Knowledge that Transforms

Michael L. Wachter, William L. Wascher, Leveling the Peaks and Troughs of the Demographic Cycle: An Application to School Enrollment Rates: A Reply, The Review of Economics and Statistics, Vol. 73, No. 3 (Aug., 1991), pp. 575-576

It also differs from the Dutkowsky-Foote estimate because of their use of unseasonally adjusted money stock data and an ending date which is not the ending date reported in their paper. Our dynamic simulations of equations (1) and (2) are shown in figure 2. It is immediately apparent that something has gone very badly awry. Our simulations indicate that the Dutkowsky-Foote model overpredicts money demand over the simulation period January 1975 to June 1985 even more than the standard money demand function; the root mean squared error of the Dutkowsky-Foote model is 0.152 compared to 0.111 for the standard money demand function. Our attempts to replicate both the Dutkowsky-Foote estimates and their dynamic simulations convince us that the authors were not running comparable simulations. For the standard money demand function, they do indeed run a post-sample dynamic simulation. For their own model, however, they run a non-dynamic or static simulation. Given their estimated coefficient for the lagged dependent variable of 0.999, this is virtually equivalent to using the actual lagged money stock. Indeed, we recreated the original Dutkowsky-Foote figure 1 by plotting the actual lagged money stock in lieu of their simulated result; the figures are almost identical. Dutkowsky and Foote (1988, p. 90) state that . . post-sample forecasting ability has become the acid test for money demand models. It is just not cricket, however, to compare a post-sample dynamic simulation of one model with a static simulation of another, as they do. On a level playing field, their model fails the acid test by an even wider margin than the standard money demand model.

Jeffrey C. Fuhrer, Kenneth J. Weiller, A Multivariate Posterior Odds Approach to Assessing Competing Exchange Rate Models, The Review of Economics and Statistics, Vol. 73, No. 1 (Feb., 1991), pp. 113-124

David J. Smyth, Stephen H. Karlson, The Effect of Fringe Benefits on Employment Fluctuations in U.S. Automobile Manufacturing, The Review of Economics and Statistics, Vol. 73, No. 1 (Feb., 1991), pp. 40-49

The Box-Cox difference transformation is used to determine the appropriate specification for estimation of hedge ratios and a new double length regression form of the Lagrange multiplier test is presented for the difference transformation. The Box-Cox difference transformation allows the testing of the first difference model and the returns model as special cases of the Box-Cox difference transformation. Copyright 1991 by MIT Press.

This note investigates the determinants of Japan's manufacturing trade structure in 1980. They include variables derived from an information economy perspective as well as traditional trade variables. Estimates for variables approximating organizational inefficiency indicate that even in Japan, which is reported to often have smaller private bureaucracies than the United States, relatively large bureaucracies have a negative effect on trade performance. Human capital intensity is found to have a positive effect on Japan's comparative advantage and exports. The importance of R&D expenditure is confirmed. Copyright 1991 by MIT Press.

The authors investigate the consequences of a permanent unphased increase in the U.S. gross saving rate. They find that "the sacrifice time"--the time that elapses until consumption surpasses the value it would have had under the initial saving rate--is roughly six years and is insensitive to the percentage increase in the saving rate ([Delta sub s]). The percentage gain in output at the end of decade--" the decade gain"--is roughly 26% of [Delta sub s], while the percentage gain in consumption is roughly 8% of [Delta sub s]. The "saving rate return"--the internal rate of return on a permanent increase in the saving rate--is roughly 16% and is insensitive to [Delta sub s]. Copyright 1991 by MIT Press.

Lack of explicit markets and associated data have impeded measurement of nonpecuniary rewards in the workplace. Most of the published literature employs hedonic models that permit estimation of market-clearing prices, but do not allow for identification of demand schedules. In an alternative approach, used successfully by environmental economists, the author develops quasi-market data and uses it to estimate demand for the nonpecuniary rewards associated with leadership. In addition to price responsiveness, individuals exhibit tastes for the amenities of leadership that differ substantially, and in expected directions, with their personal and professional characteristics. Copyright 1991 by MIT Press.