This paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output. Money is endogenous because both monetary policy and deposit creation are endogenous. Parameters are selected according to the simulated moments estimation technique. While the estimated model succeeds along some dimensions in matching properties of postwar U.S. data, its failure to match key patterns of lead-lag correlations seems to cast doubt on the ability of endogenous money determination, by itself, to quantitatively account for the observed money-output correlations. Copyright 1996 by American Economic Association.
While the pillar of the World Trade Organization' (WTO) with respect to trade in goods, services, and intellectual property is nondiscrimination, the cornerstone of trading is discrimination.2 There has been a proliferation of trading in recent years. Twenty-nine new have been notified to the General Agreement on Tariffs and Trade (GATT) and the WTO since 1992: 27 on merchandise trade and two on trade in services. This is almost half the number of still in existence and notified to GATT prior to 1992. All but three WTO members are parties to at least one agreement, and some are parties to many more. It is therefore not surprising that there is renewed interest in whether compete with, or complement, the multilateral trading system.4 While there may be no clear answer, it cannot be denied that recent developments have major implications for the rules-based multilateral trading system. One such development is that tariff preferences have or will become relatively unimportant in many trading agreements. The reasons for this include the high proportion of trade outside many preferential agreements, the limits to the coverage of the tariff preferences themselves, the high share of post-Uruguay Round tariffs that will be bound at zero, and the low level of most-favorednation (MFN) tariffs faced by non-preferencereceiving countries. This development is accompanied by the fact that the scope of application of many has extended well beyond tariff preferences to disciplines that were traditionally the domain of GATT or may in the future be dealt with by the WTO. The European Union (EU) provides a good example.' Despite the numerous countries receiving tariff preferences, its largest trading partners are outside the network of these agreements. In fact, 45 percent of EU imports originate in non-preference-receiving countries (e.g., 17 percent in the United States and 10 percent in Japan). While tariff preferences are of considerable potential importance, with the implementation of Uruguay Round commitments, 51 percent of the value of imports from non-preference-receiving countries will enter the EU under bound duty-free tariff rates. Further, the trade-weighted tariff average on manufactured imports from these countries will be 3.1 percent.6 * Development Division, World Trade Organization, Geneva, Switzerland. Helpful comments from Maria Pillinini of the WTO are gratefully acknowledged, as are those of Richard Snape of Monash University and Industries Commission, Australia. The views expressed in this article are those of the author and not the organization for which he works. 'The WTO came into existence on 1 January 1995 to, inter alia, facilitate the administration of the WTO that emerged from the Uruguay Round, one of which is the revised 1947 General Agreement on Tariffs and Trade (i.e., GATT 1994b). 2 Unless otherwise specified, the term regional trading agreements refers to both customs unions and free-trade areas for trade in goods. The extent of discrimination in is related to the ease of accession of non parties and the openness of the in general. 'The three are Japan, Korea, and Hong Kong. There were 128 Members of GATT, and following the completion of domestic ratification and WTO accession procedures, there will be approximately 160 members of the WTO in the next few years. There are presently 120 members. 4 There are many excellent contributions to this debate; see, for example, Richard Snape, et al. (1993), Jagdish Bhagwati (1995), and WTO (1995). 'Trade between the 15 members of the EU accounts for 60 percent of total EU trade. The EU offers contractual preferences to 26 countries under free-trade, association, or cooperation agreements, and to 70 countries under the Lom6 Convention. It offers noncontractual preferences to 145 countries under the Generalized System of Preferences (GSP). 6 While tariffs on agricultural products are generally higher than those on manufactured goods, the agricultural sector is typically dealt with outside EU preferential agreements.
Charles R. Hulten's (1992) article suggested that very little of the productivity slowdown of the 1970's could be attributed to capital-embodied technical change. Hulten estimated that about 20 percent of total technical change (what he termed the residual growth of quality-adjusted output) in U.S. manufacturing over the period from 1949 to 1983 could be ascribed to embodied technical change in machinery and equipment. However, he found very little difference in the contribution of embodied technical change to total technical change between the periods 1949-1973 and 1974-1983, the slowdown period. In my paper (Wolff, 1991), I found a very significant vintage effect, estimated by the change in the average age of the capital stock. My data, drawn from Angus Maddison (1982), covered the G-7 countries over the period 1880-1979 and were based on figures for total capital (structures, machinery, and equipment) and for the entire economy. These results suggested that embodied technical change played a significant role in the productivity falloff of the 1970's. In this paper, I use more recent data for six OECD countries (France, Germany, Japan, the Netherlands, the United Kingdom, and the United States) compiled by Angus Maddison (1991, 1993a, b) and focus on the period from 1950 to 1989. I find here that the vintage effect is, indeed, a very strong determinant of the post-1973 productivity slowdown among OECD countries, explaining on average about two-fifths of the slowdown. The effect varies among countries, from a low of 23 percent in Japan to 69 percent in France. For the United States, the vintage effect appears to account for a little over half of its slowdown. Though it should be stressed that my results do not directly contradict those of Hulten, whose measure of technical change was confined to machinery and equipment within U.S. manufacturing, I will still attempt some reconciliation of my findings with those of Hulten at the end. The discrepancy in results suggests the possibility that the slowdown in investment in public infrastructure after 1973 may have played an important role in the post-1973 productivity slowdown. Moreover, since this is only a note, I will not review the rather extensive literature on the productivity slowdown of the 1970's (see, for example, Edward F. Denison's [1979] and my [Wolff, 1985] review articles), except to list a number of factors that have been examined. The main candidates have included the slowdown in the rate of capital formation, changes in the composition of the labor force, the role of energy price shocks, declines in R&D spending (and/ or the productivity of R&D), changes in the composition of output (mainly, the shift to services), and increased government regulation. Of these, the decline in investment appears to have played a major role, explaining about a fourth to a third of the slowdown in U.S. productivity growth after 1973. In Section I, I present the basic data for the analysis. The basic regression results are presented in Section II. In Section III, I consider other possible factors that may have played a role in the productivity slowdown of the 1970's. Section IV provides a decomposition of labor productivity growth into its various sources, including a vintage effect, estimated by changes in the average age of capital. Section V analyzes the relative importance of each component in the falloff of productivity growth observed among OECD countries after * Department of Economics, New York University, New York, NY 10003. The author would like to express appreciation to Moses Abramovitz, Charles Hulten, and two anonymous referees for their comments and to the Sloan Foundation and C.V. Starr Center for Applied Economics at New York University for financial support.