Knowledge that Transforms

This paper presents a modified frontier approach to estimate hedonic regressions for data on rent-controlled and uncontrolled apartments. This new approach allows the author to estimate the size of the subsidy from landlords to tenants of rent-controlled apartments. In addition, this method provides the first estimates of the amount by which controls increase rents for uncontrolled apartments. The study shows that, in New York City in 1968, rents in the controlled sector would rise 22 to 26 percent upon decontrol, while rents in the uncontrolled sector would fall about 22 to 25 percent upon removal of rent controls. Copyright 1993 by MIT Press.

Fidel Jaramillo, Fabio Schiantarelli, Alessandro Sembenelli, Are Adjustment Costs for Labor Asymmetric? An Econometric Test on Panel Data for Italy, The Review of Economics and Statistics, Vol. 75, No. 4 (Nov., 1993), pp. 640-648

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. Copyright 1993 by MIT Press.

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. Copyright 1993 by MIT Press.

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. Copyright 1993 by MIT Press.

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. Copyright 1993 by MIT Press.

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. Copyright 1993 by MIT Press.

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. Copyright 1993 by MIT Press.