Knowledge that Transforms

There has been much recent discussion ahout the ultimate sources of macroeco-nomic variability. A number ofauthors attribute most of this variability to only B few sowces, sometimes only one. Although there may be only B few important sources, this is fsr from obvious, since economies seem compliested. The purpose of this paper is to provide qusntitstive estimates of various sowces of vsriability using B U.S. econometric model. Stochastic simulation is used to estimate how much the overall variances of real GNP and the GNP deflator are reduced when various shocks BIG suppressed in the model. I. Ii-4TR0000~10~ There has been much recent discussion about the ultimate sources of macroeconomic variability. Shiller [1987] surveys this work, where he points out that a number of authors attribute most of output or unemployment variability to only a few sources, sometimes only one. The sources vary from technology shocks for Kydland and Prescott [1982], to unanticipated changes in the money stock for Barre [1977], to “unusual structural shifts, ” such as changes in the demand for produced goods relative to services, for Lilien [1982], to oil price shocks for Hamilton [1983], to changes in desired consumption for Hall [1986]. (See Shiller [1987] for more references.) Although it may be that there are only a few important sowces of macroeconomic variability, this is far from obvious. Economies seem complicated, and it may be that there are many important sources. The purpose of this paper is to estimate the quantitative importance of various sources of variability using a macroeconometric model. Macroeconometric models provide an obvious vehicle for esti-mating the sources of variability of endogenous variables. There are two types of shocks that one needs to consider: shocks to the stochastic equations and shocks to the exogenous variables. Shocks to the stochastic equations are easy to handle. They ax simply draws from the postulated distribution (usually normal) of the structural error terms, the distribution upon which the estimation *This paper grew out of discussions with Robert Shiller, to whom I am indebted for many helpful suggestions and comments. Some of the results in this paper are

Journal Article Short-Run Models and Long-Run Forecasts: A Note on the Permanence of Output Fluctuations Get access Joseph E. Gagnon Joseph E. Gagnon Board of Governors of the Federal Reserve System Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 103, Issue 2, May 1988, Pages 415–424, https://doi.org/10.2307/1885122 Published: 01 May 1988

Journal Article Trade and Industrial Policy Under Oligopoly: Reply Get access Jonathan Eaton, Jonathan Eaton University of Virginia Search for other works by this author on: Oxford Academic Google Scholar Gene M. Grossman Gene M. Grossman Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 103, Issue 3, August 1988, Pages 603–607, https://doi.org/10.2307/1885548 Published: 01 August 1988

Journal Article Equilibrium Inflation as Determined by a Policy Committee Get access Richard Cothren Richard Cothren Virginia Polytechnic Institute and State University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 103, Issue 2, May 1988, Pages 429–434, https://doi.org/10.2307/1885124 Published: 01 May 1988

Journal Article The Influence of Attitudes Toward Risk on the Value of Forecasting Get access Roger D. Blair, Roger D. Blair Department of Economics, University of Florida Search for other works by this author on: Oxford Academic Google Scholar Richard E. Romano Richard E. Romano Department of Economics, University of Florida Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 103, Issue 2, May 1988, Pages 387–396, https://doi.org/10.2307/1885119 Published: 01 May 1988

In this paper we evaluate empirically the relative importance of two explanations of Yugoslav interindustry income differentials. One explanation, proposed initially by Vanek and Jovicic [1975], stresses capital market imperfections which permit capital rents to be appropriated as workers' incomes. The second explanation points to labor allocation problems under self-management. We first present a critique of the Vanek-Jovicic original formulation and then respecify the problem to permit simultaneous evaluation of the two schools of thought. Results based on two data sets suggest that labor allocation factors and monopoly power rather than capital rents are the main source of Yugoslav earnings dispersion.

The paper studies a market in which there are two sellers and one buyer. Each agent wants to trade at most one unit of an indivisible commodity. The sellers are uncertain whether the buyer is receiving offers from one or both of them at any given time. This model induces competitive and monopolistic outcomes for particular parameter values. But, other things being equal, as the buyer becomes very patient, the equilibrium price converges to the competitive one.

The marginal rate of return on public investment in a tax-distorted economy is a weighted average of the marginal social productivity of capital in the private sector and the marginal social rate of time preference, but the weights are shown to depend not only on the proportions of funding obtained from each source through incremental borrowing but also on the degree of complementarity or substitutability between public and private investment.

We study a general equilibrium efficiency wage model characterized by fully optimizing agents, flexible prices, and imperfect information. The model has a unique competitive equilibrium with underemployment in a sector (called manufacturing) with efficiency wages, relative to a self-employment sector. Since prices are flexible, the multiplier of manufacturing output with respect to autonomous demand changes may or may not exceed unity: demand changes lead to price effects as well as income effects that work opposite each other. Nevertheless, there always exist government policies that achieve Pareto improvements by switching demand toward the manufacturing sector. Optimal demand-switching policies are explicitly characterized.