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1985 Working Papers

  • WP 85-09 | Total Factor Productivity and Electric Utilities Regulation


    Philip Israilevich

    Abstract

    Regulators base electricity prices or rates on the average operating cost of producing electricity and on a "fair" rate of return on capital for a given year. There are two shortcomings with this procedure. First, it does not consider the dynamics of average total costs and its components. Regulations may influence the incentives of utilities to innovate and overcapitalize as well as the demand for electricity which, in turn, may influence utility operating costs. Second, regulators consider only tangible input factors (capital, labor, fuel, material) in the calculation of average costs. Intangible input factors (workers' discipline, managerial skills, returns to scale, for example) are not considered in the regulatory price mechanism because they have no explicit and measurable prices and their effect on utility output and costs is difficult to measure. Read More

  • WP 85-08 | The Ohio Economy: Using Time Series Characteristics in Forecasting


    James Hoehn James Balazsy Jr.

    Abstract

    The series methods are used to determine what information Ohio and national statistics convey about the current and future state of the regional economy. Properties of a number of quarterly series measuring aggregate economic activity and prices in Ohio are described, including their growth rates and variability, cyclicity, correlation at a moment in time, tendency to foreshadow each other's movements, and tendency to be foreshadowed by national economic indicators. These properties are of interest both for forecasting, either Formal or judgmental, and for understanding structural characteristics of the Ohio economy. They are extensively tabulated here. Read More

  • WP 85-07 | Forecasting and Seasonal Adjustment


    Michael Bagshaw

    Abstract

    There have been many studies and papers written about the effects of seasonal adjustment on the relationships among variables. However, there has been a dearth of studies about the effects of seasonal adjustment on the problem of forecasting. Since the development of time serles models often has forecasting as a major product, it is essential to study the effects of seasonal adjustment on forecasting in these models. In this paper, we present an application of mu1tivariate time series forecasting applied to flve economic time series, in which we compare forecasts developed from seasonally adjusted data with forecasts from seasonally not-adjusted data. The results of this exercise are mixed. For some forecasting st tuatlons, using not-seasonally adjusted data provides better forecasts for most of the variables In this study. However, in other instances, using seasonally adjusted data provides better forecasts for most of the variables in this study. The results appear to depend on the length of the forecast period. A1 so, it appears that the best solution in some instances might be to develop model s for both seasonal1y adjusted data and not-seasonally adjusted data. Read More

  • WP 85-06 | Stochastic Interest Rates in the Aggregate Life Cycle/Permanent Income Cum Rational Expectations Model


    Kim Kowalewski

    Abstract

    An estimation of the life cycle/permanent income model with rational expectations that allows for uncertain future interest rates. Results provide ample evidence to reject this form of model during the postwar period. Read More

  • WP 85-05 | Dynamics of Fixprice Model


    Eric Kades

    Abstract

    This paper examines the dynamics of a class of disequilibrium models developed in an earlier paper (Working Paper 8504) and uses both graphics and analysis to show that non-Walrasian equilibria can be steady states for disequilibrium models. In particular, it is shown that Keynesian (general excess supply) steady states are the most likely outcome in the model. Read More

  • WP 85-04 | Fixprice Models for Dynamic Studies


    Eric Kades

    Abstract

    This paper constructs fixprice (or disequilibrium) models of a simple general equilibrium macroeconomic model. Although within the general framework of Malinvaud (1977), we start with simpler models to explain the basic idea of disequilibrium. Later models are more fully developed so that firms as well as households can hold stocks. These static models are developed explicitly for dynamic extension in a companion piece Working Paper 85-05. Read More

  • WP 85-03 | Forecasting GNP Using Monthly M1


    Michael Bagshaw

    Abstract

    In this paper, we present an application of mu1tivariate time series forecasting in which the data consist of a mixture of quarterly and monthly series. In particular, we use monthly series of M1 to forecast quarterly values of the nominal gross national product (GNP). Results from estimating models over the period 1959:IQ through 1979:IVQ indicate that models involving only movements in monthly MI series provide approximately the same explanatory power as one using quarterly MI. When these models are used t o forecast GNP over the time period 1980:IQ through 1984:IIIQ, the results are mixed. For one-quarter-ahead change, four-quarter-ahead change, and one-year change forecasts, the Root Mean Square Error (RMSE) for all the models ( including a univariate model of GNP ) have approximately the same RMSE ( for a given forecast horizon ) for the entire period.] Read More

  • WP 85-02 | Federal Reserve Credibility and the Market's Response to the Weekly M1 Announcements


    William Gavin Nicholas Karamouzis

    Abstract

    This paper provides new evidence on the issue of Federal Reserve System credibility by examining the response pattern of asset prices to the weekly M1 announcements under different operating procedures and monetary policy regimes in the September 1977 to December 1984 period. It is found that the response of asset prices to money surprises represented revisions of inflationary expectations in the pre-October 6, 1979, period and that the Federal Reserve was not credible. On the contrary, the response of asset prices to money surprises represented revisions of real interest rates in the post-October 6, 1979, period and the Federal Reserve was credible. Furthermore, the evidence shows that the October 1982 return to an interest-rate-smoothing procedure did not result in any loss of the System's credibility, suggesting that credibility, once attained, does not depend on the short- run operating procedure. Read More

  • WP 85-01 | A Bureaucratic Theory of Flypaper Effects


    Paul Wyckoff

    Abstract

    One well-documented pattern in local public finance is that, in comparison with what is spent out of residents' private income, a disproportionate amount of the lump-sum aid received from higher levels of government is used to increase expenditures rather than reduce local taxes. This paper shows how a bureaucratic model of the type suggested by Niskanen (1971) can be used to explain this behavior. A test of the model, using 115 small city governments in Michigan, finds that the bureaucratic model explains capital expenditures well, while operating expenditures appear to be better explained by the standard median voter model. Read More