Knowledge that Transforms

Stephen C. Farber, Robert J. Newman, Accounting for South/Non-South Real Wage Differentials and for Changes in Those Differentials over Time, The Review of Economics and Statistics, Vol. 69, No. 2 (May, 1987), pp. 215-223

This paper evaluates calculations of net fiscal incidence, using an applied general equilibrium model of Australia into which public goods are incorporated. Results indicate that it is inappropriate to regard the redistributive impacts of government policies as a zero sum game. For large reductions in public goods provision and taxes, the dominant effect is the foregone consumer surplus from suboptimal public goods provision. In addition, the redistributive pattern of small charges are quite different from large charges. Marginal and average net fiscal incidence, thus, need to be clearly separated, a point not emphasized in existing literature. Copyright 1987 by MIT Press.

The conventional approach to computation of the Allen partial elasticities of substitution (AES) in the framewo rk of the translog production function requires to estimate a set of multivariate input-demand functions. This paper proposes an alternati ve way to compute the AESs, requiring only to estimate elasticities v ia a truncated, single cost-share equation. Value-added separability and pairwise factor substitutabilities have both been validated under the nonlinear restriction. The achievements of the alternative appro ach are by and large consistent with those of the conventional approa ch and with those in some of the existing studies. Copyright 1987 by MIT Press.

, , U.S.-European Interest Rate Linkage: A Time Series Analysis for West Germany, Switzerland, and the United States, The Review of Economics and Statistics, Vol. 69, No. 4 (Nov., 1987), pp. 675-684

One of the current questions in the literature on the demand for money is whether the adjustment of actual to desired money holdings is in nominal or real terms.This paper describes a simple procedure than can be used to test the nominal against the real hypothesis.The test is carried out for 27 countries.The paper also tests the structural stability of the demand for money equations and the correctness of the dynamic specification.The results are strongly in favor of the nominal adjustment hypothesis.The estimated equations are quite good in terms of the number of coefficient estimates that are of the right sign and that are significant.The equations also stand up well when tested against a more general dynamic specification.There is, however, some evidence of structural instability before and after 1973, although the instability is generally moderate.The instability does not affect the conclusion that the nominal adjustment hypothesis dominates the real adjustment hypothesis.

This study conducts an empirical test to examine wh ether the observed non-normal distribution of currency futures price changes isgenerated by the relationship between maturity and variability. In general, the author finds that the relationship between maturity and vari-ability is not suff icient to explain the observed non- normality. Although some amount of non-statio narity is present in the scale and in the characteristic exponent, the non-norma l stable Paretian distribution adequately describes futures price changes for mo st currencies and most contracts during the period covered in thisstudy Copyright 1987 by MIT Press.

This paper argues that capital-energy complementarity is a short-run phenomenon reflecting the fixed ex post nature of factor employment in a putty-clay technology. When an empirical specification is employed that measures firms' ex ante choice of technique, capital and energy are found to be long-run substitutes. However, further analysis of the standard translog and putty-clay models with nonnested hypothesis tests reveals that neither specification is an adequate representation of technology. The results suggest that there is a dynamic adjustment process in the data that is not fully captured in either model. Copyright 1987 by MIT Press.

The persistently high unemployment rate of the Atlantic Region of Canada may be a symptom of importation into the region of inappropriately high wage levels from other Canadian regions. A theoretical explanation for the existence of such interregional wage spillover is offered. The hypothesis of spillover is empirically examined using data on the wage change provisions of individual contracts in the manufacturing sector. Possible econometric problems associated with contract data are examined and corrective measures taken. Results of the estimation support the hypothesis that wage spillover plays a role in the determination of Atlantic Region wages. Copyright 1987 by MIT Press.

The perspicacious peregrinator model of Solomon W. Polachek and Francis W. Horvath hypothesizes that individuals decide to migrate based on the size of potential gains. This model is tested using themigration decisions of Major League Baseball players between 1977 and1979. Potential gains are measure d as the differ-ence between earnings with and without migration. A distinction is made between players eligible for free agency and those ineligible so as to a ccount for differences in the level of competition for players' services in diff erent segments of this market. Migration is found tobe related to the expected gain from earnings for players eligible for free agency, but not for those ineli gible. Copyright 1987 by MIT Press.