Does institutional quality resolve the Lucas Paradox?

The Lucas Paradox observes that capital flows predominantly to relatively rich countries, contradicting the neoclassical prediction that it should flow to poorer capital-scarce countries. In an influential study, Alfaro, Kalemli-Ozcan, and Volosovych (AKV) argue that cross-country variation in institutional quality can fully explain the Paradox, contending that if institutional quality is included in regression models explaining international capital inflows, a country’s level of economic development is no longer statistically significant. We replicate AKV’s results using their cross-sectional IFS capital flow data. Motivated by the importance of conducting inference in statistically adequate models, we focus on misspecification testing of alternative functional forms of their empirical model of capital flows. We show that their resolution of the Paradox relies on inference in a misspecified model. In models that do not fail basic misspecification tests, even though institutional quality is a significant determinant of capital inflows, a country’s level of economic development also remains a significant predictor. The same conclusions are reached using an extended dataset covering more recent IFS international capital flow data, first-differenced capital stock data and additional controls.     

Encompassing and rational expectations: How sequential corroboration can imply refutation

Even though pieces of empirical evidence individually may corroborate an economic theory, their joint existence may refute that same theory. Testing of rational expectations models provides a concrete illustration of this principle. Surprisingly, empirical refutation of a rational expectations model may occur without having to estimate that model, and the refutation may be for a large class of expectations-based models and not just for a particular model specification. Narrow money demand in the United Kingdom illustrates such refutation. The general proposition concerning corroboration and refutation strongly favors the building of empirical models that are consistent with all available evidence. First version received: July 1994/final version received: July 1997     

Expectations and regime robustness in price formation: evidence from vector autoregressive models and recursive methods

The forward-looking linear quadratic adjustment cost (LQAC) model has received attention when modelling prices. Empirical evidence supporting the model seems, however, ambiguous. We find that the LQAC-model is severely at odds with price data for Norwegian machinery exports also when the pure forward-looking rule is augmented by additional lags of the targeted variable. A conditional equilibrium correction (EqCM) model explains the export price behaviour more accurately. Our findings may rule out a large class of expectations based models and not just the particular LQAC-model in the formation of export prices. We also demonstrate that the EqCM-model performs well post-sample despite that monetary policy in Norway has changed from a fixed to a floating exchange rate regime following a recent introduction of inflation targeting. This regime robustness shows that the Lucas critique lacks force empirically in our case.     

关于Lucas多项式的几个恒等式

本文利用Lucas多项式的递推关系和Lucas多项式的表达式,给出了关于Lucas多项式的一些恒等式。     

Comment: Lucas on involuntary unemployment

Keynes distinguishes three concepts: voluntary, frictional and(Keynesian) involuntary unemployment. Frictional unemploymentis a Classical form of involuntary unemployment (not voluntary,as Lucas suggests), and reflects the Marshallian, rather thanWalrasian, treatment of time and equilibrium. Lucas contradictsboth Keynes and Pigou in asserting that there are always immediatevacancies for unskilled labour, and abstracts from the veryproblem that Keynes seeks to address. If voluntary unemploymentis re-defined appropriately, as De Vroey helpfully suggestselsewhere, the prefix ‘involuntary’ is dispensable,not because all unemployment is voluntary, as Lucas would haveit, but because it is all involuntary.     

开放经济中的Lucas供给函数与通货膨胀倾向

文章首先在Lueas（1972,1973,1976）工作的基础上将Lucas供给函数扩展到了开放经济中。得到的一个主要结果是开放经济中的Lucas供给函数。作者利用这一函数以及Barro和Cordon（1988）框架重新考察了开放经济中的通货膨胀的动态不一致问题。在运用开放经济中的Lucas供给函数后。作者在开放与通货膨胀问题上得到了一个相比Romer（1993）等学者较为一般的。在解释实证结果上更加有力的结果。这一结果一方面证实了Romer等人证实的在不发达国家中存在的开放与通货膨胀之间的负相关关系。另一方面。该结论还说明了为什么在发达工业国家在实证上看不出同样的负相关关系。     

House price dynamics: Fundamentals and expectations

We investigate whether expectations that are not fully rational have the potential to explain the evolution of house prices and the price-to-rent ratio in the United States. First, a stylized asset-pricing model solved under rational expectations is used to derive a fundamental value for house prices and the price–rent ratio. Although the model can explain the sample average of the price–rent ratio, it does not generate the large and persistent fluctuations observed in the data. Then, we consider a rational bubble solution, an extrapolative expectations solution and a near rational bubble solution. In this last solution agents extrapolate the future from the latest realizations and the degree of extrapolation is stronger in good times than in bad times, generating waves of over-optimism. We show that under this solution the model not only is able to match key moments of the data but can also replicate the run up in the U.S. house prices observed over the 2000–2006 period and the subsequent sharp downturn.     

An unpleasant dilemma for contemporary general equilibrium theory

By examining the contributions of two prominent contemporary neoclassical economists, i.e. Lucas and Hahn, the article attempts to shed light on the problematic relationship between neoclassical theory and observation. It is argued that this approach must face the unpleasant dilemma of having to choose between endowing general equilibrium theory with an explanatory role that is marred by its illegitimate notion of capital as a single factor of variable form (Lucas); or alternatively, to consistently treat each capital good as a distinct factor of production, with the bitter implication that the theory must simply renounce to have a correspondence with observation (Hahn).     

Guidelines for marketing a new industrial product

This article presents an illustration of what evaluations and obstacles a new product can face in an industrial market. Guidelines are also suggested which will hopefully better prepare industrial marketers for more success in marketing new products.     

Structural evolution of the postwar U.S. economy

We consider a time-varying parameter vector autoregressive model with stochastic volatility and mixture innovations to study the empirical relevance of the Lucas critique for the postwar U.S. economy. The model allows blocks of parameters to change at endogenously estimated points of time. Contrary to the Lucas critique, there are large changes at certain points of time in the parameters associated with monetary policy that do not correspond to changes in “reduced-form” parameters for inflation or the unemployment rate. However, the structure of the U.S. economy has evolved considerably over the postwar period, with an apparent reduction in the late 1980s in the impact of monetary policy shocks on inflation, though not on the unemployment rate. Related, we find changes in the Phillips curve tradeoff between inflation and cyclical unemployment (measured as the deviation from the time-varying steady-state unemployment rate implied by the model) in the 1970s and especially since the mid-1990s.