A note on the implicit interest rate on demand deposits

This paper examines the significance of several estimated measures of the implicit interest rate on demand deposits in an annual demand-for-money function. The evidence demonstrates that the coefficient estimates of the implicit interest rate are not positive and statistically significant as predicted due to the scarcity of data points and the high collinearity with other opportunity cost variables.     

A note on decentralizability in consumer demand models with quantity rationing

It is shown that in a context of quantity rationing, it is not always possible to decentralize the consumer's intertemporal behavior in a sequence of atemporal, static optimization programs. Whether or not decentralizability holds crucially depends on the perceived rationing scheme.     

On the boundary behavior of the excess demand function

I revisit thoroughly the standard boundary behavior satisfied by the excess demand function of a competitive economy, and I prove two implications of the boundary behavior. Then, I show that these implications lead to an alternative proof of the existence of competitive equilibria which is instructive, shorter and perhaps easier than the available proofs in the literature.     

Structural transformation in China and India: A note on macroeconomic policies

This paper explores macroeconomic policies that can sustain structural change in China and India. A two-sector open-economy model with endogenous productivity growth, demand driven output and income distribution as an important determinant of economic activity is calibrated to a 2000 SAM for China and a 1999/2000 SAM for India. Short-run analysis concerns temporary equilibria for output, productivity and employment growth rates in the formal sector. In the long-run, the model allows for multiple equilibria which can describe cases of (a) underdevelopment and structural heterogeneity or (b) sustained growth and development. Several simulation exercises are conducted. Specifically, we consider how changes in investment, wages, labor productivity trend and a depreciation of currency affect the macroeconomy and job creation in the formal sector.     

A note on estimating disequilibrium models with aggregation

When an aggregate disequilibrium is the result of disequilibrium in several submarkets, the usual maximum likelihood estimation, which is based on the min of aggregate demand and supply, represents a misspecification. The present paper compares ML with several nonlinear least squares methods that are appropriate for this situation. Monte Carlo experiments suggest that ML is robust with respect to the misspecification and may be preferable to the nonlinear least suqares methods in some situations.     

A dynamic macroeconomic model with monopolistic behavior in the labor market

Is the monopolistic behavior of a wage setting labor union compatible, in the long and in the short run, with price stability and full employment? What is the effect, if any, of economic policies? The answers are strongly affected by the prevailing technology and by the union's objective function. With limited short run production possibilities, a short run trade-off may exist between full employment and maximum expected real wage revenues. In the long run, however, when expectations are fully adjusted, this trade-off disappears. Therefore, a labor union consistently pursuing maximum short run expected real wage revenues may not maximize long run effective real wage revenues. Price stability is granted in the long run, provided inflation is not induced by public policy. The only instrument a pure consuming government has to fight long unemployment is to reduce its share of aggregate demand.     

A note on the speculative demand for money

In the General Theory, Keynes argued that expectations about future bond prices tend to be “sticky”. A rise in bond prices causes more investors to “join the bear brigade” and so increases the aggregate demand for money. Since Tobin's classic article on liquidity preference, this explanation of the downward sloping demand for money curve has largely disappeared from the literature. This note introduces sticky expectations into the Tobin framework. It shows that the existence of such stickiness does not necessarily cause the demand for money to be more elastic because investors have expectations about the variance of future bond prices as well as about their mean. A sufficient condition for a more elastic demand for money under sticky expectations is that the Pratt-Arrow coefficient of relative risk aversion be either constant or decreasing in wealth.     

A note on linear heteroscedasticity models

The familiar practice of estimating residual variance functions via regression of squared estimated residuals is examined in a method of moments framework. In many situations, the covariance matrix estimator will reduce to White's (1980) heteroscedasticity-consistent computation. Extensions to higher moments and multiple equation systems are discussed.     

A macroeconomic model of aggregate supply and demand for the UK

In this paper we publish for the first time the econometric model of the UK economy recently developed at City University Business School (CUBS). The differentiating feature of the CUBS model is its concern with the ‘supply side’ and its attempt to estimate an aggregate production function. The model distinguishes between markets in goods and services, labour, capital, money and foreign exchange.     

A note on the elasticity of demand for wagering

Data envelopment analysis is used to establish comparisions of maximum profit without and with participation in government progarammes. A measure of a farm's ability to survive, returns on equity, is used to measure the benefit received from participation in government programmes. Density functions are estimated with kernel density estimation using bootstrap samples, and weighted regressions are used to test density estimation using bootstrap samples, and weighted regressions are used to test the equality of mean benefits between different size groups. The results indicate that almost all farms that could be considered of commercial size receive the same benefit from participation in government programmes.     

A note on Walrasian equilibria in non-Walrasian models

We demonstrate that equilibria termed ‘Walrasian’ in non-Walrasian models are generally not, but rather Hicksian Temporary Competitive Equilibria in expected virtual prices. They are only Walrasian when the expected virtual prices would clear all markets.     

A method for finding the maximal set in excess demand

We present a polynomial time method for identifying the maximal set in excess demand at a given payoff vector. This set can be used in “large” partnership formation problems to identify the minimum element in the set of individually rational payoff vectors at which there is no overdemanded set of agents. This minimum element corresponds to the minimum Walrasian equilibrium price vector in a special case of the partnership formation problem.     

A critique of the microfoundations of macroeconomic policy models

The contemporary economic debate is focused mainly on the causes and cures of stagflation. There are three major macroeconomic parties to this debate: Incentivists (supply siders), Keynesians, and Monetarists. Each of these schools prepares policy forecasts promoting the merits of its particular remedies for countering stagflation. Though the models driving these forecasts are different in terms of the determinants they emphasize and the economic casuality they invoke, all are predicated on the same set of microeconomic assumptions: those organized under the neoclassical theory of the firm. The fact that the Incentivist, Keynesian, and Monetarist models all share the same microfoundation pretty much eliminates the firm and its properties from the arena of argument. From the standpoint to be developed in this article, this omission is unfortunate, as contemporary enterprises bear increasingly little resemblance to their neoclassical predecessors. The disparities are particularly important in two respects. First, increases in organizational size and complexity mark modern firms as increasingly susceptible to certain inefficiencies that ultimately affect aggregate economic performance adversely. But the mainstream macroeconomic models do not comprehend microeconomic stimuli to stagflation and therefore cannot presume to control them. The result is perhaps a consistent understatement of the reparative task the Incentivists, Keynesians, and Monetarists are promoting for themselves. Second, modern firms entail a potential for autonomous activities that is a priori denied neoclassical enterprises. Increases in autonomy imply some unresponsiveness to exogenous controls of the type the mainstream schools propose to employ as means of restoring economic integrity. To this extent, their policy models may be uniformly overstating the effect their instruments can enjoy in the present economic context. When the likelihood of underestimating the magnitude of the stagflationary problem is coupled with the probable overestimation of interventionist capabilities, the policy forecasts of the Incentivist, Keynesian, and Monetarist schools may be suspected of a degree of optimism entirely unwarranted by current microeconomic realities.     

A note on the econometric use of constant dollar inventory series

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.     

A new route to cyclical strategies in two-dimensional optimal control models

This paper proposes a new route to rationalize cyclical policies in concave two-state variable, economic control problems. The essential ingredients are: positive growth; a (positive) externality of the stock; and sluggish control, such that actual control is the sum over historical changes. Given these conditions, it is amazingly simple to generate stable limit cycles, even for separable models. A simple renewable resource model is used to verify this claim.     

A note on representability of consumer's behavior

Summary. We offer an alternative approach to the study of representability of choice behavior in a competitive framework that is based on recent advances in utility theory (cf. Alcantud and Rodrí guez-Palmero (1999)). Our technique enables us to tackle this classical problem efficiently in fairly general situations, thus obtaining alternative sufficient conditions as well as different proofs and generalizations of prior results. Received: July 14, 1999; revised version: February 15, 2001     

A note on the triple difference in economic models

This article shows when a triple difference strategy using an imperfect control category improves on the double difference strategy for estimating an average treatment effect. For example, a product is treated in one place and not another leading to a double difference strategy. When does comparison with an untreated product in triple difference strategy improve accuracy?     

A note on input-output analysis and macroeconometric models

This note presents a theoretical discussion on the introduction of input-output analysis in long-term macro-econometric models. It emphasizes the importance of making the treatment of imports explicit. It is shown that earlier works on macroeconometric models are inconsistent.