate into a long run real interest rate component and a residual risk premium component. If real interest rates in the United States rise rela tive to its partners, the value of the dollar should strengthen. Likewise, if the level risk premium on foreign interest-bearing assets rises, the dol lar should also strengthen. We find that little of the recent movements in the dollar are directly attributable to the real interest component, sug gesting that most of the movements are due to the residual risk premium component. There is a large and diverse literature that affords a role to real interest differentials and to risk premiums in determining the real value of a currency. Our approach is almost purely definitional. The only assumptions we rely on are those of stationarity?of the real exchange rate and the US-foreign real interest differen tial. Specifically, let qt denote the log of the real exchange rate, defined as the foreign con sumer price level (converted into dollar terms

Accounting for Exchange-Rate Variability in Present-Value Models When the Discount Factor Is Near 1 by Charles Engel and Kenneth D. West. Published in volume 94, issue 2, pages 119-125 of American Economic Review, May 2004

School officials and legislators have long been concerned with the possibility of declining teacher quality (see e.g., Sean Corcoran et al., 2002). Beginning in the 1960's, states began testing prospective teachers in a direct effort to ensure that teachers meet minimum standards for basic skills and subject knowledge. By 1999, 41 states required applicants to pass some sort of standardized certification test. As a theoretical matter, however, the impact of such testing is ambiguous. Test requirements may establish a minimum achievement standard, as their proponents hope. On the other hand, testing and other certification requirements may deter some qualified applicants from teaching if these requirements are perceived as costly. This is the barriers-to-entry story first noted in the occupational licensing context by Milton F. Friedman and Simon Kuznets (1945). Another concern with job applicant testing is the possibility of an adverse impact on minority candidates, who usually do worse on tests (see David Autor and David Scarborough [2003] for a recent study). Paralleling increased state involvement in teacher certification is the increase in teachers' educational credentials, especially in public schools. For example, in 1971, over two-thirds of public-school teachers had a B.A., while only 27 percent had a master's or education specialist's degree. By 1991, however, over half of public school teachers (52.6 percent) had a master's or education specialist's degree. In contrast, the proportion of private-school teachers

Most analyses treat global warming as a single-agent problem. The present study presents the Regional Integrated model of Climate and the Economy (RICE) model. By disaggregating into countries, the model analyzes different national strategies in climate-change policy: pure market solutions, efficient cooperative outcomes, and noncooperative equilibria. This study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies; that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries; and that high-income countries may be the major losers from cooperation.

We investigate the structure of preferences and uncertainty that guarantees that prices are fully revealing even though asset markets are incomplete and there are more sources of uncertainty than assets in the economy. A sufficient condition for fully revealing prices is that investors have preferences of the (possibly state-dependent) linear-risk-tolerance class. Finally, we discuss how our result allows one to extend certain existing literature on demand aggregation, welfare analysis, and the pricing of contingent claims to the case in which markets are incomplete and investors have asymmetric private information.

The frequency of foreign conflict initiations in the United States is found to be significantly greater following the onset of recessions during a president's first term than in other periods. The authors develop an economic theory of the political use of wars which links the election cycle, war decisions, and economic performance consistent with the observed relationships among these events. An incumbent leader with an unfavorable economic performance record may initiate a war to force the learning of his war leadership abilities and thus salvage, with some probability, his reelection. This obtains despite voter rationality and informational symmetry.