international evidence on the demand for money one of the current questions in the literature on the demand for money is whethe r the adjustment of actual to desired money holdings is in nominal or real terms this paper describes a simple procedure that can be used to test the nominal against the real hypothesis the test is carried out for twenty seven countries the paper also tests the structural stability of the demand for money equations and the correctness of th e dynamic specification the results are strongly in favor of the nom inal adjustment hypothesis there is however some evidence of moder ate structural instability before and after 1973 the instability doe s not affect the conclusion that the nominal adjustment hypothesis do minates the real adjustment hypothesis copyright 1987 by mit press

credible commitment and success with public enterprise reform abstract this paper studies why some efforts at public enterprise reform fail and why others succeed economic reforms are intended to increase efficiency and thus help sustain long term growth yet many governments have had difficulty sustaining the reforms they initiated and have reintroduced rigid controls over markets and enterprises this is because either in the process of implementation the government discovers that the costs of carrying the reform further are greater than the expected efficiency gains or the public is skeptical that the new policies can be sustained and does not take the actions necessary for the gains to be realized this paper develops a new institutionalist framework and employs various measures of policy commitment and net gain from continued reform to analyze these issues the paper suggests ways in which the potential success or failure of a reform can be assessed with implications for the steps that reformers might take to increase the chances of success

inflation and the demand for money in developing countries abstract the sensitivity of money holdings to yield is an important issue for financial sector reform for low income developing countries this sensitivity has been judged mainly on the basis of demand studies which use inflation as the opportunity cost of holding money but researchers have generally neglected the fact that because changes in prices may appear in dynamic demand for money equations even if the demand for money is not yield sensitive it is not normally possible to make valid inferences about the inflation sensitivity of equilibrium demand for money the severity of the problem is illustrated by reference to ghana and china

optimization models for salesforce compensation abstract this paper reviews models which address the design of optimal salesforce compensation schemes the discussion starts with agency theoretic models that are able to derive the optimal form for a compensation scheme under assumptions regarding the degree of information asymmetry and heterogeneity within the salesforce for the four resulting extreme cases models are presented that allow for the determination of optimal parameter values for specific compensation schemes such as fixed salary plus commission bonus for quota achievement and menus of plans finally there follows an examination of approaches through which commission rates or bonuses can be optimally differentiated such that the salespersons allocate their selling time in their own and at the same time in the firm s best interest all of these models are reviewed in particular with respect to their applicability in practice

measurement of repressed inflation in china abstract we estimate a measure of the repression of the chinese price level by developing a simple analytical model which derives a true rate of inflation on the basis of the different rates of change of the stock of money in circulation and the nominal value of retail sales this true rate of inflation is then used to explain changes in quasi money balances we estimate this model for the period 1979 1988 using quarterly data the results strongly support the hypothesis of repressed inflation the annual rate of inflation of the true price index is approximately 12 4 percent higher than that of the official price index over the 10 year period

price expectations and the demand for money resolution of a paradox in his restatement of the quantity theory of money milton friedman 1956 argued that physical goods should be regarded as a substitute for money and that higher expected rates of inflation should induce a portfolio shift from money to physical assets as friedman has derived his equation the demand for real balances is a function of the expected rate of inflation in addition to nominal rates of interest wealth and real income p 58 equation 11 this also has been the approach of many applied studies for example valentine 1977 p 747 concludes the fact that the anticipated rate of inflation has an effect on the demand for money which is additional to its effect through its influence on the nominal interest rate provides support for friedman s view of the demand for money emphasis mine there is of course likely to be some degree of substitution between physical goods and wider definitions of money which is the definition friedman envisages it is difficult to believe however that the demand for narrowly defined money mi which is used primarily for transactions balances should be terribly sensitive to moderate expected rates of inflation certainly from theoretical considerations in transactions demand models of the tobin baumol variety there is no role for the expected rate of inflation other than via interest rates herein lies the paradox whilst theory and common sense seem to dictate that expected or actual inflation play little role in the demand for narrow money a number of studies for different countries have reported the opposite these include shapiro 1973 and goldfeld 1973 for the united states smith and winder 1971 for canada and adams and porter 1976 juttner and tuckwell 1974 and valentine 1977 for australia this paper reconciles theory and evidence by showing that with more appropriate specification of previous studies the expected or actual rate of inflation is redundant and not significant those models use either a partial adjustment mechanism or an expectations formation mechanism in real terms it is shown below that this equation is rejected relative to one in which the expectations and adjustments are in terms of nominal variables this nominal specification was pointed out by goldfeld 1973 and hafer and hein 1980 who selected the nominal version on the basis of within sample errors following a description of the real adjustment models in the next section section iii shows this selection of the nominal version more rigorously on the basis of a likelihood ratio test more importantly it is shown that this test of superiority of specification is identical to the test that the rate of inflation exerts no independent influence on the demand for money these tests are carried out in section iv since empirical studies of this question use both the actual and expected rates of inflation the results of those authors using the expected rate of inflation are examined in section v in all cases the strategy has been to replicate those models as closely as possible to see if their conclusions are upheld under more appropriate specifications and in all cases these conclusions are not upheld the aim of the paper is not to suggest new or appropriate expectations formations or to exhaust all possible ones but to test those on which previous conclusions are based the aim is twofold to point out the duality of the appropriate real vs nominal test procedure with the test of significance of the rate of inflation and to show that the conclusions of previous studies regarding the independent effect of the rate of inflation on transactions balances are due to an incorrect specification and interpretation

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

evaluation of salesforce size and productivity through efficient frontier benchmarking the efficient operation of a salesforce is a critical element in the profitability of many firms three factors play key roles the salesforce s size its allocation and its productivity this gives rise to the following questions can salesforce performance be improved by 1 hiring more salespeople 2 allocating them more effectively to the various sales districts and or 3 improving salesperson productivity through better calling patterns in terms of consumers and product line items the practice of most firms and the methodology used in most of the academic literature to address salesforce design and productivity questions is a bottom up approach this approach starts with assessments by each salesperson of the sales and effort corresponding to each customer and prospect in their territory these assessments are then aggregated to the territory district and national levels this paper takes an alternative top down approach it is based on an estimated relationship between district level sales and salesforce size effort and other variables this more macro level decision tool can be used by management in parallel to and as an objective check of the more conventional and more subjective bottom up approach we develop an efficient frontier methodology which allows us to estimate how total district sales respond to salesforce size district potential and competitive activity in the firm s best performing districts the methodology utilized is based on data envelopment analysis dea and yields a benchmark measure of each district s efficient frontier sales sales assuming the district s salesforce allocates its effort as done in the best performing districts based on the estimated response function we discuss the three potential sources of increased profitability closing the inefficiency gap of each of the lower performing districts optimally reallocating the current salesforce to the various districts and changing the current size of the salesforce to its optimal level the inefficiency gap issue is addressed through comparison of the parameter estimates for the best districts obtained through our methodology with those of an average district sales response function obtained using regression analysis this comparison points to an important methodological finding the use of multiple estimation results may lead to an improved understanding of the phenomenon being studied in our case the identification of the likely causes of district productivity inefficiencies the latter two sources of increased profitability salesforce reallocation and changes in the current salesforce size are addressed analytically given the district level efficient frontier sales response function the proposed top down procedure using the efficient frontier methodology and the insights it provides are examined by evaluating the operations of two different salesforces one selling manufacturing equipment and the other business equipment in both cases regression based analysis would have resulted in a declaration that the status quo was close to optimal while the frontier based analysis pointed out that strong gains were possible in certain districts in particular for both firms the greatest increases in profit are obtained through improved salesforce efficiency in the lower performing districts not through salesforce size or district allocation adjustments at the more micro level a comparison of the frontier and regression parameters made it possible to identify which specific changes in the daily operations of the salesforces would allow the realization of these potential productivity gains in our two cases this could be obtained through more emphasis on pursuing prospective accounts

measures of per capita hours and their implications for the technology hours debate structural vector autoregressions give conflicting results on the effects of technology shocks on hours the results depend crucially on the assumed data generating process for hours per capita we show that the standard measure of hours per capita and productivity have significant low frequency movements that are the source of the conflicting results hodrick prescott hp filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root we show that important sources of the low frequency movements in the standard measure are sectoral shifts in hours and the changing age composition of the working age population when we control for these low frequency components to determine the effect of technology shocks on hours using long run restrictions we get one consistent answer hours decline in the short run in response to a positive technology shock we further extend the analysis by examining the effects of demographic controls on the impulse responses to investment specific technology shocks our results are less conclusive

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

testing the technology interpretation of news shocks this article presents further evidence on the hypothesis of news driven business cycles i use a structural vector error correction model vecm approach to identify news shocks as in beaudry and lucke bl 2010 i document three facts first news shocks identified by bl are granger causal for us patent data second bl s analysis applied to german macro data reveals very similar patterns activity is largely driven by news and news shocks explain a sizable and increasing share of total factor productivity tfp variance at long horizons and third german news shocks are granger causal for german patent data and the pattern is again very similar to the us since patent data in the us and germany are almost uncorrelated the similarity is striking and strongly suggests a technology interpretation of news shocks

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

when can changes in expectations cause business cycle fluctuations in neo classical settings abstract it is often argued that changes in expectation are an important driving force of the business cycle however it is well known that changes in expectations cannot generate positive co movement between consumption investment and employment in the most standard neo classical business cycle models this gives rise to the question of whether changes in expectation can cause business cycle fluctuations in any neo classical setting or whether such a phenomenon is inherently related to market imperfections this paper offers a systematic exploration of this issue our finding is that expectation driven business cycle fluctuations can arise in neo classical models when one allows for a sufficiently rich description of the production technology however such a structure is rarely allowed or explored in macro models in particular we identify a multi sector setting and a setting with a costly distribution system in which expectation driven business cycles can arise

nominal vs real adjustment in demand for money functions recently fair 1987 has addressd an interesting question in the areas of demand for money namely whether the adjustment of actual to desired demand for money is in nominal or real terms his conclusion based on time seies analysis for twenty seven countries including a few developing countries was that the evidence was overwhelmingly in favour of the nominal hypothesis the aim of this paper is to address the same issue for eleven asian countries in the process a reformulation of the test procedure used by fair is suggested in addition the question is also examined within the framework of the error correction model the models are also tested for structural stability the scheme of the paper is as follows the models and the tests are specified in section i the data and the estimation issues are dealt with in section ii section iii presents the results the paper is concluded with a brief summary of the major findings

an investigation of the equal commission rate policy for a multi product salesforce for a multi product sales force the policy of paying commissions as an equal percentage of realized gross margins is shown to be in general nonoptimal from the firm s profit maximization point of view for a homogeneous salesforce the nonoptimality results from the fact that earlier research while taking into account the effect of commission rates on a salesperson s allocations of total time to the multiple products has not incorporated the effect of commission rates on salesperson s total selling time resulting from his her trading off income vs total time to maximize utility the equal commission rate policy is however optimal for the cases of i salesperson with a fixed total selling time and a minimum income requirement and ii fair income salesperson whose total selling time is merely a function of income and not based on rate of change of income as in the utility maximization case if the salesforce is heterogeneous e g different salespersons have differing sales responses to selling time this makes the equal commission rate policy to be in general nonoptimal even for the restrictive cases i and ii it is suggested that the commission rates be set higher for products with greater elasticities relating quantities sold to selling times the common practice of paying commissions as a percentage of total dollar sales rather than gross margins is shown to be optimal under certain assumptions