Showing papers in "Journal of Economic Surveys in 1992"

Cointegration and dynamic time series models

Abstract: . This paper provides a survey of some of the recent developments in the field of econometric modelling with cointegrated time series. In particular, we describe the testing and estimation procedures which have become increasingly popular in the recent applied literature. In addition to the ‘two-stage’ procedure proposed by Engle and Granger, we consider extensions to the modelling of dynamic models with cointegrated variables, such as the estimation of models with multiple cointegration vectors, simultaneous systems, models with seasonally integrated and cointegrated variables. Furthermore, we illustrate the practical application of the techniques describes in the paper by means of a tutorial data set.

Theories of choice under ignorance and uncertainty

Abstract: . In this paper, Knight's distinction between risk and uncertainty, and its significance for economic analysis are examined. The paper consists of a survey of some recent developments on the theory of choice under uncertainty and some applications of these theories to problems for which Bayesian Decision Theory has not proved entirely satisfactory. Two problems are examined in detail. The first is that of finance and insurance and the second is that of risktaking behaviour with special emphasis on lotteries.

Nonparametric and semiparametric methods for economic research

Abstract: . Developments in the vast and growing literatures on nonparametric and semiparametric statistical estimation are reviewed. The emphasis is on useful methodology rather than statistical properties for their own sake. Some empirical applications to economic data are described. The paper deals separately with nonparametric density estimation, nonparametric regression estimation, and estimation of semiparametric models.

Models of banking instability: a partial review of the literature

Abstract: . This paper critically examines the theoretical literature on banking instability that has followed Diamond and Dybvig (1983). It explores the extent to which it (a) explains banking instability within a theoretical context in which financial intermediaries improve on unintermediated markets, and (b) justifies government involvement in the financial intermediation industry. It suggests that the literature has yet to provide a satisfactory theoretical basis for banking instability as such since the intermediaries which arise from it are peculiar mutual funds that bear little resemblance to real-world banks. In addition, the paper challenges the widespread belief that this literature provides a sound foundation for government involvement in the industry. It suggests that arguments for government intervention are open to objection on various grounds, the most important one being that they are inconsistent with the existence of properly motivated financial intermediation in these models.

Career concerns: incentives and endogenous learning in labour markets

Abstract: . Models of career concerns provide a framework for analysing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity, and the incentive problem that arises if such actions do not coincide with those that maximise the financial return to a firm's owner. This survey provides a formal introduction to the main types of models of career concerns (hidden action and hidden information), and discusses some extensions of these models. Applications of the career concerns framework to explain aspects of managerial behaviour and the form of labour market institutions are emphasised. Copyright © 1992, Wiley Blackwell. All rights reserved

Local pay determination

Abstract: Theoretical models of local pay are reviewed, ranging from neoclassical perspectives, unemployment/wage trade-off models, and segmented labor market approaches. The empirical work on U.S. North-South differentials is discussed. For the U.K., studies of the extent of and trends in geographical pay differentials are considered, as well as behavioral explanations focusing on the role of excess demand. The issue of adjustment processes is then discussed, both in theory and in relation to empirical work for the U.S. and U.K. This discussion focuses largely on geographical spillover effects, in terms of origins, evidence, and issues of identification. Finally, the impact of certain impediments in the adjustment process are considered, specifically in relation to the U.K. These concern the role and influence of national wage bargaining, as well as factors inhibiting labor migration stemming from the housing market and the climate of the national labor market. Copyright 1992 by Blackwell Publishers Ltd

Equilibrium business cycles: theory and evidence

Abstract: . This paper surveys equilibrium business cycles (EBC) theory, which has dominated the business cycle literature since the mid 1970s. It focuses primarily on the real business cycle (RBC) literature the origin of which is traced to the monetary equilibrium business cycle (MBC) model developed by Lucas (1975). RBC and MBC models are themselves related to a wider class of linear stochastic business cycle models which, following Frisch (1933), view the cycle as the result of the propagation, by the economic system, of a series of random shocks. The MBC approach highlighted the importance of monetary shocks but its failure to adequately explain observed fluctuations provided the impetus to the development of the RBC approach, which emphasises the importance of real shocks. This paper also appraises the empirical support for the RBC approach and finds it less than compelling. Given the failure of Keynesian, and equilibrium linear stochastic business cycle models to fully explain economic fluctuations, the Frischian approach to business cycle modelling is called into question. Developments to existing models, which may help to clarify our understanding of business cycle behaviour, are discussed with a view to setting out a research agenda for the 1990s and beyond.

The economics of commuting and the urban labour market

Abstract: The spatial distribution of households and firms, or urban spatial structure, is a core element of the study of urban economics and the crucial determinant of commuting patterns. This paper examines developments in the analysis of urban spatial structure and commuting are related to the urban labour market - that is the analysis of labour supply and labour demand in a spatial context. These developments have been overlooked in the traditional approach to urban structure and commuting where most attention has been devoted to the markets for land and housing rather than the market for labour. Yet a little reflection suggests that the labour market might have a great deal to do with the location decisions of households and firms, and hence with commuting patterns. We argue that much criticism of the economic analysis of urban structure and commuting can be addressed by explicit incorporation of the labour market into the conventional model of urban location. This criticism includes findings that the theory cannot explain the tendency for richer households to live farther from the central business district and commute farther to work (Wheaton, 1977) and findings of substantial unexplained or 'wasteful' commuting according to conventional theory (Hamilton, 1982). The paper begins by outlining the basic model of residential location and commuting (Section 2). We then consider extensions that involve the introduction of labour supply decisions and which determine the value of commuting time (Section 3). More recent extensions involve the introduction of decentralized workplaces (Section 4) and, logically, the issues of job search and migration (Section 5). We conclude with a summary of the progress in incorporating labour market behaviour into the analysis of urban structure and commuting and our suggestions for further research in this area.

Conjectural variations and location theory

Abstract: . Imperfectly competitive markets, such as those involving spatial separation of producers and consumers are characterized by interactions between competing firms. Actions call forth reactions and the possible reactions form an important part of the information set that should be used to determine the initial actions. One method for dealing with this is the ‘conjectoral variation’ approach. Despite some shortcomings this methodology sheds considerable light on decision-making in the space economy. Equally importantly, it sheds light on more general microeconomies modelled as spatial analogs. This paper shows that conjectural variations and the nature of competition between rival firms do indeed ‘matter’ in location choice and more generally in product design. In particular, we shall be concerned with showing how the conjectured responses of rival firms affect their desire to agglomerate.

Money, Finance and the Role of the State: Review Article

Abstract: The State and the Monetary System, by Kevin Dowd, Oxford: Philip Allan, 1989, 213 pp. ISBN 0-86003-088-1. Free Banking and Monetary Reform, by David Glasner, Cambridge: Cambridge University Press, 1989, 276 pp. ISBN 0-521-36175-3 The Regulation of Financial Markets in the 1990s, Aldershot: Elgar, 114 pp. ISBN 1-85278-177-7