Estimating Key Economic Variables: The Policy Implications

The current monetary policy debate has focused on current estimates and the future path of the natural rate of unemployment and the equilibrium interest rate. Estimates of the natural rate of unemployment should vary over time with changes in demographics and improvements in human capital. However, these changes should be gradual. This paper shows that the estimates of the natural rate of unemployment by Federal Reserve officials and private-sector economists seem to move pro-cyclically, potentially showing too much weight given to short-term fluctuations in economic variables. As with the natural rate, there are good reasons to expect the equilibrium interest rate to change over time. In fact, the level may actually be more responsive to current economic data, reflecting changes in aggregate savings and investment. Yet, we see that equilibrium interest rate estimates by both Federal Reserve officials and private-sector economists have declined quite dramatically over the past five years. A potential concern raised in this paper is that estimates of these critical economic variables for policy determination appear to be overly sensitive to high frequency economic data.     

Russian Nanotechnology Market: High-Technology Industry or Statistical Phenomenon

This article presents a medium-term forecast of the development of the Russian nanoindustry, taking into account the assumed transition of the industry from the formation stage to the investment growth stage. Problems associated with the estimated output volumes of products in the Russian nanoindustry are considered, since the trends recorded in the primary statistical data are very far from reflecting the real situation due to the imperfection of the system of statistics of nano-containing products, as well as a reduction of state funding and a decline in the intensity of research in the industry. It is concluded that a full-fledged industry has not been yet completely formed in Russia and it actually exists only as a statistical phenomenon; in addition, the project really set different objectives from the declared creation of a breakthrough high-technology branch.     

CONCURRENT ENGINEERING: CONTEMPORARY ISSUES AND MODERN DESIGN TOOLS EDITED BY HAMID R. PARSAEJ AND WILLIAM G. SULLIVAN Chapman & Hall,London, 1993, xiii + 497 pp. ISBN 0-412-46510-8. List: $75.00.

In a recent paper, Jones and Zydiak [2] discuss the steady state fleet design problem, which has no natural initial distribution of vehicles. For this problem, they develop a new optimality criterion of minimizing annual equivalent cost per vehicle because the traditional optimally criterion of minimizing annual equivalent cost can lead to paradoxical results, as shown by example, when applied to the fleet design problem. In a subsequent note, Hartman [1] argues that this paradox is actually a result of a replacement convention that ignores opportunity costs. In this response, we demonstrate that paradoxical replacement behavior can occur with the traditional criterion even when opportunity costs are accounted for in the replacement analysis. We further conclude that the problems considered respectively by Jones and Zydiak [2] and Hartman [1] are fundamentally different in nature.     

Technology and the services sector: The hidden competitive challenge

Information technology has always played an important role in the services sector of the U.S. economy. In recent years, however, services industries have stepped up their acquisitions of computers, telecommunications equipment, and other such products dramatically. As a result, the broad segment of the economy that can be classified as services providers now owns about 84% of the total U.S. stock of information technology items. Moreover, relative to goods-producing industries, a much larger proportion of the services sector's capital budgets is spent on information technology, revealing a significantly greater dependence by services on such technology as a factor of production. This reliance underscores technology's strategic importance in the United States' competitive challenge. With services now the predominant mode of economic activity in the United States, a productivity payback from information technology is absolutely essential to keep the economy on a longer term path of sustainable growth.So far, the services sector has little to show for its spending binge on technology. Quite simply, massive investments in information technology have failed to boost national productivity growth in the present decade. Furthermore, with manufacturing productivity now on the rebound, problems in the services sector loom increasingly large in the United States' broader competitive struggle. It is certainly not too late. New and creative applications of information technology could still enhance the productivity performance of the services sector's predominantly white-collar work force. Until that payback begins to occur, however, the role of technology spending will be under growing suspicion [3, 8, 9].In what follows, an attempt is made to provide a detailed industry-by-industry assessment of services sector spending on information technology. By way of background, the broad contours of capital formation in services industries are first examined over the post-World War II era.     

Productivity differences in multiple output industries: An empirical application to electricity distribution

Given that electricity distribution is undertaken via a network, it is expected that costs of production are affected both by the nature of the network and the volume of physical output distributed via the network. This two-dimensional concept of firm size, that is involving network size (number of customers) and the level of physical output (kWh), also corresponds to the distinction between productivity measures of returns to density and returns to scale.This approach has been used to specify a restricted multioutput cost function and to estimate this function for the Norwegian electricity distribution industry through the use of a flexible functional form (translog). The results indicate that no economies of scale are present in the industry even for small plants when measured correctly, but that economics of density are present.     

Resource allocation in a general equilibrium model of production under uncertainty: The case of variable supply of labor

This paper examines the effects of a marginal change in uncertainty on resource allocation and factor rewards by relaxing the assumption of factor inelasticity. We demonstrate that integrating a variable labor supply into Batra's two-sector uncertainty model can mitigate or reverse many of the earlier results. Specifically, a marginal increase in uncertainty may trigger the resource to move from the certainty sector to the uncertainty sector in the presence of a backward-bending labor supply curve.