Knowledge that Transforms

Starting point is the 'German Dominance Hypothesis, ' according to which Germany has a dominant position within the EMS. This makes it impossible for other member countries to pursue their own monetary policies. Using monthly data of three-month Euro market rates from 1980 to 1988, for the U.S., Germany, the U.K., the Netherlands, France and Italy, we test this hypothesis in a multivariate cointegration framework. We find that Germany has a strong position in Europe, which is not restricted to the EMS. Concerning long-run development, one might speak of a dominant position. However, there are short-run relations between European countries which are not linked to relations with Germany.

This paper reexamines one estimation of money demand equations using quarterly data for Chile and Mexico. The authors find no evidence of cointegration of traditional long-run money demand equations. In light of this evidence, they argue that there is an important permanent component of the demand for money not captured by traditional variables (interest rates and income). The authors call this phenomenon financial innovation and they include it in the traditional specification by assuming that it follows a random walk.

Chang-Jin Kim, Sources of Monetary Growth Uncertainty and Economic Activity: The Time- Varying-Parameter Model with Heteroskedastic Disturbances, The Review of Economics and Statistics, Vol. 75, No. 3 (Aug., 1993), pp. 483-492

This paper utilizes a detailed data set on most U.S. car models over a twenty-two-year period to determine the impact of advertising and product styling. It finds that, while advertising and style change each increases a model's sales, advertising is short-lived but styling has a much longer impact. Rivals' styling reduces own-model sales to the point that the overall market effect is self-canceling. Rivals' advertising, by contrast, does not greatly affect own sales, so that marketwide advertising does increase total sales. These results add several twists to previous analyses of this industry.

The Box-Cox transformation is used to compare alternative functional forms of market value equations. Based on evidence from a panel of 480 publicly-traded U.S. manufacturing companies and two additional data sets used previously in the literature, the semilog form of a Tobin’s q equation is found to be strongly preferred to the commonly estimated linear form. We provide illustrations in which inferences can be affected by the choice of functional form. The authors thank Zvi Griliches, Hendrik Houthakker, and two anonymous referees for helpful discussion and suggestions, and Jerry Stevens for providing access to one of the data sets examined in Section III. Remaining errors are ours. A longer working paper version is available on request. 1

This paper examines the retail gasoline price fluctuations known as gas wars. Weekly prices for the Los Angeles area were examined for the period from January 2, 1968 through December 23, 1975. The observed fluctuations were remarkably regular and, apparently, large ly predictable. The data appear consistent with the recent game theory model of E. Maskin and J. Tirole in which competing firms produce Edgeworth cycles by undercutting each other and eventually relenting.

The efficiency of governments may be influenced by institutional factors and by the intensity of monitoring by citizens. This paper develops a theory of optimal monitoring and then uses frontier estimation techniques to construct measures of efficiency f or police departments in 141 cities. Using these efficiency measures, i t is possible to test the extent to which efficiency is influenced by the presence of a professional city manager and by characteristics of th e citizens.

The gravity equation has been frequently and successfully used for nearly thirty years to further understanding of the determinants of bilateral trade flows across countries and, subsequently, to analyze commercial policy measures. A maintained hypothesis by the applied literature on international trade as gravity equation loglinearity is questioned in this paper since the possibility of a general functional form is open through Box-Cox transformations. Using data corresponding to the sixteen OECD most developed countries from 1964 to 1987 the authors reach the conclusion that the optimal functional form is slightly, yet statistically, different from the loglinear form in every year of the sample and they are able to propose one unique functional form suitable for all the sample period.

The objective of this paper is to examine empirically the determinants of the joint decision whether or not to adopt a new input and invest in technical knowledge. A log-linear probability model of the joint occurrence or nonoccurrence of adoption and information acquisition is estimated. The results suggest that information acquisition and adoption decisions are made jointly and that the influences of the determinants of adoption and information acquisition differ with the timing of adoption and the channels of information dissemination.

Simon van Norden, Huntley Schaller, The Predictability of Stock Market Regime: Evidence from the Toronto Stock Exchange, The Review of Economics and Statistics, Vol. 75, No. 3 (Aug., 1993), pp. 505-510