productivity differences across employers the roles of employer size age and human capital recent research using longitudinal microeconomic databases on businesses and individuals has uncovered tremendous heterogeneity across businesses even within narrowly defined industrial sectors we observe large differences in the levels and growth rates of inputs outputs and productivity across workers even controlling for demographic characteristics wage and employment outcomes vary a great deal and there are sizable worker flows across jobs in the economy these worker flows are closely connected to firm outcomes reflecting in large part the ongoing shift in resources from less productive to more productive employers the primary message is that the continual process of matching and sorting as businesses and workers seek their niches is heterogeneous with experimentation learning and selection all playing important roles understanding the connection between the matching and sorting of businesses and workers is at the very heart of the overlap between industrial organization and labor economics however due to the paucity of data linking businesses and workers at the micro level we know relatively little about these interactions although a large empirical literature suggests that worker outcomes are associated with firm characteristics notable examples are firm size wage effects compensating wage differentials and interindustry wage differentials very little is known about the converse the process by which business outcomes are associated with the characteristics of their employees there are a number of questions associated with this process do employers choose different modes of production resulting in skill segregation as suggested by the sorting and assignment hypotheses in michael kremer 1993 and michael sattinger 1993 or do all firms in a given industry select roughly the same workforce composition how do employers change their workforce composition either to accommodate demand shocks or to experiment with new modes of production in turn what is the connection between these different decisions regarding workforce composition and observable business outcomes such as survival growth and productivity in this short paper our empirical objectives are relatively modest compared to these broad research questions our focus is to provide an initial investigation into the connection between a key measure of firm performance labor productivity and the composition of the firm s workforce as measured by observable worker characteristics we exploit longitudinal matched employeremployee micro data developed under a recent pilot project at the u s census bureau our data set contains longitudinal information on key outcomes of the businesses as well as many of the basic demographic characteristics for the universe of workers at these businesses although longitudinal matched employer employee micro data have been developed in a variety of countries over the last decade or so see john abowd and francis kramarz 1999 ours is the first large scale micro level data set in the united states that allows the investigation haltiwanger department of economics university of maryland college park md 20742 u s bureau of the census and nber lane department of economics american university washington dc 20016 and u s bureau of the census spletzer bureau of labor statistics 2 massachusetts ave n e washington dc 20212 we thank adela luque and javier miranda for superb research assistance and charles brown and marilyn manser for comments on an earlier draft this research was conducted at the center for economic studies at the u s bureau of the census while the second author was an american statistical association census bureau fellow the analysis and results are attributable to the authors and do not necessarily reflect concurrence of the institutions they represent

demand for money in open economies abstract the demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments the model is estimated using quarterly postwar data for canada germany uk and us there is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates the conclusion that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper

on the duration of agreements a model of optimal contracts between two infinitely lived parties a borrower and lender is presented and analyzed the objective is to explain the phenomenon of finite length multi period contracts it is shown how costly information acquisition can account for multi period contracts which are of bounded length comparative statics results on how contract length responds to exogenous parameters such as the cost of information acquisition are also derived copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

optimal contracts with lock in the authors analyze incomplete long term contracts when buyers incur relationship specific set up costs and sellers choose product or service quality that is not verifiable to third parties if set up costs are observable the first best outcome can be achieved even though contracts cannot enforceably specify quality this does not even require long term contracts if set up costs are unobservable however then long term price contracts can strictly outperform short term contracts equilibrium may involve either inefficiently low quality with no buyer switching or efficient quality with inefficient switching a policy of taxing switching or the availability of budget breaking third parties can improve welfare copyright 1989 by american economic association

on the job specific training and efficient screening employment relationships are governed by short term incomplete contracts and typically involve on the job screening and firm specific training this article studies a dynamic employment relationship with these features and identifies a potential conflict between the employer s twin objectives to screen and train the worker when the training technology is quite productive the employer may have to sacrifice from worker performance during the screening process the article thus offers an explanation for why firms may invest suboptimally on training which complements the standard inappropriable rents explanation based on ex post mobility of young employees

reputation and hierarchy in dynamic models of employment the employment relationship with employees ability and their actions both private information thus combining adverse selection with moral hazard is modeled as a repeated game with self enforcing contracts being perfect bayesian nash equilibria under termination contracts the equilibrium contract structure consists of a hierarchy of ranks finite in number even though ability is continuous reputation acts as an effective device for worker discipline without the need for involuntary unemployment selection by bonding is not in general incentive compatible but selection by promotion of employees through the ranks is many other features correspond to observed employment structures

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

interpreting econometric evidence the behaviour of consumers expenditure in the uk abstract the dynamic models of consumers expenditure proposed by davidson et al 1978 and hendry and von ungern sternberg 1979 are re appraised in the light of hall s 1978 analysis of the empirical implications of the life cycle permanent income hypothesis in particular that the series for consumption should obey a random walk apart from trend in an attempt to reconcile the conflicting findings monte carlo experiments are used to demonstrate that if the davidson et al model were actually correct the hall model would appear to give a good description of the data and would probably not be rejected all the models are re estimated with new data for the uk and these data do reject a modified random walk specification in conclusion we discuss the issue of income exogeneity and comment on questions of model selection and interpretation

asymmetries in housing and financial market institutions and emu despite convergence pressures differences in housing and financial market institutions across the 15 member states of the european union are still enormous this paper argues that they have profound effects on the responsiveness of output and inflation in the different countries to changes in short term interest rates as well as to asset market shocks of external origin the economic reasoning behind this claim is set out and the institutional differences are described the paper assesses the sometimes conflicting empirical evidence on this issue barriers to convergence and implications for labour market flexibility are discussed the uk ireland finland and sweden tend to cluster at one extreme of the relevant institutional characteristics the paper concludes with a set of proposals for institutional reforms which would significantly reduce the tensions within emu and the potential for instability in these economies entailed by emu membership

modeling the demand for narrow money in the united kingdom and the united states abstract despite the importance of well specified empirical money demand functions for inference forecasting and policy problems in modeling have arisen concerning the economic theories of money demand the data institutional frameworks financial innovation and econometric implementation by developing constant data coherent m 1 demand equations for the u k and the u s we investigate these issues and explain such puzzles as missing money the great velocity decline and the recent explosion in m 1 the endogeneity of money the lucas critique and the non invertibility of our m 1 models are also discussed

the value of time hypothesis and the demand for money some new evidence for the uk this paper presents some results for a version of the value of time model of the demand for money using uk date the model performs quite well and the value of time hypothesis appears to be confirmed

the assessment productivity and competitiveness in british manufacturing this issue of the oxford review examines productivity and competitiveness in british manufac turing the simplest and most widely used measure of productivity is output per head from this definition sprout at once the horns of a dilemma for an economy facing unemployment on the present scale for a given rate of expansion of output the higher the rate of productivity growth the greater the decline in employment or at least the smaller its growth on the other hand in an economy open to international competition a high rate of productivity growth relative to that of other countries is the long term key to achieving the favourable international competitive po sition necessary to sustain growth and a low level of unemployment

has m2 demand in the usa become unstable evidence from an error correction model the purpose of this paper is to estimate an appropriate broad money demand function for the united states and to examine its stability after 1987 when the federal reserve system began using m2 as a policy guide special attention is paid to the model specification its dynamic structure and to its cointegration properties the results from various dynamic error correction models suggest that i the money demand relationship is stable ii most previously estimated models have undoubtedly misspecified the interest rate variable iii interest rate variability is another important determinant of real money demand and iv in contrast of previous studies the long run scale variable is real gdp whereas real consumer spending is the short run scale variable the sample period examined is 1953 1 to 1991 4

inference in cointegrating models uk m1 revisited the paper addresses the practical determination of cointegration rank this is difficult for many reasons deterministic terms play a crucial role in limiting distributions and systems may not be formulated to ensure similarity to nuisance parameters finite sample critical values may differ from asymptotic equivalents dummy variables alter critical values often greatly multiple cointegration vectors must be identified to allow inference the data may be 1 2 rather than 1 1 altering distributions and conditioning must be done with care these issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money prices output and interest rates in the uk copyright 1998 by blackwell publishers ltd

optimal multiperiod contracts and the gain from enduring relationships under private information informational asymmetries can play a key role in explaining the existence and nature of multiperiod contracts in an illustrative risk sharing model even relatively short two period contracts can be mutually beneficial if there is private information though one period contracts suffice otherwise further contracts which are pareto optimal relative to the environment and the information structure are defined and partially characterized an example illustrates how otherwise inefficient intertemporal tie ins can be used optimally to mitigate incentive problems the obvious borrowing lending schemes are not private information pareto optimal in these period by period actions are not sufficiently constrained discounting affects the form of the optimal contract but none of these qualitative conclusions

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

new concepts of aggregated money the federal reserve board s recent redefinition of its monetary aggregates followed three years of intensive board staff research on monetary aggregation while the new aggregates ultimately were selected along conventional lines some of the staff s research was oriented towards more fundamental changes in monetary aggregation methods this paper reviews such proposals which are based upon the rigorous application of index number and aggregation theory and of principal components analysis in the construction of economic monetary aggregates the usefulness of aggregation and index number theory in acquiring price indices is widely known the theory of the true cost of living index is an application of aggregation theory examples of applied index number theory include the commerce department s implicit price deflator which is a paasche index and the labor department s consumer price index which is a laspeyres index somewhat less well known is the fact that dual to the theory of economic price aggregates and indices is a theory of economic quantity aggregates and indices an example of a highly reputable quantity index is the divisia quantity index the monetary aggregates traditionally are thought to measure the supplied quantity of an economic good called money whenever monetary aggregates are used in the context of economic theory rather than as simple accounting identities the theory of economic quantity aggregation is specifically applicable however published monetary aggregates in all countries have always been computed as simple sums but as fisher 1922 p 29 observed in the conclusion to his classic treatise on index number theory the simple arithmetic average produces one of the very worst of index numbers and if this book has no other effect than to lead to the total abandonment of the simple arithmetic type of index number it will have served a useful purpose with an example of the simple sum index fisher 1922 p 363 found that the bias alone reaches 36 percent although index number theory has not yet found its way into the monetary theory literature all of the literature on index number theory and aggregation theory for the past half century supports the result long ago deduced by fisher 1922 p 361 that the simple arithmetic index should not be used the views expressed herein are solely those of the authors and do not necessarily represent the views of the board of governors of the federal reserve system this research was partially supported by national science foundation grant soc 76 84459 we are deeply indebted to the conference session s discussant of this paper w erwin diewert for volunteering to cede his allocated journal space to us so that the paper could take its current extended form federal reserve board washington d c

monetary economic myth and econometric reality few of the main macro economic forecasting systems can produce sensible forecasts without the tender loving care of their proprietors many econometric equations in com mon use show significant deterioration in the accuracy with which they characterise data as time passes and many economists are sceptical about empirical evidence feeling it lacks credibility monetary relationships have the dubious distinction of being among the leaders in this field as witnessed by the very large mispredictions of m1 models in the usa over what is now known as the missing money period 1973 76 as well as during the recent great velocity decline 1979 82 in the uk models of m1 and m3 demand experienced large structural breaks following the competition and credit control regu lation changes and the move to floating exchange rates perhaps it is no surprise that goodhart s law should have been formulated with respect to money demand equations

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

human capital and information this paper examines the issue of the establishment size wage effect it analyzes a cross section for the year 1979 with information on 607 individuals and the 60 private sector establishments where they work it discusses four theories of the establishment size wage effect and uses empirical proxies to test them it shows that when a dummy variable on computer access in the establishment is introduced as a regressor the establishment size variable is an insignificant regressor this result and other evidence supports the contention that the establishment size coefficient captures the effect of unobserved human capital accumulation

human capital information and the early adoption of new technology when producers are uncertain or have imperfect information about the profitability of adopting new technology their adoption behavior depends on the endowment of human capital and the investment in adoption information this study analyzes the role of education experience and information acquisition in the decision to be an early adopter the findings support the hypothesis that adoption decision making is a human capital intensive activity the econometric evidence presented suggests that education and information reduce adoption costs and uncertainty and thereby raise the probability of early adoption adoption behavior is also shown to vary significantly across firm size

complementarity and cumulative learning effects in early diffusion of multiple technologies this paper concentrates on the contextual diffusion of flexible automation production and design engineering technologies in the italian metalworking industry the authors use duration data analysis with explanatory covariates to point out the role of complementarities between the technologies examined and learning by using effects matured with experience of previously available technologies in shaping diffusion paths the impact of industry and plant specific control variables as well as that of the stock of previous adopters on adoption probabilities is also taken into account in addition the authors analyze duration versus calendar time dependence of adoption probabilities copyright 1995 by blackwell publishing ltd

long term relationships governed by short term contracts this paper studies the effects of contract duration on the incentive to invest in a relationship when its parties are rational and have perfect information and contracts are complete ex cept that short term contracts specify only current period actions t hen short term contracting distorts investment decisions only when t he efficient plan involves mainly sunk cost investment and the relati onship plays a consumption smoothing role there is a general but no t universal tendency to underinvest copyright 1988 by american economic association

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

recent instability of the demand for money an international perspective aggregate money demand functions once an apparent bulwark for macroeconomic research have had to be re examined in the light of the events and discoveries of the 1970s following goldfeld s extensive analysis it now is widely recognized that the demand for mi balances in the united states cannot be explained satisfactorily by standard functions apparently because of shifts occurring in the early 1970s similar reservations see below have been expressed with respect to m3 balances in the united kingdom where the demand relationships appear to have been upset by the introduction of regulatory reforms in 1971 in both cases part of the problem can be traced to specific events but the possibility remains that a more general instability may be present the rapid inflation experienced by all major industrial countries after 1973 the concurrent collapse of the bretton woods system of fixed exchange rates and the attempts by most major central banks to control growth in domestic money stocks may all have altered the responses of the demand for money to the standard functional arguments this paper presents a range of stability tests for a set of demand functions estimated for two monetary aggregates in each of six countries in order to determine whether money demand functions more generally have been stable over the recent period and to attempt to identify the nature and causes of any observed instabilities the major conclusions are that none of the other functions examined displays instabilities as severe as those of the mi function for the united states and that the latter may be unstable in a more persistent and fundamental way than has heretofore been recognized the equations estimated for this study are based on a variant of goldfeld s log linear real balances function the deflated value of money balances is related to real income interest rates and inflation with lagged adjustments introduced via a simple koyck transformation this function obviously is in a simplified form especially with respect to the lag struc

o ring production on u s hog farms joint choices of farm size technology and compensation we hypothesize that hog production can be characterized by complementarities between new technologies worker skills and farms size such production processes are consistent with kremer s 1993 o ring production theory in which a single mistake in any one of several complementary tasks in a firm s production process can lead to catastrophic failure of the product s value in hog production mistakes that introduce disease or pathogens into the production facility can cause a total loss of the herd consistent with predictions derived from the o ring theory we provide evidence that the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more than comparable workers on smaller farms these findings suggest that worker skills new technologies and farm size are complements in production the complementarities create returns to scale to large hog confinements consistent with the dramatic increase in market share of very large farms over the past 20 years

what will take the con out of econometrics the paper begins with the question of whether leamer s extreme bounds analysis eba really does take the con out of econometrics by analytically demonstrating that the extreme bounds are simply functions of the f statistic for the deletion of variables from a regression we conclude that the information provided by eba represents no advance over that available from traditional methods furthermore there is a degree of arbitrariness in eba which exactly parallels the selective reporting of regressions it was designed to supplant the last part of the paper attempts a positive response to its title by following a well defined series of modelling steps we maintain that cooley and le roy s eba derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data this abstract was borrowed from another version of this item

short run money demand abstract the conventional wisdom holds that the short run demand for money is unstable this paper challenges the conventional view by finding a stable demand for m1 in u s data from 1959 through 1993 the approach follows previous work in interpreting long run money demand as a cointegrating relation and it uses goldfeld s partial adjustment model to interpret short run dynamics the key innovation is the choice of the interest rate in the money demand function most previous work uses a short term market rate but this paper uses the average return on near monies the savings accounts and money market mutual funds that are close substitutes for m1 this choice helps rationalize the behavior of money demand in particular the increase in the volatility of velocity after 1980 is explained by increased volatility in the returns on near monies

the structure of wages and benefits in the u s pork industry pork production has evolved from relatively small family run operations toward large scale operations with several employees important questions about the structure of compensation in this rapidly changing labor market are answered using probit and ordered probit models and data from a national survey of pork producers and their employees the results suggest i the structure of wages in pork production is consistent with more developed labor markets ii employees earn a wage premium for using advanced technology and working in larger operations and iii employees are willing to accept lower wages in exchange for better benefits and working conditions

the role of money supply shocks in the short run demand for money abstract previous money demand models are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible interest rate fluctuations in response to innovations in nominal money we propose a shock absorber money demand model in which money supply shocks affect the synchronization of asset transactions and so engender a temporary increase or decrease in desired money holdings expected changes do not engender such fluctuations in real money inventories in simultaneous estimates for eight industrial countries the shock absorber model proved empirically superior

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

money demand instability expectations and policy regimes a note on the case of italy 1964 1986 abstract this paper compares the stability performance of feedback and feedforward specifications of the demand for m2 in italy over the period 1962 1986 a clear change in the monetary policy regime occurred in 1969 1970 together with marked breaks in the processes generating several relevant variables in the mid 70s making this period particularly appropriate for the investigation of the potential role of expectations our main results show that the feedback specification suffers from instability at both relevant dates whereas the feedforward specification is remarkably stable during the policy regime change but displays signs of instability during the mid 70s

cointegration real exchange rate and modelling the demand for broad money in japan the literature on the demand for the japan s broad money addresses two controversial issues the form log level or log difference in which variables enter the money demand function and the question of whether financial innovation and deregulation caused shift s in the money demand relationship log level specifications of the money demand function have been shown to exhibit large shifts whereas log first differences and error correction specifications do not our paper demonstrates that the appropriate specification for the japanese money demand function is that which uses cointegration and error correction procedures

unstable money demand and the monetary model of the exchange rate in this paper the authors investigate the importance for the monetary model of exchange rate determination of j frankel 1979 of allowing unrestricted dynamics and of accounting for shifts in the demand for money due to financial innovation based on estimation and simulation results for the canada u s bilateral exchange rate over the 1970 85 period the aut hors find strong evidence in favor of a generalized approach to dynamic specification but find that the shif t adjustment of official money supply data has only minor implications for the empirical results moreover neither modification is sufficient to generate a monetary model that is well supported by the data

to invest or screen efficiently a potential conflict in relationships governed by incomplete contracts abstract we consider a dynamic trade relationship where quality is not contractible and potential sellers retain quality relevant private information we show that the presence of an investment technology to improve the incumbent seller s innate quality may impair the efficiency of the screening process if the conflict is effective the buyer has to induce an inefficient screening process or reduce the productivity of the investment technology this conflict suggests that the hold up problem may be more severe than predicted by models of incomplete contracts that assume complete information

long term short term and renegotiation on the value of commitment in contracting spot contracting generally involves efficiency losses relative to long term contracting it is proved here that short term contracting and renegotiation allow to achieve long run efficiency when transfers are not limited objectives are conflicting and no relevant asymmetric information appears at recontracting dates this last assumption excludes adverse selection but not moral hazard when technologies and preferences are time separable copyright 1990 by the econometric society

a re examination of the demand for money in small developing economies this paper re examines the money demand function in three small open economies of asia korea pakistan and singapore in addition to using the relatively new procedure of error correction modelling the roles of variables such as a the expected change in the exchange rate b foregin interest rates and c foreign exchange risks on money demand are examined in testing the importance of these variables in the money demand function special attention is paid to testing the assumptions of the classical linear regression model the sample period for each country spans from 1973 1 through 1990 1 the empirical results suggest that the error correction specification performs very well in addition to the traditional variables the results suggest that at least some measure of foreign monetary developments appear to have some significant effect on money demand behaviour in these small developing economies

disequilibrium buffer stock models a survey abstract this paper surveys the growing literature on buffer stock models of the monetary transmission process the first part indicates the basic issue of how assumed exogenous changes in the money supply work their way through the economic system via disequilibrium in the money market after a brief historical development buffer stock models are divided into four types depending upon whether the disequilibrium arises in stocks and or flows and to whether changes in the money stock are purely exogenous the empirical implications including how buffer stock models explain the recent behaviour of money demand functions are given theoretical and empirical criticisms of the models are presented in terms of the classification system the survey concludes that whilst the buffer stock notion is an interesting idea the current models do not lend themselves to empirical testing and those models which do have performed poorly

rational expectations and price behavior abstract this paper evaluates the role of rational expectations in price setting behavior in india india has a large informal sector where prices are generally flexible since most economic transactions do not take place under formal and fixed contracts empirical tests suggest that prices respond fully to anticipated changes in demand while unanticipated changes affect output furthermore the price equation was found to be consistent with the money demand and output equation in the past the monetary authority in india have not systematically responded to negative output shocks such as those arising from droughts or famines by introducing unanticipated reductions in money growth this policy has been helpful in minimizing output losses and thereby stabilizing prices

regional differences in personal savings regional data on consumers expenditure and disposable income are analysed using a conventional error correction specification in an attempt to explain regional disparities in the average propensity to save pooling time series and cross section data the model is quite successful though some degree of remaining ignorance is reflected in a few significant regional dummy variables arising out of the covariance model among the important determinants of saving and consumption are regional unemployment and housing wealth the latter gives limited support to the proposition that burgeoning house prices in the south east may be fuelling a consumption and import boom

the diffusion of new agricultural technologies the case of crossbred cow technology in tanzania the recent literature on agricultural technology adoption shows that diffusion of new technologies varies significantly across space and time furthermore puzzles exist about why some seemingly profitable technologies are not adopted especially in livestock production we employ a hazard or duration function to explain diffusion of crossbred cow technology in a unique sample of tanzania farmers a farmer s adoption of crossbred technology depends positively on the proximity of his farm to other users on his schooling and on his access to credit and contact with extension agents

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

modelling relative price variability and aggregate inflation in the united kingdom the relationship between relative price variability and aggregate inflation in the uk is used to illustrate a number of issues in econometric modelling methodology the rigorous evaluation of models especially testing for congruence and encompassing is emphasized the valuable role of recursive estimation methods in assessing model adequacy is demonstrated attention is drawn to the potential limitations of single equation and univariate analysis of time series data and a recently proposed modelling strategy for analyzing nonstationary variables with cointegrating relationships based on sequential reductions of a congruent var is applied to a small system involving inflation and relative price variability

a comparison among partial adjustment rational expectations and error correction estimates of the canadian demand for money starting from a dynamic optimization principle the currently most popular approaches to modelling money demand functions are derived the partial adjustment adaptive expectations rational expectations and error correction mechanism formulations are then estimated using a common data set the error correction mechanism equation is found to dominate the others either because their implicit restrictions are rejected rational expectations or by employing the encompassing principle partial adjustment adaptive expectations surprisingly all three forms have similar long run solutions since the short run dynamics differ substantially the results have important implications for the conduct of monetary policy

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

switching costs and screening efficiency of incomplete contracts we study the role of switching costs in a dynamic buyer seller relationship where quality is not contractible and the sellers retain private information about their quality relevant abilities in this environment buyer switching costs increase the seller s bargaining power in negotiations for the second contract but they also induce the seller to improve quality during the first ontract in signalling his type the overall effect is to enhance efficiency and ncrease the buyer s welfare this beneficial effect stems from the link between quality the buyer s posterior beliefs and ex post distribution of bargaining power as a function of the switching cost jel classification l14 l auteur etudie le role des couts de commutation dans une relation dynamique acheteur vendeur ou la qualite de la prestation ne peut etre partie du contrat et ou les vendeurs peuvent rationner l information quant a leurs competences a livrer un produit de qualite dans ce contexte les couts de commutation de l acheteur accroissent le pouvoir de marchandage du vendeur dans la negociation du second contrat mais ils peuvent aussi inciter le vendeur a ameliorer la qualite au cours du premier contrat pour signaler ses competences a l acheteur l effet global est d ameliorer l efficacite et d accroitre le bien etre de l acheteur cet effet benefique emerge du lien entre la qualite les croyances de l acheteur a posteriori et la repartition du pouvoir de negociation ex post en tant que fonction des couts de commutation

the uk economy analysis and prospects world trade and output expanded rapidly in 1984 led by a high rate of growth in the united states however the recovery which started in 1983 has not been evenly spread across countries in the us fiscal policies have been lax and domestic demand has expanded at a breakneck pace japan benefited significantly from rapid growth in the us but europe has done less well partly because fiscal policies remain very tight and domestic demand restrained high real interest rates and the strength of the dollar held down commodity prices and thus stopped the pick up in activity feeding through into inflation rates however unemployment has continued to rise in most countries and in total 30 million people are now out of work in the oecd area

modeling multiple adoption decisions in a joint framework a multinomial probit mnp model is applied to the modeling of adoption decisions by farmers facing multiple technologies which can be adopted in various combinations this model allows for full investigation of the interactions between decisions to adopt or not adopt several technologies estimation is carried out in a bayesian framework employing gibbs sampling to circumvent past difficulties encountered in maximum likelihood estimation of the mnp model the model is estimated for a sample of u s apple growers with four possible sustainable production technology bundles the results show that adoption decisions are most significantly influenced by off farm labor supply

opportunism and the dynamics of incomplete contracts this paper studies a buyer seller relationship where quality is not contractible but is affected by effort and the seller s privately known innate value the seller s cost of effort is also private knowledge assuming constant outside opportunities we show that more than two contracts is redundant the sequence of contracts exhibits increasing prices and durations and commitments for prices beyond the actual contract invite opportunism not effort the seller uses effort during the screening process which improves noncontractible quality as a result type related information may have negative value when contracts are incomplete copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association