Knowledge that Transforms

Flow of funds; Monetary policy

The authors assess the impact of college quality on women's earnings and the influence of family and individual endowments on college choice using new data from a survey of identical and nonidentical twins born in Minnesota. The estimates reject models that ignore school choice. The statistically preferred estimates suggest that Ph.D.-granting, private universities with well-paid senior faculty and smaller enrollments produce students who have significantly higher earnings later in life. Both the quantity of schooling and the quality of schooling resources are allocated to higher-endowed individuals, which exacerbates preexisting inequality in human capital and biases conventional estimates of school quality effects. Copyright 1996 by MIT Press.

Rakesh Basant, Brian Fikkert, The Effects of R&D, Foreign Technology Purchase, and Domestic and International Spillovers on Productivity in Indian Firms, The Review of Economics and Statistics, Vol. 78, No. 2 (May, 1996), pp. 187-199

Bruce Kogut, Sea Jin Chang, Platform Investments and Volatile Exchange Rates: Direct Investment in the U.S. by Japanese Electronic Companies, The Review of Economics and Statistics, Vol. 78, No. 2 (May, 1996), pp. 221-231

Abstract: In the first half of this century, special attention was given to two features of the business cycle: the comovement of many individual economic series and the different behavior of the economy during expansions and contractions. Recent theoretical and empirical research has revived interest in each attribute separately, and we survey this work. Notable empirical contributions are dynamic factor models that have a single common macroeconomic factor and nonlinear regime-switching models of a macroeconomic aggregate. We conduct an empirical synthesis that incorporates both of these features. It is desirable to know the facts before attempting to explain them; hence, the attractiveness of organizing business-cycle regularities within a model-free framework. During the first half of this century, much research was devoted to obtaining just such an empirical characterization of the business cycle. The most prominent example of this work

This paper attempts to reconcile the contradictory findings in the debate over school resources and school effectiveness by highlighting the role of aggregation in the presence of omitted variables bias. While data aggregation for well-specified linear models yields unbiased parameter estimates, aggregation alters the magnitude of any omitted variables bias. In general, the theoretical impact of aggregation is ambiguous. In a very relevant special case where omitted variables relate to state differences in school policy, however, aggregation implies clear upward bias of estimated school resource effects. Analysis of High School and Beyond data provides strong evidence that aggregation inflates the coefficients on school resources. Moreover, the pattern of results is not consistent with an errors-in-variables explanation, the alternative explanation for the larger estimated impact with aggregate estimates. Since studies using aggregate data are much more likely to find positive school resource effects on achievement, these results provide further support to the view that additional expenditures alone are unlikely to improve student outcomes.

Jean-Paul Chavas, Matthew T. Holt, Economic Behavior Under Uncertainty: A Joint Analysis of Risk Preferences and Technology, The Review of Economics and Statistics, Vol. 78, No. 2 (May, 1996), pp. 329-335

Using a panel data set for the forty-eight contiguous states from 1970 to 1983, several estimates are provided of a Cobb-Douglas production function with three types of public capital as inputs. Various specification tests are systematically applied to test for both random and fixed state effects, nonstationarity, endogeneity of the private inputs, and measurement error. In the preferred specification, which is first differences with fixed state effects, the public capital variables are not significant, while the fixed state effects and private input variables are significant. Copyright 1996 by MIT Press.

Abstract-The mechanisms governing the relationship of money, prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations macroeconomic models-a real business cycle model, a sticky price model and a liquidity effect model-account for these central facts. While the models have diverse successses and failures, none can account for the fact that real and nominal interest rates are "inverted leading indicators " of real economic activity. That is, none of the models captures the post-war U.S. business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future. Robert G. King and Mark W. Watson* In exploring the predictions of these models, we take the stock of money to be one of several exogenous variables in the system. All of our models are capable of generating a forecasting role for money relative to real economic activity, similar to that found in the U.S. data. In the real business model, monetary changes can forecast real activity because productivity is related to many underlying sources of shocks and because these real shocks also affect the money stock. In the models with "sticky prices " and "liquidity effects" I.

Because many individuals do not complete their degrees in the standard number of years, previous estimates of diploma effects, which have been based only on an individual's years of education, are biased. Using a data set from a matched sample of the 1991 and 1992 March Current Population Survey that has information on both years of education and diplomas received, this paper improves on earlier estimates and finds that using 'true' information on degree receipt substantially increases estimated sheepskin effects of high school and college degrees. Unlike past research, this paper finds that there are few statistically significant differences in sheepskin effects between race and sex groups. The relative returns to Associates and post-graduate degrees are also examined. Copyright 1996 by MIT Press.