Vittorio Corbo, Paul D. McNelis, The Pricing of Manufactured Goods during Trade Liberalization: Evidence from Chile, Israel, and Korea, The Review of Economics and Statistics, Vol. 71, No. 3 (Aug., 1989), pp. 491-499

This paper presents a theoretically consistent and tractable two-stage decision-making model that does not rely on the restrictive assumption that group aggregator functions are homothetic. By assuming that within-group cost functions satisfy the almost ideal demand system form, the model incorporates flexible expenditure effects, yet allows within-group prices to be aggregated into two indices that fully capture movements in those prices that are relevant for determining group demands. Thus, the model provides a more flexible alternative to the standard two-stage budgeting models. An empirical application to U.S. manufacturing demands, including an energy aggregate, is provided.

Percival, J., and R. Teach, Spectral Analysis: An Application to the Funds Flow of a Savings Institution, State University of New York at Buffalo, School of Management, Working Paper no. 88 ( 1970). Sargent, T., Rates in the Nineteen-fifties, this REVIEW (May 1968), 164-172. Smith, V. K., and R. Marcis, A Time Series Analysis of Post-Accord Interest Rates, Journal of Finance (June 1972), 589-605.

IN 1961, Arrow, Chenery, Minhas, and Solow (ACMS) (1961) introduced their now familiar production function V y[8 K-P + (1-8)L-P]-1/P (1.) where V is value added per man-year, K is capital, L is man-years of labor, and y, 8, and p are the efficiency, distribution, and substitution parameters, respectively. It is well known that the elasticity of substitution, 1/(1 + p), can be estimated by estimating b in the profit maximizing conditi'on log (V/L) _log a + b log w + u (2) where w is the annual wage rate of production workers. fact, ACMS obtained very good results by using international data from 19 countries for various census years between 1949 and 1955. These data represented up to 24 ISIC industries at the three-digit level. 1963, C. E. Ferguson (1963) used U.S. Census of Manfactures data to fit the regression equation (2). Whereas ACMS obtained good results, Ferguson was disappointed in his: In the entire list of 129 items, R2 is significant at P < .05 in only 50%o of the cases. The bcoefficient is significant 70% of the time . . . But in more than half of these, b was not found to be significantly different from one (1963, p. 306). Ferguson recognized a possible reason for such results. The requires different relative factor prices for different observations. With only a little variation in the wage rate, the regression coefficients will have large standard errors. Unfortunately, when Ferguson's paper appeared there was no way to correct or improve the sample. Now, it is possible to pool time-series and cross-sectional data and to recognize the possibility of cross-sectional heteroscedasticity and time-wise autoregression of the disturbance terms. Jan Kmenta has termed this a cross-sectionally heteroscedastic and time-wise autoregressive model (1971, p. 509). We shall use this to estimate the elasticity of substitution, b, in a modification of regression equation (2). We expect that the increased variability of the independent variable will improve the results. This system of production functions for various indtustries provides a classic example of a case where the method of seemingly unrelated regressions may be applied. Thus, we also obtain two-stage Aitken estimates of the elasticity of substitution' using the pooled data. Estimation of the elasticity of substitution by pooling time-series and cross-section data requires a modification of regression equation (2). As the regression stands, there is an implicit assumption of no technological progress over time. This assumption is removed by specifying the as log (V/L)_ log a + b logw + c2T2 + C3T3 + C4T4 + u (3) where T2, T3, and T4 are dummy variables representing the years 1958, 1963, and 1967, respectively.' The introduction of the dummy variables into equation (3) allows for the possibility of technological progress in each of the cross-section years of 1958, 1963, and 1967. Although this results in a loss of three degrees of freedom, it does allow our to capture the influence of technological progress. The Received for publication August 8, 1973. Revision received for publication October 12, 1973. * We have benefited greatly from the comments offered by our colleagues,. David Denslow and Frank Sloan. The encouragement and helpful suggestions of the late C. E. Ferguson, Jan Kmenta, John Moroney, and an anonymous referee are gratefully acknowledged. Jerry R. Jackson provided invaluable assistance in the computations. Of course, we must exonerate everyone but ourselves of all blame for what follows. An earlier version of this paper was presented at the annual meetings of the Econometric Society in December 197 1. 1 We are indebted to an anonymous referee for suggesting this means of accounting for technological progress.

POLICIES to promote price and income stability in agriculture have often been justified by the belief that stability would help farmers make better consumption and investment decisions. However, review of literature makes it abundantly clear that the consequences of instability are matters of debate among economists. For instance, Caine (1966, p. 16) believes that a main evil resulting from fluctuations in income is lowering of the level of capital expenditure. Others argue that farmers adapt to the exigencies of fluctuating income and that instability, per se, has little influence on consumption and investment (e.g., Campbell, 1964, p. 59).1 In this paper, consumption and investment functions are estimated for two groups of southern Minnesota farmers with contrasting degrees of income stability. Since various hypotheses exist about investment and consumption behavior, alternative models are outlined in the first section. Consequently, this paper provides empirical evidence for evaluating alternative models as well as assessing the effects of instability. The data and the estimation procedures are briefly described in the second section, and the empirical results are presented in the third.

The proposals presented above show a simple, feasible arrangement whereby countries, holding part of their official reserves in the form of foreign exchange, may be protected from existing reductions of the value of their international reserves. As a consequence, a country's incentive is removed to undertake changes in the composition of its international reserves which would have disequilibrating effects on the countries whose currencies are held as international reserves. A proposal of this type, while it may be used alone, would be most effective as part of a more comprehensive international monetary arrangement. This proposal is modest in that it covers only official holdings of foreign exchange. It makes a small contribution to increasing the stability of the international monetary system. It is believed, however, that although the proposal is modest, it is a significant contribution.