A model of the single-family housing market is proposed in which households that move are both buyers and sellers. Households move when a stochastic process leaves them dissatisfied with their current unit. Household buyers expend costly search effort to find a better house, while sellers hold two units until a buyer is found. The vacancy rate, fixed in the short run, determines the expected length of sale and search, which play a central role in the reservation prices of buyer and seller. Market prices, the result of bargaining, lie between these two. The model yields a strong theoretical relationship (inverse) between vacancy and prices, which with competitive supply explains the existence of longer-run "structural" vacancy.

A model of the single-family housing market is proposed in which households that move are both buyers and sellers. Households move when a stochastic process leaves them dissatisifed with their current unit. Household buyers expend costly search effort to find a better house, while sellers hold two units until a buyer is found. The vacancy rate, fixed in the short run, determines the expected length of sale and search, which play a central role in the reservation prices of buyer and seller. Market prices, the result of bargaining, lie between these two. The model yields a strong theoretical relationship (inverse) between vacancy and prices, which with competitive supply explains the existence of longer-run "structural" vacancy. Copyright 1990 by University of Chicago Press.

This paper studies the asymptotic properties of instrumental variable (IV) estimates of multivariate cointegrating regressions and allows for deterministic and stochastic regressors as well as quite general deterministic processes in the data-generating mechanism. It is found that IV regressions are consistent even when the instruments are stochastically independent of the regressors. This phenomenon, which contrasts with traditional theory for stationary time series, is a beneficial artifact of spurious regression theory whereby stochastic trends in the instruments ensure their relevance asymptotically. Problems of inference are also addressed and some promising new theoretical results are reported. These involve a class of Wald tests which are modified by semiparametric corrections for serial correlation and for endogeneity. The resulting test statistics which we term fully-modified Wald tests have limiting X2 distributions, thereby removing the obstacles to inference in cointegrated systems that were presented by the nuisance parameter dependencies in earlier work. Some simulation results are reported which seek to explore the sampling behaviour of our suggested procedures. These simulations compare our fully modified (semiparametric) methods with the parametric error-correction methodology that has been extensively used in recent empirical research and with conventional least squares regression. Both the fully-modified and errorcorrection methods work well in finite samples and the sampling performance of each procedure confirms the relevance of asymptotic distribution theory, as distinct from super-consistency results, in discriminating between statistical methods.

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In this article, we characterize economies in which both cash flows and forward prices follow random walks. We show in the case of geometric random walks that the preferences of the representative investor are of the constant proportional risk-aversion type. We also show the conditions under which spot prices follow random walks and under which the equivalent martingale measure is non-state-dependent.

This paper derives systems of demand equations for distinguishing between Nash-Cournot and Lindahl behavior in a group that either shares a pure public good or an activity that provides a private and a pure public joint product. Systems of simultaneous equations are estimated based upon Nash-Cournot and Lindahl behavior for a sample of ten NATO allies for the 1956–1987 period. Nonnested hypothesis tests support the Nash-Cournot specification for five of the ten sample allies. No evidence of Lindahl behavior is found. The Nash-Cournot joint-product specification outperforms the pure public model for all sample allies.

The preceding articles by Martin Feldstein and Douglas Elmendorf and by Franco Modigliani and Arlhe Sterling give us a welcome opportunity to return to the effects of fiscal policy on private consumption. At stake in this debate, we believe, is a potential paradigm change-from what Kormendi (1983) termed the Standard Approach, which bases private consumption on disposable personal income, to what he termed the Consolidated Approach, which bases consumption on aggregate income, government spending, and transfer payments, each with separate effects. The Standard Approach excludes Ricardian equivalence a priori. The Consolidated Approach not only incorporates Ricardian equivalence but, in its augmented form, allows one to nest the various hypotheses associated with the two approaches. Feldstein and Elmendorf argue that Kormendi's (1983) results (and implicitly those of Kormendi and Meguire, 1986), which reject the Standard Approach in favor of the Consolidated/Ricardian alternative, are not robust to the exclusion of data from World War II and other specification changes. Modigliani and Sterling argue that accounting for temporary taxes reverses our rebuttal of their 1986 comment. We first take up the challenge of Feldstein and Elmendorf before turning to Modigliani and Sterling. We then assess the validity of our preference for estimating in differences, by testing whether consumption, income, and the fiscal variables are cointegrated. Finally, we summarize what can be learned from the debate. I. Feldstein and Elmendorf