Knowledge that Transforms

This study investigates the stability of long-run log-linear demand functions for narrowly defined monetary aggregates (M1, Monetary Base) in the U.S. during the post World War II period. The hypotheses that the individual time series which appear in such equations (real M1, real Monetary Base, real Personal Income and short-term and long-term nominal interest rates) all have unit roots cannot be rejected. The primary conclusion of this study is that with proper attention to the time series properties of the available data, there exists strong evidence in support of a stable equilibrium demand function for real balances in the post-World War II U.S. economy. The hypothesis of a unitary equilibrium real income elasticity (a velocity function) cannot be rejected. Further, the estimates of equilibrium interest elasticities are approximately -.5 to -.6 for real M1 and -.4 to -.5 for real monetary base. The estimated interest elasticities are significantly different statistically depending on whether long- term or short-term interest rates are used, but the observed differences in these estimates are not of economic significance.

The effect of health-plan membership on the utilization of health-care services is of interest to both consumers and policymakers. Often estimation of that effect is difficult because data are nonexperimental and the dependent variable exhibits a high proportion of zeros. The authors propose a model of utilization that addresses both problems. After controlling for chronic illness and other observed variables, they find no evidence of further selectivity bias in equations for physician contacts and inpatient days. The authors' estimates of the effect of health-plan membership on utilization of services are similar to those from experimental data. Coauthors are Roger Feldman, Steven Cassou, and Michael Finch. Copyright 1991 by MIT Press.

This paper analyzes the search decision of employees empirically. A maximum likelihood model consisting of a wage equation and a search equation, in which the difference between the present and the nonobserved alternative (market) wage is included, is estimated to investigate the importance of nonwage job characteristics and future wage prospects relative to the present wage. The estimation results indicate that both present and future wages and nonwage job characteristics have a significant impact on the search decisions of employees. Copyright 1991 by MIT Press.

This study presents an econometric examination of the joint decisions of farmers on the adoption of a microcomputer and (or) purchased computers services. The characteristics of a farmer--schooling, age, off-farm work--are shown to be important variables for explaining the odds of adopting purchased computers services only, a microcomputer only, and both computer technologies. Adoption of computer technologies seems to occur in farming operations where they can be expected to greatly enhance the efficiency. Copyright 1991 by MIT Press.

An employed worker's search strategies include (1) employed-not searching, (2) employed-searching, and (3) unemployed-searching. The last requires that the worker quit to search. Under plausible assumptions on search costs, the optimal algorithm involves a dual reservation wage strategy (Burdett, 1978). The probability of on-the-job search increases as the current wage decreases relative to the distribution of alternative wages. If the wage is sufficiently low, the searcher quits to search, substituting time for financial outlays. Estimates based on the National Longitudinal Survey of Youth indicate that these calculations characterize the search strategies of young workers. Copyright 1991 by MIT Press.

The original concept of vertical integration can be applied only to the analysis of the relationship between final demand and gross output, but is unsuitable for most of supply-oriented studies, where what matters are the interindustry relations. For example, vertical integration of an industrial district with the rest of the economy cannot be measured with the traditional technique and should be accounted for by a different measure that considers the direct and indirect demand derived from the whole gross output of the district. In such a way it is possible to measure the expansionary potential that any industry has on any other one, constructing an index of vertical integration. These concepts are then applied to the input-output table of a developing country like China and they provide some understanding of the routes development strategies have to follow. Copyright 1991 by MIT Press.

Michael J. Greenwood, John M. McDowell, Differential Economic Opportunity, Transferability of Skills, and Immigration to the United States and Canada, The Review of Economics and Statistics, Vol. 73, No. 4 (Nov., 1991), pp. 612-623

Historically, the effect of interstate banking on the risk and profitability of commercial banks has been a controversial issue. Using capital market data and an event study methodology, the author tests the effects of interstate banking. The findings of this paper reject the hypothesis that interstate banking has no effect on banks' risk and profitability. The evidence supports the argument that interstate banking benefits commercial banks in terms of increased profitability, but the increase in profitability is also associated with significant increases in the banks' exposure to market risk. Copyright 1991 by MIT Press.

The authors obtain expressions for the restricted least squares estimator and its covariance matrix in the classical regression model when the matrix of regressors is not necessarily of full rank. The standard expressions for the restricted least squares estimator are not usable in the short rank case because they rely on the unrestricted estimator. But, in the presence of restrictions, the restricted least squares estimator may be computable even if the unrestricted estimator is not. The authors' derivation produces some additional, useful algebraic results for least squares computation. Copyright 1991 by MIT Press.

We analyze the degree of policy convergence of EMS member countries relative to that of some non-EMS countries. Interestingly, we find convergence for the nominal and real exchange rates and money supplies of the EMS members but not for the non-EMS countries. We also provide some evidence to support the "German leadership hypothesis" in the context of intra-EMS monetary policy convergence.