Knowledge that Transforms

The relationship between population policy instruments and fertility levels in Hungary is analyzed with a simultaneous equation model. Both birth and abortion relationships are placed in a supply and demand perspective, permitting a distinction between desired and actual levels of births and abortions. Pronatalist and abortion policies are evaluated through the reduced forms of the structural equations. Effects of average earnings, income, value of time spent at home, and speed of adjustment to policy changes are also considered. The analytical method is thought to permit appraisal of the effects of population policy in both developed and developing countries

Changes in the money supply are expected to affect the nominal rate of interest in opposite directions: the liquidity and credit effects tend to depress the rate, while higher inflationary expectations work in the opposite direction. Theoretical studies suggest that, although liquidity and credit effects initially dominate, they are eventually more than offset by the expectations effect. These results are confirmed in countries of mild inflation. The results obtained here for a highly inflationary country--Argentina--indicate that the expectations effect is dominant and that any change in the rate of monetary disequilibrium was fully transmitted to the nominal interest rate.

This paper uses a model of the valuation of bonds bearing call options, together with observed market yields on callable bonds, to infer information about the uncertainty associated with interest rate expectations. A dynamic programming solution of the model simultaneously determines both the bond price and the issuer's optimal refunding strategy, given the relevant data describing the bond and the market's expectations of future interest rates. Application of the valuation model in reverse, for quarterly average data for 1969-76, generates a time series representing the uncertainty which the market associated with its expectations of future interest rates during this interval, given the then-prevailing yields on new issues of utility bonds and industrial bonds callable after 5 years and 10 years, respectively. This uncertainty, parameterized as the standard deviation of a truncated normal distribution, fluctuated between 1/2 percent and 3/4 percent between 1969 and early 1974, then rose to sharply higher levels from mid-1974 through mid-1975, and has fluctuated between 3/4 percent and 1 percent since late 1975.

This paper presents the results of an evaluation of the role of real cash balances as a factor input for 11 two-digit SIC code industries over the period 1952-73. Using a four-factor translog cost function for each industry along with duality theory, it was possible to estimate the partial elasticities of substitution and the elasticities of demand for all factors. The substitution elasticities between real cash balances and production labor as well as with capital were found to be significantly different from zero. The interest elasticity of demand for each varies with industry and ranges from -.22 to -.41. The overall findings suggest that the neoclassical model offers considerable promise for modeling the firm's demand for money.

Sims's finding that nominal money stock is strictly exogenous in a distributed-lag regression of nominal income on nominal money stock is not inconsistent with the appearance and real income and nominal interest rates as strictly exogenous regressors in the quarterly money-demand equations estimated in real form. This strict exogeneity of real income and interest rates in real money-demand equations is due to the restriction implied by estimation in the real form, and these implicit restrictions seem to conflict with the sample information.

Taxation of capital gains at realization may distort individuals' decisions regarding holding or selling during an asset's lifetime. This creates the problem of designing a tax structure for capital gains so as to induce efficient patterns of holding an selling. Several tax structures are explored in this paper. Linear taxation, at rates which rise with the holding period, can achieve the first best, even under the conditions of limited information that we postulate. The form of the optimal tax is independent of the stochastic structure of rates of return. We also derive the optimal nonlinear tax under the constraint that it be independent of the holding period. Second-best tax rules are examined. Results in a two-period model are contrasted with those in a continuous time framework. Also treated is the case in which the returns to the asset under consideration depend on the aggregate quantity invested

According to the Easterlin hypothesis, the positive relationship between income and fertility is dependent on relative income. The hypothesis presumes that aspirations are significantly determined by family background. If income is high relative to aspirations, individuals will tend to have more children. The definition of variables as sibling differences controls family background and yields a measure of relative income. Analyzing the Kalamazoo Brothers sample in this fashion produces no evidence in support of the hypothesis.

This paper studies the transmission of economic fluctuations under flexible and fixed exchange rates. In a model incorporating short-run and long-run Phillips curves, two channels of interdependence are studied: one through the balance of payments and the other through changes in the terms of trade and wage-price spirals. Under fixed rates both channels work; under flexible rates the second channel still works, although the first is blocked. While a recession in one country tends to be transmitted as a recession in the other under fixed rates, it tends to be transmitted as stagflation in the other under flexible rates.

This paper proposes and tests the joint hypothesis that (1) the bond market is efficient and (2) the variation in long-term bond rates is due solely to expectations effects. Under this joint hypothesis, long-term bond rates for any fixed maturity follow (approximately) a martingale sequence. Tests with Canadian data serve not only to support the joint hypothesis but also to cast doubt upon the usefulness of the "preferred habitat" model of Modigliani-Sutch and Modigliani-Shiller as well as several single-equation macro models of interest-rate determination.