A major conceptual error in the standard BLS and Lebergott unemployment estimates for 1930-43 is reported. Emergency workers (employees of government contracyclical programs such as WPA) were counted as unemployed on a normal-jobs-to-be-created instead of job-seekers unemployment definition. For 1933-41, the corrected unemployment levels are reduced by 2-3.5 million people and the rates by 4-7 percentage points. The corrected data show strong movement toward the natural unemployment rate after 1933 and are very well explained by an anticipations-search model using annual full-time earnings.

I. Analysis of specification bias, 229. — II. Empirical results on specification bias, 234. — III. The reformulation of the permanent income hypothesis, 242. — IV. Further results and conclusions, 247.

New evidence shows that the commonly-held assumption that the 1973-74 oil price increase directly affected US and world inflation and subsequent recession is consistent with the empirical data. An extended Lucas-Varro real-income equation applied to the US, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands gives mixed results, partly because of price control and decontrol programs. Simulation experiments on the price-control variable using US data finds strong effects. Further studies can be made when consistent international data is available for the 1979-80 period. 18 references, 4 figures, 3 tables. (DCK)

In a recent article in this Review, Maurice Allais proposed a model of demand for money based on the 'psychological rate of expansion' (p. 1129). His formulation of model has certain arithmetic implications that appear implausible. The psychological rate of expansion (Allais' z) is comparable to Phillip Cagan's rate of change in prices (Cagan's E, p. 35).1 Although Allais, like Cagan, relates his psychological rate of expansion to remembrance of past events, he is not specific about its precise economic meaning (pp. 1129-30, 1155).2 In particular, there is some confusion whether his variable z or Z= 250z is appropriate counterpart to expected rate of change in prices.3 However, it seems clear, despite some effort by Allais to differentiate his product, that z, an estimate of anticipations of growth in total outlays, is his basic construct while Z is introduced [t]o facilitate econometric analysis. . (p. 1132). Allais' equation (2.28) defines Z by

T his paper analyzes optimal formation of rational expectations where information is costly to obtain to utilize. Under these conditions, expectations normally formed by an estimator will be intermediate between those based on all available information and those which are optimal extrapolative predictors. 1 Since the costs of information are likely to vary less than the value of information, this model can explain systematic differences in expectations in markets, such as, labor, for which the value of accuracy of expectations differs between or among buyers and sellers. Similarly, expectations about the same variable may differ between markets where arbitrage is also costly. Section I extends a model due to Theil toanalyzetheeffectsofcostlyinformation. Illustrative applications are discussed in Section II .