Knowledge that Transforms

This study demonstrates an analytical model for evaluating the relative importance of demand and supply factors in determining output growth and price change. Empirical analysis of the 1947-80 data shows that, for most industry groups, demand effects are more dominant in determining output growth, whereas supply effects are more dominant in determining price change. The conclusion remains the same when the effects of uncontrollable variables such as taste and technology are excluded. The study provides useful information for analyzing the effectiveness of demand and supply management policies in affecting output growth and price change. Introduction Recently the stability and validity of the Phillips Curve and the effectiveness of demand management policies to deal with stagflation have been questioned by many economists. Evidence has been accumulated, e.g., Eckstein (1984), to suggest that variations in aggregate supply price were the predominant influences on the general price level of the U.S. economy. But little is known about whether demand or supply factors were more dominant in determining economic growth. Studies on the relative importance of demand and supply factors at the industry level have been very few. But the recent studies by Houthakker (1979 and 1981) suggested the importance of supply shifts and/or economies of

T HE aggregate distribution of earnings in all Western countries is approximately lognormal over most of its range, but the earnings of the top 10% or 20% of individuals follow the Pareto form, which generates a great excess of very high earnings compared with the tail of a lognormal distribution. Individuals at the top appear to be paid according to the job they perform, rather than their ability. This paper explains these features in terms of profit-maximising behaviour. From time to time, a single new manager or management team improves a company's profit by millions of dollars per year. This shows that a senior manager can influence the company's total output far more than a junior employee. His greater influence over output derives from having much more control over the company's resources. Profit-maximising companies offer high salaries for senior management jobs because even a small improvement in their performance leads to a worthwhile increase in output, and competitive bidding for the best managers then drives their salaries up to high levels. This in outline is the explanation for high earnings developed formally in the rest of this paper.

Eric A. Monke, Lester D. Taylor, International Trade Constraints and Commodity Market Models: An Application to the Cotton Market, The Review of Economics and Statistics, Vol. 67, No. 1 (Feb., 1985), pp. 98-107

This paper presents estimates of a multivariate flexible accelerator model of labor demand (hours and the number of production workers) which shows that stocks of finished goods, unfilled orders and materials inventories have significant impacts upon labor demand. Univariate time series models are used to capture expectations of the determinants of desired stocks (new orders, real wages and real raw materials prices) and these magnitudes are found to follow a random walk without drift. Expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs. Real wage forecasting errors are found to be important for hours demand.

Dennis L. Hoffman and, Don E. Schlagenhauf, Real Interest Rates, Anticipated Inflation, and Unanticipated Money: A Multi-Country Study, The Review of Economics and Statistics, Vol. 67, No. 2 (May, 1985), pp. 284-296

Evidence is provided on the allocative effects of monetary policy by estimating the extent to which money growth shocks affected individual relative prices from 1954 to 1979. Building on Geweke's (1982) feedback measure, the paper presents estimates of monetary feedback decomposed by frequency to allow monetary policy's short-run effects to differ from its longer-run effects. The results suggest that monetary feedback from 1954 to 1970 differs from the latter period in both magnitude and patterns across frequencies. The 1970s data suggest monetary variation had a greater overall effect and this effect was more concentrated at lower frequencies.