Knowledge that Transforms

This paper analyzes price adjustment in markets where trade takes place through both spot-market and long-term-contract transactions. The authors develop a model illustrating the role of the resulting two-price system in describing price adjustment to transitory shocks; persistence effects of these shocks on prices depends on, inter alia, the fraction of trades carried out through contracts. The model is tested on price data from the world copper and crude oil markets. Econometric tests of the model provide support for the hypothesis that the increase in the importance of spot markets in copper and oil is associated with an increase in the speed of adjustment of spot prices to supply and demand disturbances. Copyright 1989 by MIT Press.

This study estimates the underlying parameters in a dynamic game between the fiscal and monetary authorities over the determination of public debt. These estimates reveal the policymakers attitude towards the goal of stabilizing the time path of public debt. The central finding is that, in the United States during the 1955-85 period, this goal has been pursued by the fiscal authority, but not by the central bank. Monetary policy has not monetized the stock of public debt outstanding, whereas cyclically-adjusted, net of interest, fiscal deficits have been reduced to offset increases in the stock of debt in circulation. Copyright 1989 by MIT Press.

Based on the decision to file an escape clause petition by a firm, a Poisson regression model of the macroeconomic determinants of the total number of these petitions yearly is developed and estimated. The Poisson specification conforms to the fact that the number of escape clause petitions is a non-negative integer with a skewed probability distribution. In addition, the number of potential petitioners is controlled for in the specification. The empirical results suggest that both domestic and international factors affect the decision to file an escape clause petition. The legal environment is found to be a determinant as well. Copyright 1989 by MIT Press.

This paper offers the first integrated test of the electoral model of business cycles. The test begins with unrestricted estimates of presidential electoral patterns in U.S. economic outcomes (real GNP, unemployment, and inflation) and policies (money growth and the adjusted budget surplus). These estimates are then used to determine whether the estimated electoral patterns in macropolicy yield predicted electoral patterns for macro outcomes that are consistent with estimates of both actual electoral patterns in outcomes and voting behavior. The results indicate that four-year electoral cycles in macroeconomic outcomes and policies are strongly significant for the United States for the period 1951I to 1986II. Copyright 1989 by MIT Press.

Specific egalitarianism calls for the equalization in the consumption of specific commodities and is a guiding principle of redistributional policy in the United States. It is therefore of interest to evaluate the impact of specific egalitarianism on general egalitarian measures of inequality. For this purpose, multidimensional measures of welfare inequality are disaggregated into subindexes of inequality defined over the distributions of components of individual welfare. The welfare components are taken to be subutility functions identified through the two stage budgeting process. The effect of eliminating inequality in the distribution of a specific welfare component on total welfare inequality is examined for the United States. Copyright 1989 by MIT Press.

John M. Fitzgerald, The Taste for Bequests and Well-being of Widows: A Model of Life Insurance Demand by Married Couples, The Review of Economics and Statistics, Vol. 71, No. 2 (May, 1989), pp. 206-214

Contrary to one of the predictions of the contestability hypothesis, price in deregulated U.S. passenger airline markets is related to actual competition from diversifying former intrastates and newly established carriers. More important, former intrastates have a larger impact on price than do newly established firms--a result consistent with these markets being imperfectly competitive because of an industry experience barrier to entry. Unlike actual competition, a measure of potential competition has no effect in constraining price. Copyright 1989 by MIT Press.

Aaron K. Han, Daekeun Park, Testing for Structural Change in Panel Data: Application to a Study of U.S. Foreign Trade in Manufacturing Goods, The Review of Economics and Statistics, Vol. 71, No. 1 (Feb., 1989), pp. 135-142