Showing papers in "Empirical Economics in 1983"

Kalman filtering as an alternative to Ordinary Least Squares — Some theoretical considerations and empirical results

Abstract: The purpose of this paper is to highlight the superiority of the Kalman filter over Ordinary Least Squares for estimating the unknown coefficients of the classical linear regression model. Both methods are analyzed with respect to their optimality properties and their usefulness in dealing with multicollinearity. Theoretical results are applied to two economic models.

Rationality of inflationary expectations in the European Economic Communities Countries

Abstract: Empirical assessment of rationality of inflationary expectations has attracted considerable interest. However no conclusive evidence has emerged in favour nor against the hypothesis of rationality. In this paper a new set of data is used to test the weak-form rationality of survey based expectations for a fairly large group of countries with very different inflationary experiences. The empirical tests carried out in the paper show that two necessary conditions of weak-form, linear rationality are met for four of the seven countries in the sample: France, Germany, Netherlands and Belgium, which happen to be the countries with relatively stable and low rates of inflation. This conditions are not, however, met in the case of Italy and Denmark, with the U.K. being a marginal case. The interpretation of these results is left open in the paper.

Relative prices and international competitiveness: An empirical investigation

Abstract: This paper examines the relationship between competitive shares and relative prices for the exports of Japan, Korea and India over the past fifteen years. For Japan the results are consistent with neotechnological theories, and may be explained by a recently explicated model which applies the logic of Hicks' induced innovation mechanism to trade analysis. For the developing countries the results are found to be systematically associated with foreign trade regimes pursued as a part of overall development strategies. Thus the applicability of typical results derivable from standard static trade theories are found to be bound or restricted to special cases defined by stages of economic development, and by policy choices.

Tests of functional form in dynamic econometric models: Some empirical experience

Abstract: Econometric theory has provided several rival tests of functional form specifications in economic relations, but there is little empirical experience in using many of them. This note reports some practical applications, and compares the performance of various tests, in specifying dynamic econometric models.

Further evidence of the determinants of industrial research and development using single and simultaneous equation models

Abstract: This paper provides empirical evidence in favor of the Schumpeterian hypothesis using single equation models. A simultaneous equation model is then developed which examines the interaction of R & D, growth and profitability.

Involuntary saving through unanticipated inflation: Some further empirical evidence

Abstract: In a recent paper Deaton formulated a novel disequilibrium theory of saving behaviour. The essence of his hypothesis is that individual consumers have no possible means of distinguishing relative from absolute price changes. This hypothesises subject to further empirical testing in our note. Using data for Canada, Japan, the United Kingdom and the United States we re-examine the hypothesis assuming either static, adaptive, extrapolative or rational price and output expectations.

A warning on the use of the Cochrane-Orcutt procedure based on a money demand equation

Abstract: Betancourt/Kelejian [1981] have recently warned against using the Cochrane-Orcutt procedure in models which include a lagged endogenous variable because this procedure can have more than onefixed point even asymptotically. FollowingSargan [1964], we argue instead that fixed points are not necessarily minima and that the question of practical importance is whether the residual sum of squares can have multipleminima. Within this formulation of the problem, we provide the firstreal example of multiple minima obtainable by the Cochrane-Orcutt procedure — with or without a lagged endogenous variable — and use it to caution against routine use of this procedure.

On the number of non-zero eigenvalues of a dynamic linear econometric model

Abstract: According toWolters [1976], there are 7 non-zero eigenvalues for each of four alternatively estimated versions of an Econometric Model of the Federal Republic of Germany. In a comment,Uebe [1977] asserts that the number of non-zero eigenvalues of each of these four versions is 11. However, we shall argue on theoretical grounds that there cannot be more than 10 non-zero eigenvalues. Stating the exact number is a delicate matter.

Aggregate price responses to wage and productivity changes: Evidence from the U.S.

Abstract: This papei examines the dynamic responses of prices to wage and productivity changes and distinguishes between short-run and long-run effects. The long-run solution of the dynamic specification is consistent with the hypothesis of markup pricing over unit labour costs. The restrictions implied by this long-run behaviour are not rejected.by U.S. data. In addition, the evidence supports the view that the short-run wage effects are significantly stronger than productivity effects.

A comparative analysis of prior families for distributed lags

Abstract: A unified structure for recommended families of prior distributions for the coefficients of a distributed lag model is discussed. It enables us to highlight the essential similarities and differences between these families. We also examine theextent to which the families are adequate approximations to the opinions of a potential user.

The firm's administrative structure: Theory, measurement and applications to growth accounting and income distribution

Abstract: This paper attempts to analyze the implications of the organizational structure of the firms on economic growth and income distribution. The approach used byBeckmann [1977] is generalized and used explicitly as the starting point. The impact of the administrative structure on output growth is then studied using an extension of the Growth-Accounting-Method incorporating the quality of the labor force. Regarding income distribution it is shown that the coefficients of Pareto distributions can be obtained from the characteristics of the administrative structure. Their contribution to growth is evaluated.

Causality Patterns in Aggregate Labor Markets: A Statistical Analysis of West German Data

Abstract: The paper addresses the dynamic interaction between strikes and wage increases in aggregate labor markets. Attention is drawn to the fact that pertinent empirical studies typically suffer from an ignorance of the simultaneous-equations character of this topic and, hence, of the involved problems of parameter identification and of the proper choice of estimation technique. Tests of statistical causality are employed and provide answers as to (i) the appropriateness of exogenity assumptions made by and (ii) the identification status of the model, (iii) the correct choice of estimation technique, and (iv) the proper selections of time series among alternative empirical representations of a theoretical variable.

Inequality reduction by income taxes: Just how much? An investigation for the Netherlands, 1914–1973

Abstract: Data on the income distribution in the Netherlands since the introduction of the income tax in 1914 are used to calculate the extent of income redistribution through the progressive rate structure. Seven indexes of income equality are used, and their values after-tax are divided by the value before-tax. The extent of inequality reduction differs substantially between inequality indexes. Pearson and Kendall correlation coefficients of the time series are presented and again, the information diverges so widely that one may doubt the usefulness of the conventional summary statistics of income inequality.

The effectiveness of fiscal policy in a keynesian-monetarist model of Canada

Abstract: This paper presents a simple macroeconomic model that includes all of the main channels of transmission for fiscal policy and that can generate either Keynesian or monetarist results for the impact of fiscal policy depending on the values assumed for particular parameters The structure of this model, called KEMO for KEynesian-MOnetarist, was kept very simple and schematic The objective of this paper is to examine through simulations of the model the degree of sensitivity of the fiscal multiplier to certain hypotheses concerning the way the economy functions and the value of certain parameters, as well as the dynamic process of adjustment of the economy to a fiscal shock

The gains and losses to predicting nominal income by disaggregating via the new classical aggregate supply and rational expectations hypotheses

Abstract: In this paper we compaia the predictive power of two types of model of nominal income: one based on a simple single equation aggregate framework; the second disaggregated into price level and output components. The source of the decomposition of nominal income of the type of model that is considered here are the twin hypotheses of rational expectations and structural neutrality. The model chosen as being representative of this approach to macroeconomic model building and against which some single equation models are compared isBarro's [1978] model of the price level and output in the U.S.

Development of product-specific output projections using an input-output model

Abstract: The purpose of this paper is to propose an extension of the conventional input-output forecasting technique to allow projection of gross output of product-specific sectors. A single sector of particular interest in the United States national table is disaggregated into a number of smaller, product-specific sectors. These sectors, along with several other sectors engaged in significant trade with the product-specific sectors, form a compact input-output model. The model is employed in a conventional manner to project gross output of the modeled sectors.

An Alternative Test of the Rational Expectations-Perfect Substitutability Hypothesis: Deutsche Mark and Pound Sterling

Abstract: This note tests the joint hypothesis of rational expectations and perfect substitutability between assets denominated in US dollars, deutsche marks and pound sterling. The hypothesis implies that the forecast errors from the uncovered interest rate parity condition follow a white noise process. Using a test based on the frequency domain properties of white noise processes, the hypothesis is not rejected on a sample of monthly observations from January 1974 to December 1981.

Expectations, capital formation, sales and capacity utilization

Abstract: A model is developed and tested to relate capital formation, sales and capacity utilization in manufacturing to expected inflation and expected interest rates through anticipated real wealth effects. Expected future inflation causes purchases of storeable manufactured goods in advance and accumulations of physical capital. The former increases capacity utilization, while the latter decreases it. Expected increases in interest rates have an impact on sales and capital formation opposite to that of expected increases in prices. Finally, if expected inflation is accompanied by a propertionate increase in expected interest rates, sales decline more than capital formation, and hence capacity utilization contracts.

Anatomy of canadian inflation: An analysis with CANDIDE model 2.0

Abstract: The objective of this paper is to analyze the causes of inflation projected for Canada through out the 1980s, using CANDIDE Model 2.0 as reported in the 18th Annual Review base case. Our analysis suggests that, in the medium-run inflation is not only a monetary phenomenon but also caused by a host of other factors: external inflation, foreign interest rates, low productivity growth, labour market tightness, domestic energy pricing and indexation of wages to CPI, a measure of inflation that reflects both domestic and foreign price pressures.