money anticipated changes and policy effectiveness the lucas sargent wallace l s w proposition states that expected policy changes have no influence on real economic variables even in the short run see robert lucas 1972 and thomas sargent and neil wallace 1975 one form of empirical test of the l s w proposition the neutrality proposition began with robert barro s 1977 1978 seminal articles supporting the neutrality proposition however more recent papers including those by david small 1979 john makin 1982 and frederic mishkin 1982a b have reexamined the relationships between anticipated and unanticipated money vs output unemployment and inflation and have found evidence suggesting that anticipated monetary changes do have real effects all of the above cited studies use expectations procedures which estimate for example a money growth equation over the entire period under consideration however this approach assumes that when expectations are being formed at the beginning of the period economic agents have the relevant information for the entire period in this note i reexamine the impact of expected vs unexpected monetary changes focusing on the informational restrictions actually faced by economic agents when formulating expectations the structure of the model used here is similiar to the models of barro and mishkin a measure of real output is assumed to be a function of a policy variable and a vector of predetermined variables the policy variable can be decomposed into anticipated and unanticipated components algebraically

the random walk hypothesis of the exchange rate abstract we show that the exchange rate can follow a random walk without assuming risk neutrality we are thus able to derive a random walk hypothesis for the exchange rate which is associated with a risk premium that may differ from zero

effects of horizontal consolidation under bilateral imperfect competition between processors and retailers this article considers bilateral imperfect competition between processors and retailers to estimate the trade off between market power and cost efficiency the model is based on pricing rules from a firm s profit maximization and nests both oligopoly and oligopsony models an empirical analysis for us beef processors and retailers suggests that processors tend to exercise oligopsony market power in procuring cattle but they are unlikely to exercise market power on retailers when retailers and processors are considered as one integrated sector efficiency effects from the increased concentration in the us beef packing industry are slightly larger than market power effects when processors market power is considered separately from retailers market power the difference between cost saving and market power effects becomes greater the cost elasticity estimate 0 99 indicates that a further merger would result in little economies of scale in the future therefore although we find that efficiency effect

a rational expectations model of agricultural supply this work suggests a dynamic linear rational expectations modeling strategy for using time series observations to study the impact of product prices on agricultural production and land allocation the farmer s decision consists of specifying each period the portion of his land to be devoted to the growing of alternative crops the dynamic element in the farmer s problem comes from the technology a quadratic production technology is used the farmer s optimal land allocation decision rules are derived as linear functions of past land allocations expectations of future product prices and other exogenous variables and they can be interpreted as an optimal crop rotation assuming rational expectations and the exogeneity of prices for a small open economy one obtains closed form linear regression equations representing decision rules and stochastic processes these are then estimated and tested using maximum likelihood methods and aggregate data from the egyptian agriculture

the long run implications of the production smoothing model of inventories an empirical test summary this paper provides an empirical test of the long run implications of the production smoothing model of inventories the dominant framework for inventory investment research in the past intertemporal models of a firm holding inventories of finished goods predict a long run relationship between inventories shipments factor input prices and the real interest rate which is tested here using cointegration test procedures these tests provide little support for the predictions of the production smoothing model in most of the data sets used test statistics indicate that inventories shipments factor input prices the nominal interest rate and the inflation rate maintain a long run equilibrium relationship but parameter estimates of cointegrating vectors are often implausible typically rejecting hypotheses implied by structural models of the production smoothing motive for holding inventories

stabilization policies in an explosive economy announcements and expectations abstract the article studies an economy where the option of inflating away the debt becomes attractive because a sequence of budget deficits has raised the stock of debt to a point where the expenditure cuts or tax increases required to stabilize the economy are politically hard to sell the dynamic of the economy is characterized by the interplay between policy announcements and private agents behaviour in reply to them

a note on the econometric use of constant dollar inventory series abstract one dollar of finished goods inventories does not represent the same amount of physical goods as one dollar of sales when department of commerce constant dollar series are used this can cause seriously biased regression estimates

estimating functional forms in cost prices abstract klaus conrad 1983 developed the cost price approach based upon the notion of partially fixed factor proportions as an alternative to the traditional neoclassical method of modeling cost and production functions he showed that a simplified version of his model could be used to estimate a cobb douglas cost function in cost prices we have been able to estimate the full form of conrad s proposed model and extend his technique to the ces and generalized leontief cost functions we also illustrate how to model technical change in cost prices and in cost shares

explaining the fame of friedman s presidential address it is noted that although in fact it lacks the revolutionary content commonly ascribed to it friedman s presidential address to the american economic association is very highly regarded as an original and formative contribution it is argued that close attention to the literature shows that it was not initially seen as original and only after an interval of five years did the idea of its revolutionary status retrospectively but suddenly become widely accepted the explanation of this change of view is considered four explanations are suggested one involving terminological confusion one involving a change in theoretical priorities and two involving debates of the 1970s which although they did not in fact do so appeared to build on friedman s presentation and by this appearance gave it an undeserved stature

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

a rational expectations model for the poultry sector in greece poultry meat production became systematic and business oriented from 1960 onwards especially during the period 1965 75 meat production showed a marked rise being increased nearly fivefold as a result of this increase in production greece has reached self sufficiency levels covering about 20 of total meat production compared to 7 in the early 1960s so far very little work has been done in analysing the rational expectations hypothesis in the context of a market model in this paper an attempt is made to examine the rational expectations hypothesis for the poultry meat sector within the framework of a simultaneous equations model that describes the factors affecting demand and supply as well as the link between farmers prices and consumers prices moreover in this study a rational expectations mechanism is integrated into the model and the hypothesis is tested it may be noted that poultry is a characteristic case of the operation of free market forces the structural equations of the model are e

manufacturers expections of prices and quantities new zealand experience 1964 87 most empirical work on expectations has focused on price expectations this paper extends that work by evaluting the properties of manufacturers expectations of a range of nominal and real variables the data for this study consist of individual firm responses to the new zealand institute of economic research s quaterly tendency survey over an unusally long period of 24 years from 1964 to 1987 measures of accuracy bias and effiency are constructed and the results indicate that the properties fo expectations differ across variables and conclusions drawn from empirical studies of price expectations should not be generalized manufacturers are more accurate at forecasting changes in prices than quantities the mainstream rational expectations hypothesis is rejected for most of the quantity variables but the case for rejection was not so clear for expectations of prices and costs the results are consistent with the view that price expectations behave more like plans than forecasts firms views about co

dynamic determinacy and the existence of sunspot equilibria this paper relates the existence of stationary sunspot equilibria in the vicinity of a conventional stationary state to the phase diagram surrounding the latter we find that the local condition required for a unique equilibrium path returning to the stationary state following any slight disturbance of initial conditions is also sufficient to exclude stationary sunspot equilibria in the stationary state s immediate vicinity in that sense an eigenvalue condition familiar from dynamic analysis can tell us something about the possibilities of local sunspot activity as well journal of

exchange rate differential and balance of payments under dual exchange markets abstract this paper develops a model of an economy that uses two exchange markets an official market in which the exchange rate is determined by central bank intervention and a free market in which the exchange rate is determined by market forces the official market handles selected imports and exports while the free market handles the remaining imports and exports and capital transactions the model is used to discuss the effects of various policies on the differential between the free and the official exchange rates and on the balance of payments

energy tax and competition in energy efficiency the case of consumer durables the purpose of this paper is to analyze the role of anenergy tax on technical improvements and on prices ofconsumer durables induced by strategic competition inenergy efficiency if the gasoline tax is raised thisdoes in principle not affect the producers of carsbecause the motorist pays for it in terms of a highercost of using the car this however affects the unitsales of car producers because of substitution towardsother modes of transportation a second element ofreaction to energy price variation is an indirect oneand relates to the effect of energy prices ontechnology competition forces car producers todevelop more energy efficient cars in order to reducethe cost of using a car this indirect effect canpartly offset the direct effect of higher energyprices on demand if it is profitable for theautomobile industry to engineer more energy efficientequipment we will analyze the impact of an energy taxon energy efficiency and on the price of a durablegood this will be done within the framework of aduopoly competing in prices and in the energyefficiency of its products the government chooses awelfare maximizing energy tax as an incentive toinnovate then we will analyze a strategic two stagedecision process in which the duopolists first decideabout energy efficiency and then compete in prices

cost prices and partially fixed factor proportions in energy substitution abstract the objective of this paper is to propose a new approach which combines the approaches to neoclassical substitutability and fixed factor proportions this is done by separating the quantity of an input in a committed part linked to the other inputs and in an uncommitted part which is free for substitution on the cost side this implies that the effective price of an input consists of the own price and of weighted prices of the other inputs where the weights determine the order of magnitude of linkage of the other inputs to one unit of this input a cost function with these cost prices as arguments has been employed and elasticities of prices and substitution have been estimated with u s data originally used by berndt and wood

a partial adjustment model with rational expectations applied to the goat sector in greece in this paper an attempt is made to examine the rational expectations hypothesis for the goat meat sector in greece within the framework of a single equation method that describes the factors affecting demand and supply the structural equations of the model are estimated by applying the cochrane orcutt technique the calculated elasticities suggest that greek goat producers should pay more attention to milk rather than meat production statistical indications also confirm the effects of the chernobyl accident upon the goat sector moreover the forecasting ability of the model has been tested using simulation procedures which indicate a small deviation between theoretical and observed values finally some further implications concerning the goat sector are drawn from this analysis

the bullwhip effect progress trends and directions the bullwhip effect refers to the phenomenon where order variability increases as the orders move upstream in the supply chain this paper provides a review of the bullwhip literature which adopts empirical experimental and analytical methodologies early econometric evidence of bullwhip is highlighted findings from empirical and experimental research are compared with analytical and simulation results assumptions and approximations for modelling the bullwhip effect in terms of demand forecast delay replenishment policy and coordination strategy are considered we identify recent research trends and future research directions concerned with supply chain structure product type price competition and sustainability

the control of co2 emissions and its economic impact an age model for a german state since it is believed that co2 is responsible for 55 of the greenhouse effect a co2 levy is now under consideration in several countries for an assessment of the macroeconomic implications of an integrated energy and environmental policy we employ an applied general equilibrium model age since all sectors of an economy and all private households contribute to co2 emission our model is a temporary equilibrium model with capacity extension under adjustment costs and with abatement activities for so2 and nox emissions

change and stability in superpower rivalry we investigate the dynamics of superpower rivalry participants in policy debates within each state use information about expected future threats and economic costs to influence other policy actors and this process of sophisticated reaction links the security policies of these two states into a single rivalry system analysis of vector autoregression models of u s and soviet military expenditures and diplomatic hostility and u s gross national product supports the hypothesis that these policies approximate the behavior of unitary rational states capable of forming rational expectations of each other s future behavior the dynamic response of this system to a wide range of exogenous shocks or innovations reveals the underlying stability of this rivalry system the military expenditures of both states exhibit a cyclical response to innovations with a shorter u s cycle this lack of synchronization creates several problems for analysis and for policy change

inventories and sticky prices note in a recent contribution to this review alan blinder provides an interesting analysis of the relationship between optimal inventory decisions and the process of price adjustment arguing that inventory permits separation of production and sale decisions and allows the firm greater flexibility in responding to anticipated demand disturbances blinder shows that the responsiveness of relative prices depends critically upon the cost of storage and the temporal structure of the demand shocks few economists would fault the intuitive substance of blinder s basic proposition and the proposition is justified with characteristic precision the analysis however is considerably less general than blinder maintains the formal argument of his paper relies upon a simple model of a monopolist capable of backlogging orders and storing unsold goods as the model is constructed order backlogs assume a role of fundamental importance in any stationary equilibrium this feature of the model vitiates blinder s extension of his result to situations in which order backlogs are prohibited the basic monopoly model developed in sections i and ii of blinder s paper places no restriction upon the sign of inventory negative inventory is interpreted as net unfilled orders while no distinction is drawn between reductions in gross inventory and additions to the order backlog as a result the cost of holding inventory is symmetric around an arbitrary minimum point the only role of inventory is to permit the time paths of production and sales to differ gross inventory allows production to antedate sales while order backlogs generate revenue before production costs are borne under these circumstances if future costs and revenues are discounted it is natural to expect any stationary equilibrium level of net inventory to be negative this can be shown to be true of blinder s model it is useful to distinguish in general between the nonstochastic stationary level of inventory n and the stochastic stationary level n the former is realized when the current expected demand disturbance eo is zero and production equals sales the latter which differs from customary usage represents the level of inventory expected to prevail when adjustment to the current nonzero expected demand disturbance is complete if the demand disturbance is not a random walk so that p 1 in blinder s 5 the two equilibria coincide relatively little attention is devoted to either stationary solution because blinder s main interest is in the optimal current solution level n1 the stochastic stationary level is crucially important however since it represents the goal toward which the current choice must provide an optimal first step to verify that both nand n are negative whenever production is strictly positive note that blinder s necessary condition 7 with the coefficient cl set equal to zero together with the definition of xa as the deviation of the shadow value of inventory q from its nonstochastic stationary value q implies

classical monetary theory new and old the distinctive features of so called new classical monetary theory may be listed as 1 rational expectations 2 quantity th eory of money 3 interest policy indeterminancy 4 market clearin g 5 neutral money and 6 monetary policy ineffectiveness this p aper investigates whether these features actually represent the tradi tion of classical and neoclassical economics since richard cantillon the result is largely negative new classical economics is a mis nomer keynes however with all his effort to create a revolution r emained actually quite close to the tradition copyright 1987 by ohio state university press

estimating functional forms in cost prices abstract olson and shieh extended the cost price approach proposed by conrad and estimated systems of factor share equations in cost prices with a more theoretical consistent specification of technical change the authors concluded that the results encouraged additional research based on the cost price approach this paper questions empirical results for one of the models reported by olson and shieh empirical results for an alternative specification of the model are also presented

production smoothing evidence from physical product data we reconsider the paradox that the variance of production often exceeds the variance of shipments a result that casts doubt on the production smoothing model of inventory behavior most studies of production smoothing have analyzed two digit sic dollar value data from commerce department surveys in contrast this paper examines disaggregated physical product data and finds that production is smoother than shipments in about two thirds of the 38 industry or product groupings considered however doubts about the model persist most notably euler equation estimates of the model s cost parameters are usually imprecise and often do not have the signs postulated by production smoothing models

specification and estimation of nonseparable two stage technologies the leontief ces and the cobb douglas ces a two stage technology is a sequential production process that first uses pri mary inputs to produce intermediate inputs and then uses theintermediate inputs to produce final output in this paper the authors show that two stage technologies provide a general procedure for combining production functions or cost functions to obtain new specifications suitable for empirical production analysis they investigate two new cost functions for which the input demand systemssatisfy global regularity conditions in a wide range of nondegenerate cases using six data sets the authors estimate thesetwo input demand systems both with and without imposing global regularity conditions and find that one of them performs well copyright 1987 by university of chicago press

additive general error models for production cost and derived demand or share systems many empirical studies of production specify a deterministic model of the firm derive the implied behavioral equations input demand or share system and then embed this system in a stochastic framework by tacking on linear error terms in contrast this paper proposes general error models gems in which the error specification is an integral part of the optimization model these models are the statistical embodiment of stigler s view that apparent observed inefficiencies reflect the investigator s ignorance of the true optimization problem additive gems are proposed and interpreted specification tests indicate that a translog additive gem is superior to the standard translog specification

adjustment costs and rational expectations an application to a tobacco export model the effect of adjustment costs on international trade has been captured in an ad hoc fashion in past analysis whereas a certainty environment is many times assumed in this article adjustment costs are explicitly considered in the modeling procedure of tobacco exports from greece and rational expectations are introduced the results are consistent with considerable price competition and a large difference between immediate and long run responses due to adjustment costs that explain in part the evolution of tobacco exports from greece and suggest that higher elasticities might be found in international trade if adjustment costs are properly treated

new indices of money supply and the flexible laurent demand system the article begins by surveying the existing results on the new divisia monetary aggregates charts display the differences in behavior between the divisia aggregates and the federal reserve s official simple sum monetary aggregates the article then compares system wide fit for the simple sum and divisia monetary aggregates when used as data in the joint estimation of a system of demand equations the demand system is derived from a new laurent expansion approximation to the reciprocal indirect utility function the laurent expansion provides a better behaved remainder term than that of the more commonly used taylor series the results favor the divisia aggregates

sophisticated reaction in the u s soviet arms race evidence of rational expectations because of the pervasive security rivalry between the united states and the soviet union information about the expected future behavior of the rival state proves useful to domestic political actors competing to influence budgetary allocations this article examines the hypothesis that in the aggregate this process of sophisticated reaction approximates the behavior of two unitary rational actors capable of forming rational expectations of each other s behavior this rational expectations arms race model implies that the military expenditure series of arms racers should be independent in the granger causal sense but that their residuals should be correlated contemporaneously the latter prediction is inconsistent with bureaucratic process models or alternative expectational formulations and empirical analysis of u s and soviet yearly military expenditures is provided that supports the predictions of the rear model finally some implications of this intimate linkage between the domestic policy processes of these two rival superpowers are briefly discussed

global stability and the choice of policy targets under rational expectations abstract it is shown that if the supply of capital is properly incorporated in a macromodel with rational expectations the government cannot peg its expenditures wholly in real terms since otherwise the economy will be globally unstable

unification of dual exchange markets abstract this paper develops the model of an economy under a dual exchange system comprising an official market with a crawling exchange rate and a free market with a floating exchange rate after analyzing the behavior of the economy under the dual system the paper discusses the effects that switching to a unified floating system or a unified crawling peg system has on the exchange rate and on the balance of payments particularly in the short run the paper shows that these effects depend on the composition of the private sector s portfolio at the time of unification which in turn depends on the various policies that were followed while the economy was under the dual system

on the consistency of backward looking expectations the case of the cobweb in dynamic models of economic fluctuations backward looking expectations with systematic forecasting errors are inconsistent with rational behaviour in non linear dynamic models exhibiting seemingly unpredictable chaotic fluctuations however simple habitual rule of thumb backward looking expectation rules may yield non zero but nevertheless non systematic forecasting errors in a chaotic model expectational forecasting errors may have zero autocorrelations at all lags even for rational agents patterns in these forecasting errors may be very difficult to detect especially in the presence of small noise backward looking expectations are then not necessarily inconsistent with rational behaviour we investigate whether simple expectation schemes such as naive or adaptive expectations can be consistent with rational behaviour in the simplest of all non linear dynamic economic models the non linear cobweb model

a precursor to muth tinbergen s 1932 model of rational expectations this paper describes a model published in 1932 in which explicitly rational expectations are used to study a dynamic problem of intertemporal inventory allocation the model is very similar to muth 1961 except that the stochastic process in the latter is serially correlated whereas in tinbergen s model the disturbances are serially uncorrelated hence tinbergen was able to solve a rational expectations model thirty years before muth s much more well known contribution copyright 1991 by royal economic society

nominal data and the production smoothing hypothesis abstract this paper shows that when price variations are not properly purged from the data the estimated ratios of production variances to sales variances are likely to be biased upward leading to more frequent rejections of the production smoothing hypothesis the results point to the importance of removing price variations from the data before testing the hypothesis

covered interest parity a high frequency high quality data study profitable deviations from covered interest parity cip represent riskless arbitrage opportunities and so indicate market ineffic iency previous empirical work on cip uses noncontemporaneously sampl ed data and reports mixed results this paper uses high frequency te n minute high quality data gathered personally by the author in th e london foreign exchange market to test the cip condition the resu lts overwhelmingly support the market efficiency hypothesis copyright 1987 by the review of economic studies limited

to aggregate pool or neither it is well known that even if all forecasters are rational unbiasedness tests using consensus forecasts are inconsistent because forecasters have private information however if all forecasters face a common realization pooled estimators are also inconsistent in contrast we show that when predictions and realizations are integrated and cointegrated microhomogeneity ensures that consensus and pooled estimators are consistent therefore contrary to claims in the literature in the absence of microhomogeneity pooling is not a solution to the aggregation problem we reject microhomogeneity for a number of forecasts from the survey of professional forecasters therefore for these variables unbiasedness can only be tested at the individual level

demand for durable and nondurable goods environmental policy and consumer welfare if a tax on energy affects the demand for a nondurable good the stock of a durable good and the proportion of the energy consumption per unit of service of the durable good an integrated approach for investigating consumer demand for durables and nondurables is required the purpose of this paper is to employ the concept of a variable expenditure function with quasi fixed durable goods as arguments in order to derive a demand system for nondurable goods in prices of the nondurables in the stocks of durables and in variable expenditure from the envelope condition desired stocks of durables can be calculated and investment demand for durables can be determined for an application we choose a variable expenditure function based on the almost ideal demand specification and evaluate alternative environmental policy measures using the equivalent variation for comparing the welfare effects