C.L.F. Attfield

Okun's law, cointegration and gap variables*

If output and unemployment are cointegrated, and we equate Okuns “potential” magnitudes with the stochastic trend or “permanent” component in output and unemployment, (both defined in terms of the Beveridge and Nelson decomposition), then Okuns coefficient can be interpreted as the cointegrating coefficient between the variables. In addition output and unemployment “gaps” can be calculated from the vector equilibrium correction model linking the two variables.

Homogeneity and endogeneity in systems of demand equations

Abstract In estimating systems of demand equations one of the right-hand-side explanatory variables, expenditure, may be endogenous in the sense that it is correlated with the equation error. If the assumption of homogeneity of degree zero in prices and nominal income is imposed on the system, it turns out it is still possible to estimate the parameters of the system even when expenditure is endogenous. The estimation procedure is simple requiring just one additional ordinary least squares regression. The paper also demostrates that a model in which homogeneity is tested with expenditure assumed exogenous is exactly equivalent to a model in which the exogeneity of expenditure is tested with homogeneity imposed. Previous tests of demand systems which have rejected the homogeneity postulate might therefore be reinterpreted instead as rejecting the hypothesis of exogeneity of expenditure with homogeneity of degree zero in prices and nominal income taken as given.

Okun's Coefficient: A Comment

This paper reassesses a finding by Martin Prachowny (1993) that the value of the Okun coefficient for the United States (linking unemployment changes to output changes) is only around 0.67 rather than around the more typical value of 2.25. Using a cointegration framework, and the same data sets as Prachowny, we find, for one of the data sets, that the Okun coefficient is much closer to a value of 2.25, which supports previous research work.

Unanticipated monetary growth, output and the price level: U.K. 1946–1977☆

Abstract This paper develops and estimates using annual data from 1946–1977 a three-equation model of the U.K. economy, in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in money supply. Expectations of monetary growth are assumed to be Muth-rational. The model was estimated using efficient procedures, and tests of the over-identifying restrictions were generally favourable to model specification. Some features of the price equation are unsatisfactory and the results in this section must be considered tentative.

A quarterly model of unanticipated monetary growth, output and the price level in the U.K. 1963–1978

Abstract This paper develops and estimates using quarterly data from 1963 to 1978 a three-equation model of the U.K. economy, in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in the money supply. Expectations of monetary growth are assumed to be Muth-rational. The model was estimated using efficient procedures and tests of the over-identifying restrictions were favourable to the model specification. In particular, anticipated monetary growth was found to have no significant effect on output.

The Influence of Unanticipated Money Growth on Real Output: Some Cross-Country Estimates

Two MAJOR PROPOSITIONS can be deduced from the theories of the business cycle developed in [4, 14, 15, 161: (1) monetary growth affects real output only if it is unanticipated; (2) the impact on output of unanticipated monetary growth declines the more unpredictable monetary growth becomes. Proposition 1 has been tested on U.K. data in [2, 3S, on U.S. data in [5, 6, 7], and on Canadian data in [ 19] . The best-known but somewhat informal test of proposition 2 is contained in [15] on data from a cross section of eighteen countries.l In this paper we apply the method described in [3] to test proposition 1 using data from a range of countries. Furthermore we develop and discuss a formal method of testing proposition 2 and apply that method to the same data. Our main conclusion is that neither proposition can be decisively rejected.

Rational expectations in macroeconomics : an introduction to theory and evidence

Preface. 1. Expectations in Macroeconomics. 2. The Theory of Rational Expectations. 3. Testing the Rational Expectations Hypothesis. 4. Rational Expectations and a Flexible Price Macroeconomic Model. 5. Criticisms of the Flexible Price Rational Expectations Model. 6. Rational Expectations and Macroeconomics: Two Influential Empirical Studies. 7. Criticism and Reappraisal of the Lucas and Barro Models. 8. Real Business Cycle Theory. 9. Rational Expectations and the Real Income Hypothesis. 10. Summary and Conclusions.

Economic Growth and Geographic Proximity

Abstract Using data on 92 countries, 90 European regions, and 48 US states we present results suggesting that physical distance between economies has little role to play in explaining the spatial correlation of growth rates.

Estimation and testing when explanatory variables are endogenous: An application to a demand system

Abstract In a system of linear equations where some of the right-hand-side explanatory variables are correlated with the equation errors a priori information in the form of linear restrictions is used to transform the model into a system where all right-hand variables are exogenous. The resulting equations can be estimated using standard multivariate methods. It is shown how the simple errors-in-variables model places testable restrictions on some of the parameters of the model. The methods are applied to a system of demand equations using quarterly data for the U.K.

A Bartlett adjustment to the likelihood ratio test for a system of equations

Abstract A Bartlett adjustment to be applied to the likelihood ratio test statistic when testing parameter restrictions in a system of equations is derived. As special cases results are also obtained for testing hypotheses on: the mean of a normal variate, linear restrictions in the linear model, restrictions in a nonlinear model, and linear restrictions in the multivariate linear model.