Knowledge that Transforms

This paper addresses empirically the issues of selecting the appropriate opportunity cost and scale variables of the money demand function in the presence of alternative nonnested hypotheses. As part of the process of model specification, the role of currency substitution in the demand for money function in an open economy is examined. The tests are carried out with quarterly data from the open economy of Greece over the floating exchange rate period 1975-82.

Real money balances as a factor input in the production function of the large-scale manufacturing sector in Pakistan has been examined in a multi-equation framework. Besides labor and capital, real money balances turned out to be an important factor of production. Our results are in accordance with the pioneering work of Sinai and Stokes in this area.

Douglas B. Stewart, Yiannis P. Venieris, Sociopolitical Instability and the Behavior of Savings in Less-Developed Countries, The Review of Economics and Statistics, Vol. 67, No. 4 (Nov., 1985), pp. 557-563

Considerable debate has raged over the economic assumption that the large corporation, through the decisions of its managers, attempts to maximize its profits. Closely related to the notion of profit maximization is expense behavior of managers which would indicate a preference for expenses over firm profit. This study examines the market structure effects on expense behavior and, for the first time, tests are made using data which unambiguously reflect market structure differences between firms in the sample. The results provide evidence that is contrary to the expense hypothesis. 1E~ CONOMISTS have long been interested in managerial motivation. As Ciscel and Carroll ((1980); Carroll and Ciscel (1982)) recently explain, considerable debate has raged over the economic assumption that the large corporation, through the decisions of its managers, attempts to maximize its profits. Closely related to the notion of profit maximization is expense behavior of managers which would indicate a preference for expenses over firm profits. The tension between profit maximization behavior and expense behavior of managers has been discussed by Larner (1970). One condition which could affect a firm's ability and willingness to engage in expense behavior is the market structure in which it operates. This study examines the market structure effects on expense behavior and, for the first time, tests are made using data which unambiguously reflect market structure differences. The results provide evidence contrary to the expense hypothesis and the findings are quite consistent with the previous research of Ciscel and Carroll (1980), Larner (1970), Rhoades (1980), and Glassman and Rhoades (1980).

A bstractUsing the trucking industry as an example, this paper extends the empirical research on multiproduct firms to analyze the efficient numbers of firms in the industry. The paper first considers the issue of size related economies and argues that although there are limited economies of scale, economies of scope appear to be sufficiently strong to explain the observed large number of mergers and acquisitions that have occurred in the industry. The paper then considers the efficient number of firms in the industry. Using the concept of ray-average cost, it shows that for the output combinations observed in the industry, the efficient number of firms required to serve industry output is quite large.

In the standard model of labor supply, each worker is a price taker, where the relevant price is an hourly wage rate which is fixed in the short run, and which does not depend upon the number of hours supplied.With this basic assumption, the wage can be regarded as exogenous for the purpose of estimating a labor supply function.This paper proposes and implements a pair of tests for the exogeneity of wages in a longitudinal labor supply model, and for the particular failure of exogeneity associated with jobs that offer wage-hour packages.The first test is very simple--it amounts to a test of whether hours Granger-cause wages at the individual level.The second test involves a simultaneous estimation of labor supply and wage offer equations.Both tests indicate that the offered wage is related to hours worked, though the offer locus is, for this sample, very flat.The principal conclusion is that labor supply equations cannot properly be estimated in isolation from the process generating wages, even when long time series are available on a sample of individuals.

In this paper we explore the role of transitory income in the housing purchase decision. Because of moral hazard considerations banks typically require downpayments to be financed internally, hence transitory income is potentially important in overcoming the downpayment constraint. Using a novel approach to the measurement of permanent and transitory income, we estimate a two-stage model in which households decide whether to purchase housing in the first stage and the quantity to be purchased in the second. The results indicate a significant role for transitory income in both decision stages.

Stock adjustment models of money demand have employed either the nominal or real adjustment process, but they have not been tested statistically due to their nonnestedness. This paper formulates a general stock adjustment model which includes both nominal and real adjustment processes as its nested subsets. Each process is then tested against the general specification. The paper also examines the homogeneity of money demand with respect to price level and income in the general model.

According to unpublished data compiled by BLS, productivity in the construction industry reached a peak in 1968 and, except for a brief and small upturn between 1974 and 1976, has been falling ever since. This paper examines the sources of this productivity decline between 1968 and 1978 by estimating a production function to assign weights to various factors responsible for productivity change and deriving a new price deflator for construction which does not rely on labor or material cost indexes, thus eliminating a systematic bias toward overstating the rate of growth of prices.