Knowledge that Transforms

In the two years after the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell over 40%. To what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation? Partial and general equilibrium assessments indicate that the Smoot-Hawley tariff itself reduced imports by 4-8% (ceteris paribus), although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8-10%. A counterfactual simulation suggests that nearly a quarter of the observed 40% decline in imports can be attributed to the rise in the effective tariff (i.e., Smoot-Hawley plus deflation).

The actions of the novel bradycardiac agent ZD7288 [4-(N-ethyl-N-phenylamino)-1, 2-dimethyl-6-(methylamino)pyrimidinium chloride] were investigated on the hyperpolarization-activated cation current Ih and on network activity in spontaneously spindling ferret lateral geniculate (LGNd) slices in vitro using intracellular recording techniques. In voltage-clamp recordings, local application of ZD7288 (1 mM in micropipette) resulted in a complete block of Ih, whereas in current-clamp recordings, application of this agent resulted in an abolition of the depolarizing sag activated by hyperpolarization and decreased the frequency of intrinsic delta-oscillations for which Ih acts as a pacemaker current. In addition, block of Ih with ZD7288 resulted in an abolition of the afterdepolarization (ADP) that follows repetitive hyperpolarization and rebound burst firing as well as that occurring in between spindle waves. The block of the ADP was associated with a block of the spindle wave refractory period such that continuous 6- to 10-Hz oscillations were generated throughout the network. These findings give further support to the hypothesis that Ih is critically involved in the generation of slow rhythmicity in synchronized thalamic activity.

This paper proposes a Bayesian approach to incorporating specification and identification uncertainty into a VAR analysis of the dynamic effects of money supply shocks on the macroeconomy. The approach follows Poirier (1991) in averaging over discrete model specifications in forming posterior densities of the dynamic responses to such shocks. Two distinct means of identifying money supply shocks are considered here: one that imposes contemporaneous restrictions, and one that imposes long-run monetary neutrality. I estimate bounds on dynamic responses that account for specification and parameter uncertainty, and find strong evidence of short-run real effects of money on the economy, including a liquidity effect for both long-term and short-term interest rates. Furthermore, some results differ substantially across identifying restrictions if model uncertainty is ignored.

This paper numerically investigates the significance of rents for both the welfare costs and the optimal design of commodity taxes using a general-equilibrium model calibrated to 1986 Canadian data. In the data we use, Ricardian rents are concentrated in agriculture and utilities, with market structure rents concentrated in manufacturing. Different types of rents have different implications for the welfare cost of taxes, and hence also for appropriate tax design. Ricardian rents lower the cost of taxes; rents supported by imperfect competition (with no free entry) raise the cost of taxes; rents supported by regulation generate rent-seeking costs, and if taxed improve resource allocation. Model results show a markedly nonuniform optimal tax structure, and a substantial influence of the treatment of rents on the pattern of optimal tax rates by commodity.

The paper examines the role of stability constraints in estimation by dynamic simulation. In particular, it analyzes the behavior of the objective function on either side of the boundary of the stability region of the parameter space. The main finding is that stability constraints may be ignored because the simulation-based objective function contains a built-in penalty to enforce stability. A key caveat, however, is that the dynamic stability of the auxiliary model that defines the moment conditions must be checked and enforced. An attempt to fit via simulation to moments defined by a dynamically unstable auxiliary model can be expected to lead to an ill-behaved objective function.

We employ a unit cost function, in the context of the production theory approach, to estimate the Allen-Uzawa effect of various categories of imports on U.S. primary factors. To circumvent curvature-related problems, often associated with similar studies that do not invoke separability, we combine the global imposition of concavity with a symmetric normalized quadratic representation of the unit cost function (which remains flexible after curvature enforcing reparameterizations). Challenging conventional wisdom, we find that the positive, downstream- production-related, employment effects of the majority of imports are significant enough to produce a detectable net increase in labor demand.

In this paper I estimate a duration model of the Italian government. The main finding of the paper is that the downfall probability of an Italian government depends on both political and economic factors. In particular, the higher the inflation rate and the higher the number of workhours lost in strikes both at the time a government forms and during its tenure in office, the more likely it is for a government to collapse. This result has important consequences for the validity of political theories of the business cycle.

System tests for cointegration proposed by Stock and Watson (1988), Johansen (1988), and Bewley and Yang (1995) are compared using Monte Carlo experiments that include overspecification of the lag length and data-generating processes with moving average disturbances. Both AIC and SIC are used to select the lag length of the approximating vector autoregressions. The three tests considered are found to have very different characteristics, and each dominates in some portion of the parameter space.

Many continuous-time term structure of interest rate models assume a factor structure where the drift and volatility functions are affine functions of the state-variable process. These models involve very specific parametric choices of factors and functional specifications of the drift and volatility. Moreover, under the affine term structure restrictions not all factors necessarily affect interest rates at all maturities simultaneously. This class of so-called affine models covers a wide variety of existing empirical as well as theoretical models in the literature. In this paper we take a very agnostic approach to the specification of these diffusion functions and test implications of the affine term structure restrictions. We do not test a specific model among the class of affine models per se. Instead, the affine term structure restrictions we test are based on the derivatives of the responses of interest rates to the factors. We also test how many and which factors affect a particular rate. These tests are conducted within a framework which models interest rates as functions of “fundamental” factors, and the responses of interest rates to these factors are estimated with nonparametric methods. We consider two sets of factors, one based on key macroeconomic variables, and one based on interest rate spreads. In general, despite their common use we find that the empirical evidence does not support the restrictions imposed by affine models. Besides testing the affine structure restrictions we also uncover a set of fundamental factors which appear remarkably robust in explaining interest rate dynamics at the long and short maturities we consider.

This paper explores the recent explosion in university patenting as a source of insight into the changing relationship between the university and the private sector. Before the mid-1980s, university patents were more highly cited, and were cited by more diverse patents, than a random sample of all patents. More recently several significant shifts in university patenting behavior have led to the disappearance of this difference. Thus our results suggest that between 1965 and 1988 the rate of increase of important patents from universities was much less than their overall rate of increase of patenting.