James P. Keeler

Empirical Evidence on the Austrian Business Cycle Theory

The Austrian business cycle theory suggests that a monetary shock disturbs relative prices, such as the term structure of interest rates, systematically altering profit rates across economic sectors. Resource use responds to those changes, generating a cyclical pattern of real income. The divergence of the interest rate structure, from the previous and unchanged time preferences, means that the expansion is unsustainable and must end in recession. Quarterly data for eight U.S. business cycles, 1950:1 through 1991:1 are standardized by time period and used to explore business cycle facts and relations between money, interest rates, capacity utilization and income. Results are consistent with the hypotheses of the Austrian theory of a business cycle caused by a monetary shock and propagated by relative price changes.

X-efficiency, rent-seeking and social costs

This paper investigates shifts in cost functions of monopoly and regulated firms operating under conditions of X-inefficiency and rent-seeking behavior. We show that X-inefficiency and rent seeking have significantly different implications for economic welfare. Distinctions are drawn between pecuniary and real X-inefficiency and between sunk and continuing rent-seeking costs. In general, for a given cost shift rent-seeking behavior implies larger social costs than does X-inefficiency theory. However, cost shifts caused by either X-inefficiency or rent seeking are observationally equivalent. This implies empirically measured cost shifts cannot unambiguously be attributed to either cause.

Estimating Money Demand in Log-First-Difference Form*

The purposes of this paper are to recommend a certain form for the estimation of demandfor-money functions and to examine some fundamental issues using the form. We provide an estimate of the demand for money that achieves a reduction in the instability so characteristic of recent estimates. Through examination of the time-series properties of the variables in the function, and adjustments to produce stationarity in them, an improved form of the demand-for-money function is possible. Evidence of its greater stability is offered by a comprehensive comparison of short- and long-term forecasts for demand for money in loglevel and log-first-difference forms. Finally, several issues are explored using the more stable form including the contribution of an interest-rate-ratchet variable, the speed of adjustment, the adjustment mechanism and the appropriate scale variable. We conclude that estimation in log-first-difference form (1) is preferable to the log-level form because of its stable time series properties; (2) is superior to log-level form for long-term forecasts; (3) implies a faster and more reasonable speed of adjustment than does the log-level form; and (4) suggests that the nominal adjustment mechanism and real GNP as a scale variable are appropriate. Section II of the paper reviews the proolem of stationarity for a regression model of the demand for money. Section III presents the demand-for-money equation and the adjustment mechanisms. Section IV compares the forecasts of log-level and log-first-difference forms. Section V explores the issues of the interest-rate-ratchet variable, speed of adjustment, adjustment mechanism and the scale variable. A summary and conclusions are offered in section VI.

Macneil's Relational Norms and His Non-mirrored Ends Propositions

Macneil (1978, 1980, 1983) believed different norms would apply at the different ends of his exchange continuum. This article explores this proposition in an industrial market and tests two null hypotheses: one, that there is no difference in the norms shaping decisions at the ends of the discrete and relational exchange continuum and two, the hypothesis that the relevant norms at the ends of the spectrum are not mirror images of each other. Since Macneils propositions have become the basis for research in law, management, and marketing, this study contributes to both theory development and measurement across a broad spectrum of research.

Misconceptions about Austrian Business Cycle Theory: A Comment

A recent set of articles (see Michael Bordo 1986; Roger Garrison 1986; Herschel Grossman 1986; Gottfried Haberler 1986; Axel Leijonhufvud 1986 and Leland B. Yeager, 1986) reviews the Austrian theory of the business cycle in comparison to other theories. One of the main issues they consider is the neutrality of disturbances in the money supply, and on this point Thomas Humphrey (1984) is cited as refuting the Austrians’ claim to be unique in that they consider relative price changes (Yeager 1986, p. 382). Humphrey quotes and summarizes several quantity theorists and Monetarists on the real effects of a monetary disturbance and concludes that rather than being distinct, the Austrian theory is quite similar to that of the Monetarists both in its explanation of how money affects the economy and in its policy implications.

X-Efficiency, Rent-Seeking and Social Costs: Reply

ConclusionContrary to their claim, Naughton and Frantz fail to disprove the fundamental difference in the social costs of rent-seeking and X-inefficiency identified in our paper. Nor have they shown that our measure of the social costs is incorrect. What they have done is introduce, in an ex post fashion, fixed costs for X-inefficiency. But they fail to provide any explanation of why the inefficiency should take the fixed cost form or why there should be unrecoverable sunk costs. Quite aside from the issue of dissipation, Naughton and Frantz also argue that the level of rent-seeking cost is inherently vague, a contention with which we disagree.Naughton and Frantzs Comment does not argue convincingly against our conclusions and certainly does not demonstrate their claims. In fact, Naughton and Frantz conclude by accepting one of the major results in our article. At the end of their Section 4, they conclude that “part of what passes for X-inefficiency is a transfer.” So long as this is true, then, for a given cost shift, the social costs of X-inefficiency can never exceed the social costs of rent-seeking.

Relational focus in long duration buyer-seller relationships

There is limited research on the effects of accumulated shared experience on the nature or character of buyer-seller relationships that have extended beyond a few short years. The evidence presented here suggests that when buyer-seller exchanges are sustained over the long-term, the direct effect of duration on relational choice changes in buyer-seller relationships over time. Further, this study suggests that duration moderates the effects of several environmental variables drawn from resource dependency theory and transaction cost economics on relational focus. In light of this evidence we argue that duration must be integrated into contract theory to help us understand how organisations adapt to change.