Knowledge that Transforms

This paper highlights an issue not previously addressed in portfolio balance modelling: the impact of assetspecific expected capital gains on the composition of the household wealth portfolio. We extend the Brainard-Tobin portfolio choice model to incorporate the distinction between expected and unexpected capital gains and estimate two versions of the model. While our specification is more appealing on a theoretical basis, we were unable to distinguish clearly between the ex ante and ex post models given currently available data.

A bstract-A nonparametric time series test is applied to the buyers' and sellers' (BLS) prices collected by George Stigler and James Kindahl. Although BLS pnrces are more ngid, the two senes of pnrces are sufficiently similar in behavior dunrng two business cycles so that one can reject the null that each is generated by different stochastic processes. Moreover, each series reacts similarly in favor of the administered price hypothesis: in recessions and in the initial year of recovery, concentrated pnrces are more rigid and perversely flexible than unconcentrated pnrces, which are characterized by random movements and changes in the direction of real demand.

We develop a new specification test which can easily be applied to regression models that have been estimated by generalized least squares. The test is a variant of the F-test. It is derived for the general case, and also, in more detail, for the commonly encountered case of models with AR(1) errors. Two empirical examples are presented, one of them involving a well-known model of exchange rate determination.

This paper develops and estimates a model of interrelated factor demand with rational expectations, in the presence of internal adjustment costs. Invariant technological parameters are distinguished from the firm's adjustment parameters, which change when the exogenous processes faced by the firm change. The capital demand equation is derived by solving the Euler equations which stem from minimization of the present value of costs. Future exogenous variables are supplied from solutions of ARIMA equations. The model is tested on postwar quarterly data for U.S. manufacturing. A regime change in the process for energy prices is simulated, as is a temporary suspension of the investment tax credit.

Michael R. Veall, Klaus F. Zimmermann, A Monthly Dynamic Consumer Expenditure System for Germany with Different Kinds of Households, The Review of Economics and Statistics, Vol. 68, No. 2 (May, 1986), pp. 256-264

The present paper is a time series analysis of the relationship between consumption and income innovations. The empirical findings based on aggregate, seasonally unadjusted quarterly UK and German data suggest that the adjustment of consumption to income innovations is not instantaneous (within a quarter), and that the estimated marginal propensities to consume out of income innovations are too large to be compatible with the predictions of the rational expectations-life cycle model. It is found that the same qualitative results are obtained when the disposable income data for West Germany is disaggregated into labour income, transfer payments and profits (transferred from the business sector to households).