This paper attempts to distinguish empirically real versus nominal sources of fluctuations in real and nominal exchange rates. The distinction is obtained by imposing the following restriction on the bivariate vector autoregression of real and nominal exchange rates over the current flexible rate period: nominal shocks are required to have no permanent effect on the level of the real exchange rate. Given this identification scheme, the author analyzes the dynamic effects and relative importance of real and nominal shocks with regards to exchange rates. The findings indicate that real shocks dominate nominal shocks for both exchange rate series over short and long frequencies.

Evidence on costs and factor substitution is presented for a sample of local fire departments in New York State. The results suggest that fire service production does not fit either Leontief, Cobb-Douglas, or CES technology. In addition, exogenous socioeconomic variables are found to significantly affect public-sector costs and the estimates of factor price elasticities. The findings of relatively low factor demand and substitution elasticities suggest that local governments may have limited flexibility in adjusting their production of fire services to minimize the impact of rising factor prices.

Kerry D. Patterson, Bahram Pesaran, The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom, The Review of Economics and Statistics, Vol. 74, No. 4 (Nov., 1992), pp. 573-584

What accounts for the apparent preference of firms to finance investment with internal funds? Recent theories stress information problems in capital markets, while older theories emphas ize the transactions costs of external finance. To test these competing hypotheses, the authors estimate the sensitivity of investment spend ing to internal funds across firms likely to face varying degrees of information problems and transactions costs. Several attributes are used to differentiate these firms. The results provide some support for information asymmetries as well as a source of the financing hierarc hy but indicate no significant role for transactions costs.

This paper models the selection of environmental policies under authoritarian and democratic regimes, and tests the hypothesis that political institutions systematically affect the enactment of environmental regulations. The results support the contention that political institutional arrangements, rather than resource endowments, largely determine policies concerning environmental regulation.

This paper analyzes the relationship between maternal labor supply and children's cognitive development, using a sample of three- and four-year-old children of female respondents from the 1986 National Longitudinal Surveys Youth Cohort (NLSY). Respondents in the NLSY were aged 21 to 29 in 1986; thus our sample consists of children of relatively young mothers. We show that for this group the impact of maternal labor supply depends upon when it occurs. Maternal employment is found to have a negative impact when it occurs during the first year of the child's life and a potentially offsetting positive effect when it occurs during the second and subsequent years. We find some evidence that boys are more sensitive to maternal labor supply than girls though the gender difference is not significant. The negative first-year effect is not mitigated to any great extent by the increased maternal income that accompanies it, though the increase in maternal income does appears to play an important role in producing the positive effect in the second and later years.

This paper uses CPS data to analyze gender differences in black-white annual earnings trends over the 1970s and 1980s. We find that in at least two respects black women fared better than men over this period. First, due to decreasing relative annual time inputs for black males, but not black females, black women experienced increases in both annual earnings and estimated wages compared to white women, while black men gained only in terms of wages compared to white men. Second, since the gender earnings gap among whites was narrowing during this time, as black women's wages rose relative to white women's, they also made faster progress relative to white males than did black males. In other important respects, however, the experience of black men and women over the period was similar. First, for both groups, while earnings and wages relative to whites of the same sex rose during the 1970s, they stagnated or declined during the 1980s. Second, in contrast to the 1960s, younger blacks did not fare better than older blacks during the 1970s and 1980s. While in 1971, both unadjusted wage ratios and adjusted earnings ratios were highest within each sex group for labor market entrants, by 1988 these ratios were fairly similar across experience groups.

This paper investigates interstate variation in income inequality. By avoiding inequality indices and focusing directly on the Lorenz curve, the authors provide a more general explanation of the differences in inequality. They find that mean family income, the standard deviation of years of schooling, per capita educational expenditure, and property income are robust predictors of inequality. Of particular interest is their finding that, ceteris paribus, higher per capita education expenditures tend to be associated with states that have income inequality which is greater than the U.S. average.

Glenn W. Harrison, H. D. Vinod, The Sensitivity Analysis of Applied General Equilibrium Models: Completely Randomized Factorial Sampling Designs, The Review of Economics and Statistics, Vol. 74, No. 2 (May, 1992), pp. 357-362

This paper shows that yields to maturity of U.S. Treasury bills are cointegrated, and that during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors.This cointegrating relationship implies that a single non-stationary common factor underlies the time series behavior of each yield to maturity and that risk premia are stationary.An error correction model which uses spreads as Ihe error correction terms is unstable over the Federal Reserve's policy regime changes, but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields.