Knowledge that Transforms

We employ a unit cost function, in the context of the production theory approach, to estimate the Allen-Uzawa effect of various categories of imports on U.S. primary factors. To circumvent curvature-related problems, often associated with similar studies that do not invoke separability, we combine the global imposition of concavity with a symmetric normalized quadratic representation of the unit cost function (which remains flexible after curvature enforcing reparameterizations). Challenging conventional wisdom, we find that the positive, downstream- production-related, employment effects of the majority of imports are significant enough to produce a detectable net increase in labor demand.

In this paper I estimate a duration model of the Italian government. The main finding of the paper is that the downfall probability of an Italian government depends on both political and economic factors. In particular, the higher the inflation rate and the higher the number of workhours lost in strikes both at the time a government forms and during its tenure in office, the more likely it is for a government to collapse. This result has important consequences for the validity of political theories of the business cycle. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

System tests for cointegration proposed by Stock and Watson (1988), Johansen (1988), and Bewley and Yang (1995) are compared using Monte Carlo experiments that include overspecification of the lag length and data-generating processes with moving average disturbances. Both AIC and SIC are used to select the lag length of the approximating vector autoregressions. The three tests considered are found to have very different characteristics, and each dominates in some portion of the parameter space.

Many continuous-time term structure of interest rate models assume a factor structure where the drift and volatility functions are affine functions of the state-variable process. These models involve very specific parametric choices of factors and functional specifications of the drift and volatility. Moreover, under the affine term structure restrictions not all factors necessarily affect interest rates at all maturities simultaneously. This class of so-called affine models covers a wide variety of existing empirical as well as theoretical models in the literature. In this paper we take a very agnostic approach to the specification of these diffusion functions and test implications of the affine term structure restrictions. We do not test a specific model among the class of affine models per se. Instead, the affine term structure restrictions we test are based on the derivatives of the responses of interest rates to the factors. We also test how many and which factors affect a particular rate. These tests are conducted within a framework which models interest rates as functions of “fundamental” factors, and the responses of interest rates to these factors are estimated with nonparametric methods. We consider two sets of factors, one based on key macroeconomic variables, and one based on interest rate spreads. In general, despite their common use we find that the empirical evidence does not support the restrictions imposed by affine models. Besides testing the affine structure restrictions we also uncover a set of fundamental factors which appear remarkably robust in explaining interest rate dynamics at the long and short maturities we consider.

This paper explores the recent explosion in university patenting as a source of insight into the changing relationship between the university and the private sector. Before the mid-1980s, university patents were more highly cited, and were cited by more diverse patents, than a random sample of all patents. More recently several significant shifts in university patenting behavior have led to the disappearance of this difference. Thus our results suggest that between 1965 and 1988 the rate of increase of important patents from universities was much less than their overall rate of increase of patenting.

An error correction model for the demand for real M3 money is constructed for the period of 1976–1994 with real GNP, the GNP deflator, as well as a short-term and a long-term interest rate as explanatory variables. Quarterly, seasonally unadjusted data are used in estimating the model. It is found that there is a clear structural break due to the German unification in 1990. On the other hand, once this structural break is accounted for, a stable relation is found which resists a series of specification tests. These include a number of recent tests of parameter constancy and linearity. Our specification is at variance with findings reported by some other researchers, notably the Deutsche Bundesbank.

We estimate how much of the wealth of a sample of respondents to the Panel Study of Income Dynamics is held because some households face more income uncertainty than others. We begin by solving a theoretical model of saving, which we use to develop appropriate measures of uncertainty. We then regress households' wealth on our measures of uncertainty, and find substantial evidence that households engage in precautionary saving. Finally, we simulate the wealth distribution that our empirical results imply would prevail if all households had the same uncertainty as the lowest uncertainty group. We find that between 32 and 50% of wealth in our sample is attributable to the extra uncertainty that some consumers face compared to the lowest uncertainty group.

We use unique data from the Medicaid program of the Commonwealth of Kentucky to examine the duration of Medicaid spells. The data set consists of a one-in-ten sample of all Medicaid recipients in Kentucky on July 1, 1986, and a similar sample of all new spells between July 1, 1986, and June 30, 1987. Because the beginning date of Medicaid recipiency is known for all spells, this mixed "stock" and "flow" sample allows us to identify the duration of Medicaid spells for up to twenty years. This is in contrast to other studies using short panels of new spells. We find significant differences in hazard functions across program eligibility categories, suggesting that the cost of expanding Medicaid or the savings from contracting it would vary depending on the eligibility group affected by the change in policy. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

This note asks: “How much income does it take to preserve the prechild standard of living for all members of the postchild household?” Equivalence scales for Canadian two-parent families are estimated using a complete demand system approach and imposing the condition of equiva-lence scale exactness/independent of a base (Blackorby and Donaldson (1993), Lewbel (1989)). This approach has several advantages: (1) It is formally grounded in economic theory. (2) The income required for children can be estimated without ignoring the well-being of the children themselves. (3) The estimates obtained appear reasonable relative to others currently available in the literature.

In recent years a growing number of countries have constructed data series on job creation and job destruction using establishment-level data sets. This paper provides a description and detailed comparison of these new data series for the United States and Canada. Pint, the Canadian and United States industry-level job creation and destruction rates are remarkably similar. Industries with high (low) job creation in the U.S. exhibit high (low) job creation in Canada. The same is true for job destruction. In addition, the overall magnitude of gross job flows in the two countries is comparable. Second, the time-series patterns of creation and destruction are qualitatively similar but do differ in a number of important respects. In both countries, job destruction is much more cyclically volatile than job creation. This cyclical asymmetry is, however, more pronounced in the United States. The paper finishes with a characterization of the job flow patterns using a modified