frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

an equilibrium model of incentive contracts in the presence of information manipulation abstract this paper develops an agency model in which stock based compensation is a double edged sword inducing managers to exert productive effort but also to divert valuable firm resources to misrepresent performance we examine how the potential for manipulation affects the equilibrium level of pay for performance sensitivity and derive several new cross sectional implications that are consistent with recent empirical studies in addition we analyze the impact of recent regulatory changes contained in the sarbanes oxley act of 2002 and show how policies intended to increase firm value by reducing misrepresentation can actually reduce firm value or increase the upward bias in manipulated disclosures

cost allocation and convex data envelopment abstract this paper considers allocation rules first we demonstrate that costs allocated by the aumann shapley and the friedman moulin cost allocation rules are easy to determine in practice using convex envelopment of registered cost data and parametric programming second from the linear programming problems involved it becomes clear that the allocation rules technically speaking allocate the non zero value of the dual variable for a convexity constraint on to the output vector hence the allocation rules can also be used to allocate inefficiencies in non parametric efficiency measurement models such as data envelopment analysis dea the convexity constraint of the bcc model introduces a non zero slack in the objective function of the multiplier problem and we show that the cost allocation rules discussed in this paper can be used as candidates to allocate this slack value on to the input or output variables and hence enable a full allocation of the inefficiency on to the input or output variables as in the ccr model

on data a case study of the evolution of income inequality across time and across countries this paper takes income distribution as a case study of the role of data in economics after describing the transformation which has taken place with regard to the availability of data on income inequality it discusses how the comparability of these estimates is brought into question by differences in methodology that cannot be eliminated by simple adjustments recent analyses of the relationships between income inequality and growth or globalisation are shown to be based on time series plagued by discontinuities which can seriously affect regression results the paper concludes by calling for greater attention to data quality in applied economics

new millennium economics how did it get this way and what way is it new millennium economics evolved out of neoclassical economics over the last 100 years the pace of change increased over time and in the first half of the 21st century the economics profession changed as much or more than it did in the last half of the 20th century the changes occurred both because of the internal tensions in the profession in the second part of the 20th century and because of technological changes that affected both the research methods of economics and the structure of higher education generally in this paper i consider that evolution i will organize my discussion in two sections the first focusing on changes in the structure of economic education the second focusing on changes in the content of what economists do from 2000 2050 changes in the structure of graduate economic education although the number of economics graduate students expanded substantially in the 1950s and 1960s the fundamental structure of graduate economic education did not change much at all in the second half of the 20th century however the structure of economic education has undergone profound changes in the 50 years since 2000

signal jamming models of fraudulent misreporting and economic prospects an experimental investigation abstract this study uses experimental methodology to examine how the frequency and magnitude with which managers commit fraud varies with economic prospects boom middle and bust the experimental design is based on signal jamming equilibrium sje models of fraud in which managers make potentially inaccurate public reports and investors bid on shares under sje managers always exaggerate reports by a fixed amount up to the maximum possible report independent of the truth shareholders can perfectly correct managers reports except for the maximum possible report in contrast the results of the experiment show four robust deviations from sje predictions 1 managers exaggerate and shareholders correct reports according to dominated mixed strategies with probabilities significantly less than one 2 managers exaggerate more frequently and by more when outcomes are poor 3 shareholders adjust low reports by less than high reports and 4 shareholders correct relatively high reports by more in booms than busts even though managers reporting strategies are invariant to economic prospects

did unilateral divorce laws raise divorce rates a reconciliation and new results application of the coase theorem to marital bargaining suggests that shifting from a consent divorce regime to no fault unilateral divorce laws should not affect divorce rates each iteration of the empirical literature examining the evolution of divorce rates across us states has yielded different conclusions about the effects of divorce law liberalization i show that these results reflect a failure to jointly consider both the political endogeneity of these divorce laws and the dynamic response of divorce rates to a shock to the political regime taking explicit account of the dynamic response of divorce rates to the policy shock i find that liberalized divorce laws caused a discernible rise in divorce rates for about a decade but that this increase was substantially reversed over the next decade that said this increase explains very little of the rise in the divorce rate over the past half century both administrative data on the flow of new divorces and measures of the stock of divorcees from the census support this conclusion these results are suggestive of spouses bargaining within marriage with an eye to their partner s divorce threat

subjective performance and the value of blind evaluation we investigate the incentive and project screening effects of anonymity in a setting of subjective performance evaluation if the review process is blind then the applicant s payoff relevant type is hidden from the reviewer if the process is nonblind or informed then the reviewer observes the applicant s type directly in either case the evaluator receives a noisy signal on the quality of the agent s project and decides whether to accept or reject it we find that if the signal is not verifiable then informed evaluation results in an excessively steep equilibrium acceptance policy the standard applied to low ability applicants is too stringent and the standard applied to high ability applicants is too lenient blind review in which all applicants face the same standard often provides better incentives but it discards valuable information for screening projects we discover that blind review is more likely to be preferred by the evaluator when 1 the applicant pool is skewed toward high ability types 2 the stakes from acceptance are relatively high for applicants 3 both types of errors are relatively less costly or 4 there is little competition among reviewers we also discover that under blind review the evaluator may benefit from a more diverse applicant pool

financial market efficiency the decomposition of anticipated versus unanticipated money growth and further tests of the relation between money and real output note probably the most controversial empirical findings in macroeconomics in the last decade stem from robert barro s investigations into the relative effects of unanticipated versus anticipated money growth on unemployment and real output these studies generally proceed by decomposing observed money growth into what is defined to be its anticipated and unanticipated components and then test the restriction that only the unanticipated money measure has important effects for unemployment and real output in black box reduced form real side equations that include determinants of the natural rates of unemployment and real output as additional explanatory variables l the results of these tests for the annual postwar u s data generally cannot reject the hypothesis that only unanticipated money growth is important for the determination of aggregate real activity 2 anticipated money growth is found to be neutral for unemployment and real output these results are important because they give empirical support to the assertion that the apparent nonneutrality of observed money growth does not provide any firm basis for the efficacy of a systematic countercyclical monetary policy it should be clear that a crucial problem in testing for the neutrality nonneutrality of anticipated unanticipated money growth lies in developing an appropriate decomposition of observed money growth into its anticipated and unanticipated parts small 13 mishkin 8 and weintraub 14 among others have

applied cost allocation the dea aumann shapley approach this paper deals with empirical computation of aumann shapley cost shares for joint production we show that if one uses a mathematical programing approach with its non parametric estimation of the cost function there may be observations in the data set for which we have multiple aumann shapley prices we suggest to overcome such problems by using lexicographic goal programing techniques moreover cost allocation based on the cost function is unable to account for differences between efficient and actual cost we suggest to employ the notion of rational inefficiency in order to supply a set of assumptions concerning firm behavior these assumptions enable us to connect inefficient with efficient production and thereby provide consistent ways of allocating the costs arising from inefficiency

the response of short term interest rates to weekly money announcements each friday at 4 10 p m est the federal reserve announces its estimate of the narrowly defined money stock for the statement week ending nine days previously these money announcements have become one of the main events in financial markcts if for no other reason than the fact that significant movements in interest rates have been associated with large unanticipated changes in the money stock moreover since the late 1970s interest rate fluctuations in response to money stock announcements have dramatically increased over the 1l 2 hour intervals spanning the weekly announcements for example the variance of the change in the threemonth treasury bill yield in the three years since october 1979 is more than thirty times larger than that of the previous two year period l two factors may account for a large portion of the increased volatility of shortterm interest rates first on october 6 1979 the federal reserve adopted a reserve aggregate approach to monetary control replacing a procedure that emphasized stability of short term yields second despite the greater emphasis placed on monetary control the variance of weekly announced changes in the money stock has risen by about 70 percent since late 1979 in turn if greater volatility of announced changes makes future changes more difficult to predict the volatility of unanticipated weekly changes in money would have also increased 2 thus if financial markets are efficient and if weekly money announcements contain relevant information larger unanticipated changes in money may have caused larger fluctuations in interest rates

why do firms smooth earnings we explain why a firm may smooth reported earnings greater earnings volatility leads to a bigger informational advantage for informed investors over uninformed investors if sufficiently many current shareholders are uninformed and may need to trade in the future for liquidity reasons an increase in the volatility of reported earnings will magnify these shareholders trading losses they will therefore want the manager to smooth reported earnings as much as possible empirical implications are drawn out that link earnings smoothing to managerial compensation contracts uncertainty about the volatility of earnings and ownership structure

verifying the solution from a nonlinear solver a case study we are pleased to confirm that any doubt our article mccullough and vinod 2003 hereafter mv03 may have cast on ron shachar and barry nalebuff 1999 hereafter sn99 must be removed we are especially pleased because we thought it quite unfair that other researchers were able to exempt themselves from such detailed scrutiny it appears that such researchers no longer will have the luxury of reneging on their agreement to honor the replication policy as this journal now requires authors of accepted empirical papers to provide all programs and data files for posting on the aer web site as a precondition of publication the primary aim of our article mv03 was to provide a four part methodology for verifying the solution from a nonlinear solver check the gradient examine the trace analyze the hessian and profile the likelihood we adduced copious evidence mv03 p 873 that solvers used by economists can produce inaccurate answers gave examples of different packages giving different answers to the same nonlinear problems mv03 p 874 and showed mv03 pp 873 74 at least in this journal that researchers make no effort to verify the solutions from the solvers that they use we believe this uncritical acceptance of solutions from nonlinear solvers to be a systemic problem in economic research that is why we wrote the article certainly econometrics texts do not show how to verify the solution from a nonlinear solver in passing we also showed how a problem can be too large for conventional pc methods and indicated the failure of replication policies in this journal and other journals we used the data and likelihood function from sn99 to illustrate the methodology in the course of this illustration we noted that the hessian was ill conditioned suggested that there might exist multiple optima and that inference based on the wald statistic was not appropriate we concluded that the solution we found was at best a tentative solution however as shown in shachar and nalebuff 2004 hereafter sn04 when the problem is rescaled the hessian is not ill conditioned they have correctly identified the difference between the condition number of the badly scaled version of the problem that we analyzed in mv03 and the well scaled problem that they have analyzed when the problem is correctly scaled the hessian is well conditioned the model is locally identifiable the problem can be solved on a pc a solution to the problem exists and sn present it in their table 1 though we were aware that rescaling could ameliorate ill conditioning mv03 p 882 we were unaware of the distinction between artificial ill conditioning and inherent ill conditioning so the method we suggested for analyzing the hessian contained an error of omission this error caused us to reach an incorrect conclusion concerning the existence of a solution to the problem we apologize to professors shachar and nalebuff and we thank them for their gracious understanding in this regard accordingly we have amended our prescription for analyzing the hessian see our nearby exchange with david m drukker and vince wiggins 2004 hereafter dw for complete details our

taxpayer response to an increased probability of audit evidence from a controlled experiment in minnesota abstract in 1995 a group of 1724 randomly selected minnesota taxpayers was informed by letter that the returns they were about to file would be closely examined compared to a control group that did not receive this letter low and middle income taxpayers in the treatment group on average increased tax payments compared to the previous year which we interpret as indicating the presence of noncompliance the effect was much stronger for those with more opportunity to evade in fact the difference in differences is not statistically significant for those who do not have self employment or farm income and do not pay estimated tax surprisingly however the reported tax liability of the high income treatment group fell sharply relative to the control group

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

the meaning of failed replications a review and proposal the welcome rise of replication tests in economics has not been accompanied by a consensus standard for determining what constitutes a replication a discrepant replication in current usage of the term can signal anything from an unremarkable disagreement over methods to scientific incompetence or misconduct this paper proposes a standard for classifying one study as a replication of some other study it is a standard that places the burden of proof on a study to demonstrate that it should have obtained identical results to the original a conservative standard that is already used implicitly by many researchers it contrasts this standard with decades of unsuccessful attempts to harmonize terminology and argues that many prominent results described as replication tests should not be described as such adopting a conservative standard like this one can improve incentives for researchers encouraging more and better replication tests

do house prices affect consumption a re assessment of the wealth hypothesis this paper revives the debate in the literature about the relationship between house prices and consumption by exploring conflicting results in the uk campbell and cocco 2007 find that old owners benefit most from a house price increase and young renters least confirming the so called wealth hypothesis in contrast attanasio et al 2009 find that house prices have the same impact on consumption across age groups we rule out several potential explanations related to data construction and provide evidence that the functional form can reconcile the conflicting results in the two papers

can the reserves approach to monetary control really work on october 6 1979 the board of governors bog of the federal reserve system announced that the federal open market committee fomc was abandoning its historical preoccupation with an interest rate approach to monetary control in favor of a reserve aggregate approach 1 underlying this new approach is the fact that at time t any money stock concept m is the product of a money multiplier m and a reserve aggregate r that is

viewpoint replication in economics this examination of the role and potential for replication in economics points out the paucity of both pure replication checking on others published papers using their data and scientific replication using data representing different populations in one s own work or in a comment several controversies in empirical economics are used to illustrate how and how not to behave when replicating others work the incentives for replication are examined and proposals aimed at journal editors and authors are advanced that might stimulate an activity that most economists applaud but few perform

meta regression analysis a quantitative method of literature surveys abstract pedagogically literature reviews are instrumental they summarize the large literature written on a particular topic give coherence to the complex often disparate views expressed about an issue and serve as a springboard for new ideas however literature surveys rarely establish anything approximating unanimous consensus ironically this is just as true for the empirical economic literature to harmonize this dissonance we offer a quantitative methodology for reviewing the empirical economic literature meta regression analysis mra is the regression analysis of regression analyses mra tends to objectify the review process it studies the processes that produce empirical economic results as though they were any other social scientific phenomenon mra provides a framework for replication and offers a sensitivity analysis for model specification in this brief essay we propose a new method of reviewing economic literature mra and discuss its potential

experimental evidence on the evolution of the meaning of messages in sender receiver games an experiment this paper experimentally investigates the evolution of message meanings when talk is cheap we consider communication between a privately informed sender and a receiver when the sender s message does not affect payoffs directly sender receiver games introduced by jerry green and nancy stokey 1980 and vincent p crawford and joel sobel 1982 provide the simplest stylized environment in which communication is essential communication is the only way to link the receiver s action to the sender s private information in addition sender receiver games have been widely used to study communication in accounting economics finance and political science intuition strongly suggests that effective communication will evolve when the players interests are closely aligned however there is always a nash equilibrium in which the sender randomizes uniformly across all messages such babbling equilibria are proper roger b myerson 1978 blume 1994 and even strategic stability elon kohlberg and jeanfrancois mertens 1986 does not rule out uninformative equilibria in general in response a literature developed that formulates equilibrium selection criteria by appealing to the existence of a commonly understood language matthew rabin 1990 steven a matthews et al 1991 joseph farrell 1993 that can be used to formulate credible deviations from equilibrium unfortunately the selection criteria from this literature are frequently strong enough to remove all equilibria from consideration in addition these arguments are vulnerable to stiglitz s observation in koo cho and david m kreps 1987 that successful deviations from equilibrium may induce further deviations which in turn may undermine the credibility of the original deviations both problems can be avoided by a dynamic approach as in rabin and sobel 1996 we also adopt a dynamic perspective but do not require messages to have a priori meanings instead distinct meanings may emerge endogenously this is important for communication across cultures and for language change 2 we are guided by recent results of blume department of economics university of iowa iowa city ia 52242 dejong department of accounting university of iowa iowa city ia 52242 kim department of economics sung kyun kwan university seoul 110 745 korea sprinkle department of accounting university of wisconsin madison wi 53706 we thank joyce berg vince crawford robert forsythe joel horowitz deirdre mccloskey forrest nelson larry samuelson gene savin joel sobel and especially two anonymous referees for their advice and suggestions we benefitted from comments and discussions resulting from presentations at the 1994 summer meetings of the econometric society the 1996 social learning workshop at suny stony brook the io me gt workshop at the university of iowa the university of bonn the university of bielefeld the center for economic research at tilburg university ohio state university seoul national university and texas a m university we are grateful for financial support from the college of business administration at the university of iowa the ira b mcgladrey institute and the national science foundation

the economics of earnings manipulation and managerial compensation this article examines managerial compensation in an environment where managers may take a hidden action that affects the actual earnings of the firm when realized these earnings constitute hidden information that is privately observed by the manager who may expend resources to generate an inflated earnings report we characterize the optimal managerial compensation contract in this setting and demonstrate that contracts contingent on reported earnings cannot provide managers with the incentive both to maximize profits and to report those profits honestly as a result some degree of earnings management must be tolerated as a necessary part of an efficient agreement

supportability sustainability and subsidy free prices this article studies the relationships among the concepts of subsidy free prices anonymously equitable prices supportability and sustainability in particular we set out conditions under which these concepts are not vacuous several new sets of conditions under which a subsidy free price vector is sustainable are also presented for general nonseparable demands we establish the existence of an aumann shapley price vector that is anonymously equitable and sustainable

goal congruence analysis in multi division organizations with shared resources based on data envelopment analysis abstract in multi division organizations goal congruence between different divisions and top management is critical to the success of management in this paper drawing upon a nonparametric framework to model production technology we derive a necessary and sufficient condition for a firm with multiple divisions to be goal congruent and then extend it to a goal congruence testing measure which coincides with a data envelopment analysis dea model the goal congruence measure not only shows empirically whether the firm is goal congruent or not but also provides a measurement for the degree of goal incongruence to be goal congruent resources shared among divisions are suggested to be allocated so that the conditions for an optimizable operation are satisfied in addition goal congruent firms are verified to be cost efficient all findings in this research are examined and illustrated with a dataset of 20 bank branches with shared resources for service and sales divisions

corporate fraud and investment distortions in efficient capital markets inefficient investment allocation induced by corporate fraud where informed insiders strategically manipulate outside investors beliefs has been endemic historically and has recently attracted much attention we reconcile corporate fraud and investment distortions with efficient capital markets building on shareholder manager agency conflicts and investment renegotiation in active takeover markets because investments that are ex post inefficient are not renegotiation proof the optimal renegotiation proof contract induces overstatements by managers accompanied by overinvestment in low return states and underinvestment in high return states by rational investors our framework also helps explain why easy access to external capital appears to facilitate corporate fraud

health economics and econometrics it seems worthwhile to pause occasionally and take stock of the balance of trade between economics and health economics martin feldstein 1974 did this fourteen years ago at the assa meetings and sufficient time has lapsed to bring up the issue again here however i undertake only a fragment of the task confining the discussion to some remarks about econometrics and health economics if one were writing about economic theory and health economics one might focus on the importance for health economics of both uncertainty and the physician s dual role as supplier and patient agent in discussing econometrics and health economics however other features of health economics are relevant

what s to know about the credibility of empirical economics the scientific credibility of economics is itself a scientific question that can be addressed with both theoretical speculations and empirical data in this review we examine the major parameters that are expected to affect the credibility of empirical economics sample size magnitude of pursued effects number and pre selection of tested relationships flexibility and lack of standardization in designs definitions outcomes and analyses financial and other interests and prejudices and the multiplicity and fragmentation of efforts we summarize and discuss the empirical evidence on the lack of a robust reproducibility culture in economics and business research the prevalence of potential publication and other selective reporting biases and other failures and biases in the market of scientific information overall the credibility of the economics literature is likely to be modest or even low

the relative impacts of economics journals 1970 1990 our data collection and database assembly efforts were assisted by john p sophocleus mark gwartney michele butler and scott ralston we received extremely valuable computer programming assistance from jon brunson and edward novak constructive comments were receivedfrom two anonymous reviewers financial supportfrom the faculty development committee at salisbury state university is gratefully acknowledged

unwilling or unable to cheat evidence from a tax audit experiment in denmark this paper analyzes a tax enforcement field experiment in denmark in the base year a stratified and representative sample of over 40 000 individual income tax filers was selected for the experiment half of the tax filers were randomly selected to be thoroughly audited while the rest were deliberately not audited the following year threat of audit letters were randomly assigned and sent to tax filers in both groups we present three main empirical findings first using baseline audit data we find that the tax evasion rate is close to zero for income subject to third party reporting but substantial for self reported income since most income is subject to third party reporting the overall evasion rate is modest second using quasi experimental variation created by large kinks in the income tax schedule we find that marginal tax rates have a positive impact on tax evasion for self reported income but that this effect is small in comparison to legal avoidance and behavioral responses third using the randomization of enforcement we find that prior audits and threat of audit letters have significant effects on self reported income but no effect on third party reported income all these empirical results can be explained by extending the standard model of rational tax evasion to allow for the key distinction between self reported and third party reported income

the economics of fraudulent accounting we argue that earnings management and fraudulent accounting have important economic consequences in a model where the costs of earnings management are endogenous we show that in equilibrium low productivity firms hire and invest too much in order to pool with high productivity firms this behavior distorts the allocation of economic resources in the economy we test the predictions of the model using firmlevel data we show that during periods of suspicious accounting firms hire and invest excessively while managers exercise options when the misreporting is detected firms shed labor and capital and productivity improves our firm level results hold both before and after the market crash of 2000 in the aggregate our model provides a novel explanation for periods of jobless and investment less growth

estimating intertemporal supply response in the fed beef market comment in a recent article in this journal marsh estimated a monthly supply equation for beef slaughter fed marketings that was intended to resolve past discrepancies of the signs of own price elasticities he concluded that the discrepancy could be explained by introducing dynamics that allowed different signs for short run and long run elasticities marsh also estimated a dynamic demand equation for the feeder cattle input his study is recent well executed and representative of much agricultural supply response work it may not be a key model in the sense used by tomek and therefore a candidate for duplication though the study does engage in the spirit of tomek s improvement criterion marsh specifies a model that satisfies the traditional measures of model performance that is it exhibits a good durbinwatson statistic a good r2 and significant t statistics it accounts for the presence of lagged dependent variables and autocorrelated disturbances by implementing a nonlinear least squares algorithm burt townsend and lafrance that allows for consistent and asymptotically efficient estimates however we find his model turns out flawed when confronted with other statistical and economic

federal reserve policy interest rate volatility and the u s capital raising mechanism the object of this paper is to examine in detail on the basis of the experience of the u s financial markets under the federal reserve system s new monetary policy procedures announced on october 6 1979 one potentially important effect on the nonfinancial economy due to the resulting increase in interest rate volatility in particular the possibility that increased volatility has impaired the market mechanism for raising long term business capital interest rate volatility has been a controversial issue in central bank policymaking for a long time the ultimate objectives that central banks pursue almost always refer to nonfinancial aspects of economic activity and well being like price stability and economic growth in carrying out policies designed to further these objectives however central banks typically operate exclusively in the financial markets their actions therefore affect interest rates directly and visibly whether to use this influence on interest rates to smooth out short run fluctuations or alternatively to implement actions focused solely on other objectives and hence leave interest rates to vary freely with the pulse of market pressures is the central question in the united states the evolution of the federal reserve system s monetary policy procedures during the last decade including in particular the changes an

the aid effectiveness literature the sad results of 40 years of research abstract the aid effectiveness literature ael consists of empirical macroeconomic estimates of the effects of development aid by the end of 2004 it comprised 97 econometric studies of three families of related effects each family has been analyzed in a separate meta analysis the ael is an ideal subject for meta analysis as it uses only a few formally similar models to estimate the same underlying effects it is also an area with strong beliefs often generated by altruism when this whole literature is examined a clear pattern emerges after 40 years of development aid the preponderance of the evidence indicates that aid has not been effective we show that the distribution of results is significantly asymmetric reflecting the reluctance of the research community to publish negative results the dutch disease effect on exchange rates provides a plausible explanation for the observed aid ineffectiveness

learning and communication in sender receiver games an econometric investigation this paper compares the performance of stimulus response sr and belief based learning bbl using data from game theory experiments the environment extensive form games played in a population setting is novel in the empirical literature on learning in games both the sr and bbl models fit the data reasonably well in common interest games with history while the test results accept sr and reject bbl in games with no history and in all but one of the divergent interest games estimation is challenging since the likelihood function is not globally concave and the results may be subject to convergence bias

the financial markets and customer satisfaction reexamining possible financial market mispricing of customer satisfaction we investigate the association between information contained in the american customer satisfaction index acsi metric and future stock market performance some past research has provided results suggesting that the financial markets misprice customer satisfaction i e firms advantaged in customer satisfaction are posited to earn positive future period abnormal stock returns we reexamine this relationship and find that statistically significant evidence of financial market mispricing of customer satisfaction is limited to firms in the computer and internet sector the results suggest that the mispricing anomaly reported in past research appears not to stem from a systemic failure of the financial markets to impound the financial implications of customer satisfaction into current stock price but rather from abnormal returns achieved by a small group of satisfaction leaders in the computer and internet sector over the period of study analyses based on unconditional risk covariates and analyses using conditional risk covariates estimated from short window high frequency data support this finding

what is meant by replication and why does it encounter resistance in economics this paper discusses recent trends in the use of replications in economics we include the results of recent replication studies that have attempted to identify replication rates within the discipline these studies generally find that replication rates are relatively low we then consider obstacles to undertaking replication studies and highlight replication initiatives in psychology and political science behind which economics appears to lag

a proposal to organize and promote replications we make a two pronged proposal to i strengthen the incentives for replication work and ii better organize and draw attention to the replications that are conducted first we propose that top journals publish short replication reports these reports could summarize novel work replicating an existing high impact paper or they could highlight a replication result embedded in a wider scope published paper second we suggest incentivizing replications with the currency of our profession citations enforcing a norm of citing replication work alongside the original would provide incentives for replications to both authors and journals

a re examination of an irish popularity function this paper focuses on replication in the sense of herrnson 1995 it re examines the only study of an irish popularity function borooah and borooah 1990 in the light of recent developments in econometric methodology and in irish politics using error correction models the analysis provides an alternative account of the relationship between economics and government popularity to that provided by borooah and borooah the findings indicate that the short term impact of the economy is weaker than and different from that suggested by them economic influences at most set the general level of government approval rather than determine the quarter by quarter fluctuations

the becker degroot marschak mechanism is not necessarily incentive compatible even for non random goods abstract this paper uses results from karni e safra z 1987 preference reversals and the observability of preferences by experimental methods econometrica 55 675 685 and karni e 1989 generalized expected utility analysis of multivariate risk aversion international economic review 30 297 305 to show that the becker degroot marschak mechanism is not always incentive compatible even when the item to be valued involves no uncertainty contrary to several recent assertions

manipulation and equity based compensation economists have long argued that a strong linkage between compensation and performance is essential for resolving the agency problem created by the separation of ownership and control in particular michael c jensen and kevin j murphy 1990 were very influential in giving impetus to the view that such incentives were in need of strengthening compared to accounting benchmarks the stock price is more forward looking and it is responsive to all value relevant information including informal and unverifiable items of news this makes stock and or option awards an important part of optimal incentives and constitutes a primary reason for seeking a public listing as argued by bengt holmstrom and jean tirole 1993 until recently however theories of optimal executive compensation have generally ignored the possibility that the stock price can be manipulated or falsified it is becoming increasingly clear that this is an important issue in a spate of recent scandals companies have misled the investing public by vastly overstating their profitability and prospects and substantive restatements of company accounts have become increasingly commonplace a growing body of empirical evidence suggests that executive pay in its current form may be at least in part responsible recent studies finding a link between unusual movements in performance measures such as accounting yardsticks and publicly disclosed price sensitive information and compensation include daniel bergstresser and thomas philippon 2006 natasha burns and simi kedia 2006 and peng and roell forthcoming thus the benefits of stock based incentives should be weighed against their side effects this paper models optimal executive compensation in a setting where managers are in a position to influence the public perception of manipulation and equity based compensation

three methods to share joint costs or surplus abstract we study cost sharing methods with variable demands of heterogeneous goods additive in the cost function and meeting the dummy axiom we consider four axioms scale invariance si demand monotonicity dm upper bound for homogeneous goods ubh placing a natural cap on cost shares when goods are homogeneous average cost pricing for homogeneous goods acph the random order values based on stand alone costs are characterized by si and dm serial costsharing by dm and ub the aumann shapley pricing method by si and acph no other combination of the four axioms is compatible with additivity and dummy journal of economic literature classification numbers c71 d62 d63

the effect of earnings forecasts on earnings management we develop a theory of the association between earnings management and voluntary management forecasts in an agency setting earnings management is modeled as a window dressing action that can increase the firm s reported accounting earnings but has no impact on the firm s real cash flows earnings forecasts are modeled as the manager s communication of the firm s future cash flows we show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings we also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts finally our analysis shows that shareholders may not find it optimal to prohibit earnings management earlier results rationalize earnings management by violating some assumption underlying the revelation principle by contrast in our model the principal can make full commitments and communication is unrestricted nonetheless earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts

a signal jamming theory of predation we propose a new theory ofpredation based on signal jamming in our model the predator s characteristics are common knowledge while the entrant is uncertain of his own future profitability the entrant uses his current profit to decide whether to remain in the market and the predator preys to jam or interfere with this inference problem thus our model differs from those based on reputation effects in which the predator preys to signal information about himself

education and earnings in the netherlands an empirical analysis abstract in this paper three models which describe the relation between earnings and education are estimated using one single data set one model is a simple dummy regression model in which the educational variables are exogenous both other models take account of the fact that individuals choose their optimal amount of education and is therefore endogenous in all three models i try to specify the equations in the same way as others have done with other data sets it turns out that in each model important conclusions reached in earlier research are not supported by the empirical findings reported here

marriage and divorce comment the author comments on an article by h elizabeth peters concerning the impact of state laws particularly no fault divorce laws on divorce rates in the united states a reply by peters is included pp 686 93 annotation

monetary and public debt shocks tests and efficient estimates in an article in the jmcb barro 1 defined a form of intertemporal efficiency for the behavior of marginal tax rates and expected tax rates given certain additional conditions on government expenditures barro s definition of efficiency implied that particular relationships and time paths would characterize federal deficits in that paper two of the seven predicted relationships were tested 1 the sign of the relationship between the deficit and the ratio of output to its trend value and 2 the effect of anticipated inflation on the deficit those tests were performed under the joint assumptions of the rational expectations hypothesis reh and predictable policy irrelevance or structural neutrality sn with regard to both monetary and debt policies in this paper barro s tests of the efficiency hypothesis are reexamined within a wider context by means of the statistically efficient full information maximum likelihood fiml method 4 6 1 specifically by allowing the imposition of cross equation and within equation parameter constraints the fiml method makes it possible to a directly test the reh and sn propositions jointly and separately

rational inefficiency adjustment costs and sequential technologies abstract in this paper we propose a novel approach to estimate the rational inefficiency of decision making units in the presence of adjustment costs using sequential definitions of the production technology we show how cost inefficiency can be decomposed into rational and residual inefficiency as well as inefficiency caused by technical change furthermore we estimate lower bounds for the unobserved adjustment costs based on unexploited cost reductions due to rational inefficiency these adjustment costs are used to evaluate the feasibility of exploiting cost reductions caused by residual inefficiency we demonstrate the empirical applicability of our model by estimating and decomposing the cost inefficiency of u s coal fired power plants using panel data which cover the period between 1994 and 2009

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

barro s fertility equations the robustness of the role of female education and income barro and lee 1994 and barro and sala i martin 1995 find that real per capita gdp and both male and female education have important effects on fertility in their cross country empirical studies in order to assess the robustness of their results their estimated models are subjected to specification and diagnostic testing the effects on the model of using the improved barro and lee 1996 cross country data on educational attainment of the population aged 15 and over are examined and the different specifications used by barro and lee and by barro and sala i martin compared the results obtained suggest that their fertility equations do not perform well in terms of diagnostic testing and are very sensitive to the use of different vintages of the educational attainment proxies and of the summers heston cross country income data a robust explanation of fertility to link with empirical growth equations has therefore not yet been found further work is required in this area

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association

money growth output growth and inflation a reexamination of the modern quantity theory s linchpin prediction 1 introductionover the years the quantity theory of money has been extended and refined all versions however begin with the well known equation of exchange mv pq where q is the level of national output real gross domestic product gdp p is the general price level v is the velocity of money circulation and m is the quantity of money to convert this equation actually an identity into a theory one of the four variables contained therein must be specified as functionally dependent on the other three monetarists argue that p is the dependent variable sprinkel 1971 specifically they argue that m is determined by the national monetary authority that v is determined by a variety of both secular and cyclical factors 1 that changes in v do not consistently offset changes in m and that q is determined by capital labor and technological advances sprinkel 1971 the monetarist theory of inflation is a long run theory it does not purport to explain short run increases in the general price level hafer and wheelock 2001 monetarists argue that short run inflation stabilization is not feasible and therefore that monetary policy should be confined to inflation concerns over a relatively long horizon 2john moroney 2002 p 399 asserts that in the traditional version of the quantity theory a country s long run inflation rate increases one to one with its money growth rate the modern wrinkle is that inflation is mitigated by real gdp growth emphasis added this assertion is consistent with the famous dictum of milton friedman 1968 p 18 that inflation is always and everywhere a monetary phenomenon produced in the first instance by an unduly rapid growth in the quantity of money emphasis added friedman s assertion is not that an increased money growth rate is the sole cause of inflation in the long run just the most important cause friedman and friedman 1980 an increase in inflation can also be caused by a decrease in the growth rate of q or theoretically even an increase in the growth rate of v as is easily seen by solving the equation of exchange for p and then taking logs and first differences after taking logs and first differences 3 moroney 2002 obtains an estimating equation in which inflation is functionally dependent on the growth rates of the money stock and real gdp formula omitted see article image where y is ln p x is ln m z is ln q and u is a random disturbance term that includes velocity changes is the first difference operator the modern quantity theory s model implied restrictions which are testable predictions are that the intercept is zero the coefficient of the money stock growth rate is plus one and the coefficient of the growth rate of real gdp is minus one arguably this joint hypothesis is the linchpin prediction of the modern quantity theory if the hypothesis is rejected by the data the theory falls using long run 1980 1993 cross section data on 81 countries which he takes from the world bank s world development report 1995 moroney 2002 tests the joint hypothesis 0 0 1 1 2 1 and incorrectly claims that the hypothesis cannot be rejected at even the 0 01 level of significance 4 as will be shown in the next section the joint hypothesis is rejected decisively fortunately however it will also be shown that a modification to moroney s model specification helps to salvage the most substantive part of the modern quantity theory s implied restrictions 2 modification to the quantity theory setupin contrast to the conventional quantity theory setup in which the economy s real activity is determined entirely outside its monetary sector fama 1982 moroney 2002 that is in which no provision is made for the possibility that the monetary authority s actions could have an adverse effect on output5 the present article entertains the possibility that y and z are jointly determined

transaction costs and the interest parity theorem comment a recent empirical study by bahmani oskooee and das 1985 concludes that transaction costs fail to explain the variation in absolute percentage spreads between actual forward rates and rates implied by covered interest rate arbitrage denoted by ipi this strong conclusion is based on a regression that has several problems first the data contain both errors and omissions which we correct second their econometric model does not effectively capture the effect they are seeking to measure and is inconsistent a more complete statistical model is necessary both for consistent parameter estimation and for drawing inferences that shed light on the condition they attempt to test without subscribing to the modeling approach of bahmanioskooee and das this study finds that i correcting the errors and omissions in their data changes the regression results significantly including a significant sign change for the transaction cost effect ii using their variable definitions one may obtain a zero r2 and zero coefficient for transaction costs even if they explained all the variation in ipi and iii an alternative measure of the effects of transaction costs that is more consistent with the authors approach and theory suggests that transaction costs may explain up to 60 percent of the variation in ipi in addition this study cautions against drawing strong conclusions from data derived from the standard sources employed by bahmani oskooee and das even after the errors are removed section i discusses some of the problems with the data in bahmanioskooee and das these problems are important in an era of heightened awareness regarding the issue of replicability see for example dewald thursby and anderson 1986 on the journal of

on the relation between conservatism in accounting standards and incentives for earnings management this paper studies the role of conservative accounting standards in alleviating rational yet dysfunctional unobservable earnings manipulation we show that when accounting numbers serve both the valuation role in which potential investors use accounting reports to assess a firm s expected future payoff and the stewardship role in which current shareholders rely on the same reports to monitor their risk averse manager current firm owners have incentives to engage in earnings management such manipulation reduces accounting numbers stewardship value and leads to inferior risk sharing we then show that risk sharing and hence contract efficiency can be improved under a conservative accounting standard where absent earnings management accounting earnings represent true economic earnings with a downward bias compared with under an unbiased standard where absent earnings management accounting earnings represent true economic earnings without bias

from the econometrics of capital punishment to the capital punishment of econometrics on the use and abuse of sensitivity analysis the academic debate over the deterrent effect of capital punishment has intensified again with a major policy outcome at stake about two dozen empirical studies have recently emerged that explore the issue donohue and wolfers 2005 claim to have examined the recent studies and shown the evidence not to be robust to specification changes we argue that the narrow scope of their study does not warrant this claim moreover focusing on our two studies that they have examined we show the deterrence findings to be robust while their work has serious flaws and their reporting appears to be selective the selectivity is biased towards showing no deterrence