Gregory C. Chow

Capital Formation and Economic Growth in China

First, production functions are estimated for Chinas aggregate economy and for the five sectors—agriculture, industry, construction, transportation, and commerce—using annual data (some constructed by the author) from 1952 to 1980. Then, this paper measures the contribution of capital formation to the growth of these sectors, the effects of the Great Leap Forward of 1958–1962 and of the Cultural Revolution of 1966–1976 on outputs, the impact of economic reforms since 1979 on growth, the rates of return to capital, and the effects of sectorial growths on relative prices.

China's Economic Growth: 1952-2010

This article attempts to account for China’s economic growth in terms of labor, capital, and total factor productivity by estimating a Cobb-Douglas production function using official Chinese data. It is an extension of Gregory C. Chow’s earlier work in 1993 and has two purposes: to find out whether the parameters of the production function have changed and to use the production function to forecast GDP growth up to 2010.

Random and changing coefficient models

Publisher Summary This chapter discusses that the standard linear regression model has been an attractive model to use in econometrics. If econometricians can uncover stable economic relations that satisfy at least approximately the assumptions of this model, they deserve the credit and the convenience of using it. Sometimes, however, econometricians are not lucky or ingenious enough to specify a stable regression relationship, and the relationship being studied gradually changes. Under such circumstances, an option is to specify a linear regression model with stochastically evolving coefficients. The chapter also reviews that for the purpose of parameter estimation, this model takes into account the possibility that the coefficients may be time dependent and provides estimates of these coefficients at different points of time. For the purpose of forecasting, this model has an advantage over the standard regression model in utilizing the estimates of the most up-to-date coefficients. From the viewpoint of hypothesis testing, this model serves as a viable alternative to the standard regression model for the purpose of checking the constancy of the coefficients of the latter model.

Rational versus Adaptive Expectations in Present Value Models

Using data on stock price and dividends, and on long-term and short-term interest rates, the authors test an important implication of present value models--that current value is a linear function of the conditional expectations of the next-period value and the current determining variable . This implication, combined with rational expectations, is strongly rejected. Combined with adaptive expectations, it is accepted. The latter model can also explain the observed negative relation between the rate of return and stock price. Thus the rational expectations assumption should be used with caution; the adaptive expectations assumption may be useful in econometric practice. Copyright 1989 by MIT Press.

Money and Price Level Determination in China

Publisher Summary This chapter focuses on money and price level determination in China. The possible effect of an increase in money supply on inflation became an important issue for the Chinese economic reform officials in 1985, when currency in circulation had increased by about 50% from the end of 1983 to the end of 1984, mainly as a result of the policy to allow individual banks the discretion to extend credit without having established a mechanism of monetary control by the central bank. The chapter focuses on the effect of the money supply on the price level in China. It also discusses the theoretical issues in applying the quantity theory of money to explaining the price level in the Chinese institutional setting, and estimates and tests equations explaining short-run price changes from year to year. Additional issues concerning short-run price determination are addressed, including the possible direct effect of aggregate wage on the price level, a possible structural change after the economic reform began in 1979, and the use of the short-run model for forecasting inflation.

Best Linear Unbiased Estimation of Missing Observations in an Economic Time Series

Abstract The best linear unbiased estimator which we proposed previously for interpolating, distributing, and extrapolating a time series by related series is applied to the estimation of missing observations. Under special assumptions, the problem reduces to the one treated in Doran [2]. Our estimator is compared with his and is shown to be more efficient.

A Model of Chinese National Income Determination

A model consisting of a consumption function and an investment function is used to explain Chinese annual data in constant prices from 1953 to 1982. The data confirm Robert Halls version of the permanent income hypothesis and the accelerations principle. Deviations of the observations from predictions of this model are attributed to political factors, including the Great Leap Forward in 195962, the Cultural Revolution in 1967-68, and the special government policies in 1978 and 1981.

Money and price level determination in China

The quantity theory of money provides a useful starting point in explaining the price level in China. The ratio of money supply to real output is an important variable in explaining the price level, but the elasticity is below unity, suggesting that velocity is not constant. A short-run model for changes in the price level explains the Chinese annual data from 1952 to 1983 better than the United States data from 1922 to 1953. This model is stable after 1979 and forecasts well in 1984. J. Comp. Econ. September 1987, 11(3), pp. 319–333. Princeton University, Princeton, New Jersey 08544.

Effect of Uncertainty on Optimal Control Policies

IN THIS PAPER, I will provide a method for ascertaining the optimal control policy and the associated welfare cost in a control problem where the welfare cost is quadratic and the econometric model used is linear and the values of its parameters are uncertain. In previous papers, Chow [5,7,8], I have treated the control problem with quadratic welfare and linear model under the assumption that the parameters in the model are given for certain. It would be interesting to relax the assumption of certainty of the parameters, and to examine the effects on the optimal control equations and the associated welfare cost. As it has been generally recognized, one important use of econometric models is in the design of optimal quantitative economic policies. However, because our knowledge of the economic system is imperfect, one might be led to argue against the use of existing econometric models for policy purposes-although a Bayesian would not take this position but would rather find an optimal way to utilize his imperfect knowledge. One problem which I have tried to study in the application of econometric knowledge to policy decisions is the measurement of the possible advantage of an optimal policy based on an econometric model over a policy of maintaining constant rates of change for the instruments, under the assumption that the parameters of the model are known for certain. Calculations using a simple marco-econometric model presented in Chow [8] have indicated that the welfare costs for the latter policy can be about 40 to 80 per cent higher than for the optimal policy based on an econometric model when the model parameters are assumed to be known constants. A natural second problem is to measure the gain from optimal control when knowledge of the model parameters is uncertain. This and other problems of economic policy can be studied by methods of this paper. When we assume that the parameters of a linear econometric model are uncertain we can take one of two approaches in deriving the optimal control policies. The first is to assume a given joint density for these parameters which is available at the beginning of the planning horizon and which is not to be modified while the economic process is being controlled. The second is to allow for continuous modification of the joint density of the unknown parameters as more observations become available to the policy maker. To derive optimal control policies from the second approach is more difficult because policies applied to the early periods affect not only the performance of the economy

A COMPARISON OF ALTERNATIVE ESTIMATORS FOR SIMULTANEOUS EQUATIONS

A natural generalization of least squares is proposed to estimate parameters in simultaneous linear equations. Full-information maximum likelihood is shown to be identical with this generalization. The extent to which other estimators deviate from the generalization is discussed. A paradox of Strotz is resolved, and application of canonical correlation theory to structural equations is indicated. 1. SUMMARY THIS PAPER compares various estimators of the parameters of linear simultaneous