ANY attempts have been made to assess the relevant forces affecting the variation of the relative factor share since the monumental work of Hicks, The Theory of Wages. Some of the outstanding research on this subject has been conducted by Murray Brown and his associates [1, 2, 3]. Their analyses have been based on the Schumpeterian idea of discrete technological changes and on Hicksian propositions contained in [6]. Although the assumption of discrete technological changes facilitates the assessment of the impact of nonneutral technological changes as well as other forces, the reality of the assumption is questionable, particularly at the aggregate level of economy. In the present study, technological changes are regarded as continuous instead of discrete. Furthermore, technological changes are classified as factor augmenting and nonfactor augmenting, the rates of which follow exponential time paths. The former arise from the increases in education and training, improved health, and research and development, whereas the latter arise from managerial and organizational improvements. The production function system which includes a CES production function and the marginal productivity relations are used as the bases on which the subsequent model is derived. The model is applied to the selected manufacturing industries in the United States for the period 1947-1963.

We provide evidence on three mechanisms that can reconcile frequent individual price changes with sluggish aggregate price dynamics. To that end, we estimate a semistructural model that can extract information about real rigidities and the distribution of price stickiness from aggregate data. Hence, the model can also speak to the debate about the aggregate implications of sales. Our estimates indicate large real rigidities and substantial heterogeneity in price stickiness. Moreover, the cross-sectional distribution of price stickiness implied by aggregate data is in line with an empirical distribution obtained from microprice data that factors out sales and product substitutions.

Using an estimated DSGE model with monetary and fiscal policy interactions and allowing for equilibrium indeterminacy, we find that a passive monetary and passive fiscal policy regime prevailed in the pre-Volcker period. This gave rise to self-fulfilling beliefs and unconventional transmission mechanisms of policy shifts: unanticipated increases in interest rates increased inflation and output, while unanticipated increases in lump-sum taxes decreased inflation and output. We show that had the monetary policy regime of the post-Volcker era been in place pre-Volcker, inflation volatility would have been lower by 25% and the rise of inflation in the 1970s would not have occurred.

Using a micro-founded model and a likelihood-based inference method, we show that while a passive monetary and passive fiscal policy regime prevailed in the U.S. before Paul Volcker's chairmanship at the Federal Reserve, an active monetary and passive fiscal policy regime prevailed after his appointment. Since both monetary and fiscal policies were passive pre-Volcker, equilibrium indeterminacy was a feature of the economy. Finally, pre-Volcker, the effects of unanticipated policy shifts were substantially different from those predicted by conventional monetary models: unanticipated increases in interest rates increased inflation and output, while unanticipated increases in lump-sum taxes decreased inflation and output.