FOUNDATIONS OF ECONOMIC THEORY AND POLICY
H.S. James
While economists are generally successful in modeling economic phenomena, their ability to provide definitive solutions to economic problems is marginal at best. The reason is that a fundamental dilemma exists between the assumptions governing the development of economic theory and those governing its use as a basis for policy. The dilemma is founded on two problems. First, policy changes the conditions under which theory was originally developed, thus rendering prediction of policy effects difficult. Second, it is not clear that the prediction of policy effects is even possible since humans have the inherent capacity to choose. (B41)
STATISTICAL SURVIVAL ANALYSIS OF CORPORATE MERGERS
Richard D. Evans
The success of a corporate merger often shows either in accounting data or in the stock market's reaction to a transaction. A review of the literature shows many complaints about both data sources. Statistical survival analysis has strengths, as well as weaknesses, as a third methodology for evaluating the success of mergers. (610)
RACE, POVERTY AND ENLISTMENT: SOME EVIDENCE FROM THE NATIONAL LONGITUDINAL SURVEY OF YOUTH
M.C. Seeborg
This paper explores the determinants of enlistment for a large sample of male youth drawn from the National Longitudinal Survey of Youth. Logit results indicate that the probability of enlistment is directly related to minority and poverty status while controlling for ability and a number of other socioeconomic background variables. In addition, an analysis of poverty transitions show that a very large percentage of enlistees in the early 1980s who were living in poverty at age 17 were successful in escaping poverty by 1990. An important conclusion is that the military can serve as a mechanism of upward economic mobility for disadvantaged youth. (J15,J24)
DO LOCATIONAL AMENITIES EQUALIZE UTILITY ACROSS STATES?
Ralph J. Brown
The role of locational amenities in explaining regional real wage differentials is examined. The analysis differs from other work in this area in several respects. First, most studies have used city level as the unit of analysis this study uses state data. Second, new data on the cost of living by state and amenity index is used. The results are: first, regional nominal wage differences persist; second, regional real wages are not cost of living equalizing; and third, regional real wage differences are amenity difference equalizing. These results support the view that regional real wage differences are utility equalizing.(J30,R23)
DURATION GAP MANAGEMENT AND THE DEREGULATION OF DEPOSITORY INSTITUTIONS
Duane B. Graddy, Reuben Kyle, and Thomas H. Strickland
The deregulation acts of 1980 and 1982 removed many of the impediments to duration gap management by depository institutions. Elimination of these restraints provided gap managers with an opportunity to reduce their risk exposure. This study analyzes the interest sensitivity of bank and savings and loan stock returns before and after the passage of the deregulation acts. Unanticipated changes in interest rates influences bank returns mainly through non-gap and off-balance sheet items. This relationship held under both regulatory regimes. For savings and loans, the gap proxy was significant both before and after deregulation. The interest rate sensitivity of savings and loan returns declined after 1983.(G21)
IS U.S. INFLATION ANOTHER JAPANESE EXPORT?
D. Andrianacos and L. Manning
Concern that the dollar depreciation relative to the yen is inflationary may lead to policies targeting exchange rates. However, movements in exchange and inflation may reflect changes in money supply. Cointegration techniques provide evidence of that a long-term relationship does not exist; a vector autoregression approach is used to investigate causality in the short run. The results indicate that monetary authorities accommodate changes in exchange rates and the price level, as opposed to initiating them. On the other hand, the yen/dollar bilateral exchange rate appears to have no effect on U.S. inflation. (F3,E5).
ON TERMS OF TRADE ACROSS THE GREENBACK ERA AND GOLD STANDARD
Philip R. Murray
The paper introduces the concept of purchasing power parity (PPP) as a proposition on the relation between exchange rates and prices. The performance of PPP is judged against whether the terms of trade (or real exchange rate) is a stationary time series. The real exchange rate is constructed for the U.S. and India on time series beginning in the Greenback Era and ending in the Gold Standard. Although some real exchange rate behavior supports PPP, formal evidence shows a significant trend in the terms of trade that rejects the performance of PPP. (F31,F33)
PRODUCTIVITY DYNAMICS IN THE U.S. AND JAPAN
Jack Strauss and Mark E. Ferris
Traditionally, productivity is estimated from capital and labor using an OLS model. However, capital and labor can have different effects on output per worker in the short-run and long- run since the adjustment process may not be instantaneous. We show that productivity dynamics differ across sectors and countries for the U.S. and Japan. The error correction model, which separates the short-run and long-run effects, explains productivity growth significantly better than the OLS model. (O33,O47)
A NOVEL WAY OF MODELLING OFFICIAL INTERVENTION THE CASE OF JAPAN: 1977-1979
Nurhan Davutyan
This paper provides some evidence that the thrust of Japanese official intervention was somehow tilted towards resisting yen appreciation during our sample period. However, this does not mean that the Bank of Japan did not resist yen depreciation. On the contrary, it did. The interesting point is that resistance to yen depreciation was undertaken via surrogates. Some thoughts on the institutional structure of Japanese banking which made this possible are offered. (F33, F36)
THE EFFECT OF INTERNATIONAL TRADE ON WORKER UNION CHOICE
Mark Partridge
Union opposition in the North American Free Trade Agreement (NAFTA) suggests that trade damages the union movement. For example, greater trade may reduce the probability that a worker belongs to a union. A model is presented to show how trade can influence a worker's union status using end-game behavior and the product market effects of trade. This study uses 1984-1987 data to investigate this issue for production workers. The results indicate that union status is not significantly influenced by imports, but exports influence the likelihood that a worker is unionized. Overall, NAFTA should not dramatically reduce union membership. (J51,J58)
POLAND TRANSITION TO A MARKET ECONOMY
Betty F. Fulton
The Balcerowicz plan, introduced in January 1990, was designed to move Poland rapidly down the road toward a Western-type market economy. Since that time, progress has frequently seemed painfully slow with much side stepping and a step or two backward. However, by mid-1992 the Polish economy became the first economy in Eastern Europe to show signs of recovery. This recovery continued in 1993 as inflation fell and output grew. Poland's experience in these past few years should provide useful insights for others seeking the route to a market economy. (O52,P21)
COMMODITY MARKET DYNAMICS UNDER RATIONAL EXPECTATIONS AND GOVERNMENT PRICE SUPPORT PROGRAM
Theresa Y. Sun, Mario J. Miranda, and C.S. Kim
A rational expectations model is used to examine the dynamics of market equilibrium, market instability, and welfare distribution in a wheat market under competitive storage and different government price support programs. Results indicate the changes in the time path of market variables depend on the intensity of price supports relative to competitive market price, and the initial market supply. For a large initial supply, the government price support program reduces price instability but increases shortrun revenue instability. Moreover, price supports will typically increase producer welfare in the shortrun, but not necessarily in the longrun. (Q13)
RATIONAL VERSUS COMPOSITE EXPECTATIONS IN AGRICULTURE: THE CASE OF U.S. SOYBEAN MARKET
Duncan M. Chembezi
Previous studies employing the rational expectations hypothesis in U.S. field crops have failed to consider acreage in their empirical analysis. This failure ignores important decisions producers face earlier in the production process. This study attempts to fill this void and explores the plausibility of alternative expectational specifications in U.S. soybean market. Empirical results confirm the existence of both rational and naive expectations in the market. The rationality coefficients are significantly different from zero and one, suggesting that no expectations specification is singly the "best". Naive expectations are not rational in that they are biased predictors of actual values. (C51,Q11)
RETAIL DURABLE GOODS INVENTORY INVESTMENT AND SALES UNCERTAINTY
Paul McGrath
The retailer's inventory investment decision is made under uncertainty of expected sales. Ex post, the retailer may incur costs-explicit or implicit-from either too much or too little inventory relative to realized sales. Therefore, to minimize these potential costs the retailer may choose either to reduce or to pad inventory investment, a priori, with the choice dependent upon the relative potential costs of too little or too much inventory. In the context of a stock-adjustment model of inventory investment, is reported that as their uncertainty surrounding expected sales increases, retailers choose to pad inventories, ex ante. (E22,D84)
A PROPOSED METHODOLOGY FOR APPROACHING CHAOTIC ATTRACTORS IN ECONOMIC TIME-SERIES
Kevin J. Payne
This essay describes an alternative methodological approach to isolating the functional character of a chaotic attractor from an empirical sample through an inductive, statistical process. The essay concentrates on introducing and establishing the relative probability phase portrait (a constrained variation of a multiple-seed orbital fractal constructed as a probabilistic hyperplane) as a valid model form for predicting the set of progressions through phase space most likely to be followed by the market. The essay also presents the experimental conclusions of the ongoing inquiry and concludes with an interpretation of the results and an examination of future directions for research. (C49,C51,C22)