Knowledge that Transforms

This paper examines the shift in the relation between the inflation rate and the rate of growth of real output which has occurred in the United States over the past three decades, and attempts to assess the relative importance of three possible lines of explanation: a) the new classical view of the output-inflation tradeoff, initially specified by Lucas; b) the effect of supply-side shocks, such as energy prices; c) the effect of inflation variability on the natural rate of real output, as hypothesized by Milton Friedman. The paper concludes that b) and c) seem to have played a significant role in the observed shift from a positive to a negative correlation between the rate of inflation and the rate of real output growth, but that a) did not.

This paper presents estimates of a multivariate flexible accelerator model of labor demand (hours and the number of production workers) which shows that stocks of finished goods, unfilled orders and materials inventories have significant impacts upon labor demand. Univariate time series models are used to capture expectations of the determinants of desired stocks (new orders, real wages and real raw materials prices) and these magnitudes are found to follow a random walk without drift. Expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs. Real wage forecasting errors are found to be important for hours demand.

Dennis L. Hoffman and, Don E. Schlagenhauf, Real Interest Rates, Anticipated Inflation, and Unanticipated Money: A Multi-Country Study, The Review of Economics and Statistics, Vol. 67, No. 2 (May, 1985), pp. 284-296

Evidence is provided on the allocative effects of monetary policy by estimating the extent to which money growth shocks affected individual relative prices from 1954 to 1979. Building on Geweke's (1982) feedback measure, the paper presents estimates of monetary feedback decomposed by frequency to allow monetary policy's short-run effects to differ from its longer-run effects. The results suggest that monetary feedback from 1954 to 1970 differs from the latter period in both magnitude and patterns across frequencies. The 1970s data suggest monetary variation had a greater overall effect and this effect was more concentrated at lower frequencies.

John R. Baldwin, Paul K. Gorecki, The Determinants of Small Plant Market Share in Canadian Manufacturing Industries in the 1970s, The Review of Economics and Statistics, Vol. 67, No. 1 (Feb., 1985), pp. 156-161

This study examines institutional production of higher education. An interesting aspect of this production process is that two of the more important inputs, students and faculty, enter upon considerable self-selection. To address this interdependence, the production relationship is specified by a three-equation simultaneous model in which the quality of college output, faculty, and students are treated endogenously. The significance of simultaneity is demonstrated in an empirical model estimated via three-stage least-squares for a sample of 174 private undergraduate institutions. The results offer clear implications regarding the allocation of institutional resources across the basic factors in educational production. This paper examines the input-output relationship for private undergraduate education. The study falls generally within the economic literature that has analyzed the educational process via a production function specification (Astin, 1968; Bowles, 1970; Summers and Wolfe, 1977; Hanushek, 1979; McGuckin and Winkler, 1979). However, we extend the argument that research assessments of the educational process are not dealing with a production function in the classic sense. For example, the purchaser of the product-the student-is also one of the more important inputs. Further, the non-profit orientation of most universities reduces incentives for cost minimization.' The implication is that the educational process is far more complicated than a simple, production-functional rendering indicates. To demonstrate this point, we estimate a three-equation simultaneous model in which the quality of students, faculty, and college output are treated endogenously.2 This study's broad objective is to identify more clearly the relative contribution of the many human and nonhuman resources combining to produce quality under-

Ray-homotheticity is proposed as a fruitful way of modelling scale economies. It permits scale economies to vary with the rate of output and the input mix, thus allowing ideal output to be input mix-dependent. Our empirical results illustrate the value of ray-homotheticity as a generalization of both homotheticity and ray-homogeneity. They also shed some light on the use of Wald and likelihood ratio tests for hypothesis testing in nested nonlinear models. We find instances of conflict between the two tests, and of reversal of the ordering that holds in linear models.