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The article comments on an article on budget forecasting and operating performance by Y. Ijiri, J. C. Kinard, and F. B. Putney from the Spring 1968 issue, "An Integrated Evaluation System for Budget Forecasting and Operating Performance with a Classified Budgeting Bibliography." The author considers the article's examples, when the costs of expanding a production run from the given estimate is handled by the corporate headquarters which must pay higher short-term interest rates to meet incremental capital requirements, and the example when the estimates are irrevocable and the adjustment costs are borne by the profit centers. Then the cost of a poor estimate is an opportunity lost to the firm. Performance measures for the two cases are presented and integrated to produce a more general decision model capable of indicating how estimates are to be used in decision making.

A comprehensive buyer behavior model is examined in the context of a test market study utilizing a specially designed panel. The analysis uses both full-model cross-sectional and longitudinal procedures. Improvements for the hypothesized model are suggested, as well as implications for buyer behavior theories in general. [ABSTRACT FROM AUTHOR]

Models of attitude structure and of attribute importance are examined using regressions for each individual subject for data on toothpaste brands. Results show that beliefs-only and standard evaluation times belief models are virtually indistinguishable, and that importance has different meanings for different subjects. [ABSTRACT FROM AUTHOR]

A threshold model of binary attribute satisfaction decisions is developed using Fishbein attitude model components. The model is tested using multivariate probit analysis and is supported by the data. Implications for attitude research and statistical methodology are discussed. [ABSTRACT FROM AUTHOR]

The article discusses the results of a study where the performance of a decision model was compared to the performance of human decision makers. A simple inventory management game was used to compare the two models. The decision model used in this experiment is an adaptive inventory control model, which is designed to compute an economic order quantity on the basis of forecasts produced by an adaptive exponential smoothing model with a single smoothing constant. Total inventory related costs were used to compare the performance of the adaptive inventory control model and the performance of two different student groups. The results showed that while the decision model did better overall, some students did well.

This article presents an examination of the behavior of daily index changes using the techniques developed in Fama and Roll to demonstrate that nonstationary probably accounts for the phenomena observed. The article includes a description of the market model, a description of the data and its estimation procedure, and tests and results.

This article focuses on the results of some tests of the market model for a broad cross-section of the European common stocks. The authors' database has daily price and dividend data of 229 stocks from seven European countries. The authors have included a sample of 65 American securities for comparison reasons. Regression analysis was used to estimate the model's parameters for various return measurement figures and test periods. The paper is structured as follows: a review of the market model, a description of the database, the methodology, the empirical results, and the implications for market efficiency.

The article reports on trade credit through the use of an economic model. Trade credit enables buyers to have the time to plan for unexpected payments and allows the sale of credit. The value of money is subject to time so trade credit also benefits buyers by increasing their purchase of factors of production.

Recently Simkowitz and Jones have noted the potential importance of the tools of multivariate analysis and simultaneous equation estimators of econometrics as tools for finance methodology. They note that empirical research in finance dealing with such variables as the value of financial securities has used, almost exclusively, cross sectional analysis "... where all firm effects other than those described by the independent variables are assumed away." More extensive estimation efforts require either the use of other multivariate techniques, such as cannonical correlation (for correlating sets of variables) or more explicit modeling of the structure of the relationships between, say, different firms' securities' prices before the simultaneous equations estimators can be successfully employed. The purpose of this paper is to propose an approach that is intermediate between these extremes but which will allow us to gauge the importance of unexplained joint effects as between different securities' prices. Additionally, it provides a means of extending the methods proposed by Fried for estimating single asset return equations as an input to the Markowitz model. [ABSTRACT FROM AUTHOR]

Financial models are used extensively by the staff of the Federal Reserve Board to aid in the analysis of alternative monetary policies. The purpose of this paper is not to describe these models in detail, but rather to outline the structure of the short-term models and to discuss both how they are used and some problems that we have encountered with them. Two different financial models are used at the Federal Reserve Board: a monthly model of the money market and the money market sector of our quarterly model. A third, a weekly model, has been estimated but used only to analyze special policy questions. The models are structural in the sense that they attempt to isolate demands and supplies of a set of financial assets. While the two models differ somewhat in the assets considered, they both are used to analyze the relationships between the monetary aggregates on the one hand and interest rates and reserves on the other. Any one of these three variables can be assumed exogenous for purposes of simulation. The models are also used to analyze the effects of special policy actions such as the imposition of marginal reserve requirements on CD's. The quarterly model is well known and need not be described here. For purposes of this paper, the money market sector of the model is defined to include equations for the public's demand for currency, demand deposits, savings and time deposits, and for CD's along with commercial bank demand for free reserves and their offering rates on savings and time deposits and on CD's. Rates offered on savings deposits by thrift institutions are also included. Given the volume of bank reserves, the sector determines M[sub 1], M[sub 2], the Treasury bill rate, the CD rate and the average rate offered on savings and thrift accounts. [ABSTRACT FROM AUTHOR]

A financial system in a modern market economy has two basic functions: the facilitation of transactions among economic units, and the allocation of savings among alternative investments and investors. The former has been associated with money as a medium of exchange and with the short-term money markets, and the latter with the capital markets. Traditional monetary theory emphasized the transactions function in focusing upon the demand and supply of money as the primary analytical framework for examining the role of financial variables in the economic system. The basis for this point of view was the classical quantity theory of the monetary mechanism. Money as a medium of exchange was given heavy emphasis in a theory which specified a rigid relationship between total transactions and the demand for money balances--a relationship which could not be altered by other factors endogenous to the economic system. Under these circumstances, any change in the supply of money balances was fully reflected in a proportionate change in the demand for nominal output. There was little interest in, or need to refer to, the market for other financial assets. The present model differs in that it is concerned with the demand and supply of bonds rather than the demand and supply of money balances. This allows us to undertake a degree of disaggregation by asset and sector that is not feasible within the framework of the market for money balances, Such a model is theoretically and empirically equivalent to the "money models" unless there are significant departures from the hypothesis underlying the homogenization of different types of marketable securities. Specifically, it is our view that observed differences in the cyclical movement of market interest rates are affected by the relative quantities of the individual securities outstanding. [ABSTRACT FROM AUTHOR]

The article discusses the treasury stock method, which is often used by companies with outstanding stock warrants to calculate their earnings per share. The Accounting Principles Board (APB) Opinion Number 15 relegates stock prices and earnings per share calculations. Use of this technique causes the stock prices to directly impact the earnings per share. The calculation that is recommended by the APB to calculate earnings per share may be flawed and could conflict with the consistency principle. The article concludes that a calculation that incorporated difference equations could solve the problem.

The article examines the ability of the conventional accounting model to cope with changes in prices. The author discusses the changes of the price level and the consideration of the purchasing power of the monetary unit. The author states that within the article the utility functions are found to imply the same behavior as that specified by the permanent income hypothesis which has been at least partially confirmed by extensive empirical tests carried out by their sponsors. The article also discusses the maximization of the real profit. [ABSTRACT FROM AUTHOR]

The article focuses on growth industries in monetary economics, such as the influence of price expectations on real money. Fisher and Gibson's contributions are evaluated and their research indicates that their partial-equilibrium analyses results in opposed conclusions. The next section offers an equilibrium approach in which the real rate stays unchanged or drops when inflation is expected. This model is combined with the general-equilibrium model. Also provided are the conditions under which expectations of inflation result in the increase in the interest rates.

This article comments on Neil Wallace's article "The Determination of the Stock of Reserves and the Balance of Payments in a Neo-Keynesian Model," which was published in the August 1970 issue. The author feels that Wallace's neo-Keynesian model does not account for the differences between money and real rates of interest, does not take note of domestically-derived interest payments made to foreigners in his capital flow analysis, and fails to consider domestic portfolio equilibrium. The author also considers foreign real Gross National Product (GNP), foreign price level, and foreign interest rate.

This article comments on Dudley G. Luckett's article "Credit Standards and Tight Money," which was published in the November 1970 issue. The author feels Luckett's model, which analyzes statics of bank credit standards and lending practices in periods of "tightness" regarding ratios of demand-deposit liabilities, does not support his conclusions. The author feels that the within the loan demand function, the shift parameter used is unneeded. The author corrects the questioned parameter to support Luckett's conclusions.

This article compares the statistics generated by two different income-expenditure models for short-run analyses, a Keynesian model and a neoclassical model which assumes a perfectly competitive market. The two models assume the economy consists of households, business firms, and the government. The author further discusses the qualities inherent in these sectors including supply labor, portfolio management, consumption, capital goods, the issuance and purchase of bonds, and the relation between ex-ante saving and investment.

The article presents a commentary on an earlier article published in this journal titled "Interest Rates and Prices In the Long Run," by Thomas J. Sargent. The author finds that Sargent's most convincing arguments come in the final, theoretical section of his paper, where he develops a simple macro model where stochastic error terms are added to the investment, consumption, money demand, and wage change equations. The author asks two questions of Sargent: why do predictions of inflation have such a modest impact on the interest rates in the sample period and why is postwar U.S. empirical evidence so different from the earlier sample period. The author explains his questions.

The article presents a commentary on an article published in this same journal titled "Monetary and Fiscal Influences on U.S. Money Income, 1891-1970," by Carl F. Christ. The author commends Christ for the parameter estimates presented, as the author was able to replicate his results. The author focuses on the reduced-form model of the determination of money, which he uses to consider the impact of federal government purchases and money stock on income. The author notes Christ's hesitancies about the model, and proposes two supplemental means of evaluation. The author argues that Christ could have investigated the implications of this model for policy-induced changes in income between real income and prices. Also, the model could be utilized for forecasting outside of the sample period.

This article discusses monetary and fiscal influences on money income in the U.S. between 1891 and 1970. The article notes the contribution this examination will have on monetaristic studies, as this study considers the aggregate demand for money and its impact on inflation. The author develops an equation where money income is a function of policy variables related to government budget restraint, and is a reduced-form equation of a macroeconomic model describing aggregate demand in money terms. The article presents several forms of the equation and estimation subsets are formed from annual data. The article discusses the underlying model, presents the reduced form equation for policy effects on money income and the estimates used, and provides the numerical results and the limitations.

The article analyzes the partial-equilibrium effects of various deposit-rate ceilings on activity in the market for new Treasury bill issues and presents evidence on the extent of small-saver activity in the weekly auctions. The article makes a hypothesis about a single-equation model for explaining noncompetitive bidding for six-month bills, and presents evidence on the extent of small-saver activity in the weekly auctions. The findings from these tests will go towards the future administration of Regulation Q and other controls.

This paper considers two separately conceived models of adaptive forecasting: (1) the Kane expected-change model of interest-rate forecasting and (2) the standard adaptive-expectations model that forecasts interest-rate levels. Kane's [5] econometric estimates show that his structural model performs markedly better on cross-section data than the "expected-level" model. The purpose of this paper is to test the change and level models against the following time- series evidence: (1) Durand's data on corporate bond yields (1900-1954), (2) Kessel's data on U.S. government securities (1954-1962), and (3) Homer's data on U.S. government securities (1950-1970). Within the context of a modified expectations theory, the regression estimates strongly support the expected-change over the expected-level model, as indicated by the extent to which the estimates of the alternative sets of structural parameters conform to prior restrictions imposed by the underlying theories. The plan of this paper is as follows: First, the models of adaptive forecasting to be tested are specified. Second, the highlights of the empirical research are presented and analyzed. And third, the major implications of this research are briefly summarized. [ABSTRACT FROM AUTHOR]

The purpose of this study is to isolate the supply and demand determinants of commercial bank certificates of deposit (CDs). In section I, models are developed to explain the supply price of both negotiable and non- negotiable CDs, and single-equation regression results are presented. In section II, a model is developed to explain the demand for CDs by corporations and individuals, and single equation regression results are reported. In section III, the model is re- estimated by structural methods to account for simultaneity in CD supply and demand interactions. A simulation study is then undertaken to assess the impact on the endogenous variables of changes in Regulation Q ceiling rates. A summary of the findings are presented in section IV. The time period of these statistical investigations covers the twenty-six quarters from the third quarter 1961 through the fourth quarter 1967. The usual regression criteria are used for evaluation: goodness of fit (R2); the extent to which the signs of the regression coefficients agree with prior expectations; the f-test for the significance of the regression coefficients; and by the Durbin-Watson statistic (DW) which measures the degree to which the regression residuals exhibit serial correlation. [ABSTRACT FROM AUTHOR]

The article assesses the relative potencies of major causes of the United States Depression of 1929. The article explains that during the period the U.S. gross national product in real terms declined almost 30 percent, the money gross national product fell over 45 percent, and the private investment dropped below the level needed for replacement. One of the article's goals is to assess the relative potencies of several major causes of the Depression. The article also presents an estimated model of the economy, and policy simulations are run on the results of these simulations which help to evaluate the hypotheses usually advanced to explain the Great Depression.

The article examines a neoclassical monetary growth model with independent savings and investment functions. Several conclusions are drawn from the article's research. One of the conclusions is that the standard neoclassical result that an increase in the proportionate rate of monetary expansion will raise equilibrium capital intensity is ambiguous. It is explained that this conclusion is contrary to theories by Sidrauski and Jerome Stein. Another conclusion offered is that if equilibrium does exist, it is not unique.

This article focuses on the scope of countercyclical monetary policy. It examines a method to develop expressions that can be utilized in evaluating estimates of policy lags so to help determine under differing circumstances if the estimates imply a magnification or dampening of short-run fluctuations as a result of countercyclical changes in monetary policy. It states that while improvements in forecasting should be sought, if policymakers alter the policy on the basis of forecasts so to compensate for the outside lags of policy, they are thus changing policy direction before the public notices the economy has changed directions, which will result in a strong effect on expectations.

The author comments on articles by economists Gramlich, Sargent and Wallace concerning the comparative strengths of monetary and fiscal policies. He states that problems encountered in connection with reduced form equations will not be solved automatically with the use of a complete model as there are theoretical and statistical problems that need to be solved before a proper formulation of the relative strengths of two stabilization policies can be done. He mentions that it is meaningless to decide on the basis of statistical fit the correct or incorrect macroeconomic process as both views may in fact be right.

The author comments on articles by Gramlich and by Sargent and Wallace concerning monetary and fiscal policy. He states that Gramlich is misleading by saying the debate was about the relative strengths of fiscal and monetary policy and suggests the debate is asymmetric as monetarists claim that fiscal policy doesn't matter while their opponents don't make the claim that money doesn't matter. He suggests that the article by Sargent and Wallace consists of two unrelated halves held together by occasional references to transaction costs. He mentions the discussion of the "perfect market" model and an examination of a traditional Keynesian model and states the fact the two models are written in the same notation facilitates comparison between the two.

The article focuses on the relative potency of fiscal and monetary policy with imperfectly flexible money wage rates, and determinants of the time structure of the response of asset demand. It examines a Keynesian model that is amended to allow existing stock of physical capital to be traded without cost. It states that under this amended model, the rates of government and business investment don't appear to be determinants of the gross national product's level with an exception for stocks of resources held by the government if assumptions of the "neutrality theorem" do not hold. It mentions that perfect-market models are different enough from Keynesian models that an analysis of the "interior" model is theoretically promising.

The article focuses on an economic model of self-generating inflation for countries with institutional structures similar to those in most Latin American nations. It states that some features held in common with most Latin American nations with high inflation are high fiscal government deficits each year, the central bank finances the deficit with a resulting increase in the money supply, and the deficit is partly due to an unwillingness to increase taxes to cover planned expenses, and partly due to the fact the nominal tax value doesn't increase with price levels. It mentions that changes in the institutional structure would render the model invalid. It examines Argentina's economy using the economic model.

The article presents a model for describing how the balance of payments and stock of reserves are determined. Analysis proceeds within a neo-Keynesian macroeconomic framework that considers three separate instances of a stable exchange-rate, foreign trade sector. Differences among the three include the presence or absence of speculation, and of forward markets.The effectiveness of economic and monetary policy are examined, as is the suitability of forward-market intervention as a stand-in for bank rate policy.

The article presents information on the state of knowledge of money and economic growth at the time of publication in 1969. The author states that output is thought to be a linear and homogeneous function of both capital and labor but this excludes the stock of real cash balances from direct influence on output as a factor of production. He explains that no independent investment function is assumed with previous real models and no mechanism is specified in which savings are invested. Several equations and tables are presented to help illustrate the study.

An application of the theory of input-output analysis to quality information is demonstrated. This model allows the study of indirect as well as direct causes of defects. The model may be applied to existing or planned manufacturing facilities. Several examples are shown. [ABSTRACT FROM AUTHOR]

The article presents information on a study on the impact of organizational multiplier, which stems from the natural tendency among individuals within organizations to try to act in ways which maximize their own welfare. A discussion is presented about the effects of the multiplier on the overall effectiveness of the organization. An overview of the tenet of the multiplier principle is presented, along with illustrations of the workings of the multipliers and mathematical expression of the multiplier.

The article presents information on a study which applied queuing theory to investigate the span of control problem. The author focuses on the issue of ratio of supervisors to subordinates and how many employees a manager can efficiently direct. A discussion is presented about the principle of span of control and properties of waiting line theory. Details related to the application of queuing theory to line manufacturing supervision are presented. The author provides an economic model of queuing theory applied in a military setting.

The attempt to estimate the effectiveness of advertising by means of standard econometric models often fails because (i) data are contaminated, (ii) the preconditions for the applicability of the statistical model are not reef, (iii) the underlying economic model is defective. These sources of difficulties are discussed in detail, some suggested ways of avoiding the difficulties are examined, and the future of such approaches is assessed. [ABSTRACT FROM AUTHOR]

In this article the author replies to criticism of his article "The Effects of Collective Bargaining on Public School Teachers' Salaries." Robert N. Baird and John H. Landon had discussed research methods used by the author. The author clarifies two areas of misinterpretation with an argument that he did not use organizational membership as a measure of the extent of teachers' representation in a particular state. He also offers his evaluation of the coefficients and parameter estimates produced by one-equation models and simultaneous models.

To make meaningful projections of the racial composition of employment in a firm or an industry, it is necessary to develop a model of the dynamics of the integration process. The major feature such a model needs to capture is that integration proceeds not by firing whites but through the filling of vacancies which occur through normal labor turnover and through growth. Thus the speed with which vacancies open, the percentage of the vacancies filled by blacks, and the black separation rate are key elements in the forecasting model. Once this model is available, it can be used to evaluate current efforts at racial integration by firms and to aid in drawing up reasonable and effective integration plans. It also can be used to evaluate industrywide progress. In this article, we develop a model of the integration process and implement it for broad occupational groups within manufacturing industries, using data from the U.S. Equal Employment Opportunity Commission (EEOC) on the racial composition of employment. The computation is designed to answer two questions: (1) Will a continuation of recent hiring practices produce a reasonable degree of integration in the next ten years? (2) If the answer to the first question is no, how much do recent practices need to be modified to do so? The computation also serves as a paradigm for similar but more detailed projections which are needed to help individual firms in planning integration of their work forces. [ABSTRACT FROM AUTHOR]

The article is a reply to James A. Craft who commented on the article "Toward a Public Employment Wage Theory," published in the January 1969 issue of "Industrial and Labor Relations Review." Craft's criticism of the article focuses on the potential impact of union organization on the research results. The author says that the article was not intended to consider every form of institutional arrangement in the model. Its purpose was to suggest a simple theoretical framework for analyzing decisions in the public sector.

The article presents two views of rational behavior in choosing income strategies. The traditional approach, assumes a person chooses to maximize his expected income. However, economists investigating such choices often use data which do not take into consideration alternatives open to the person making the choice. These moves may be deliberate pathways to success or unfortunate indications of failure. But expected income from any strategy will not be the same as the mean income of people who have ended up with the chosen characteristics. Maximizing expected income is unlikely to be a good statistical proxy function in a risky world where people maximize the expected utility of income. An alternative function to maximize the probability of achieving above a specified income is presented. Probabilities of high income were estimated for Negroes showing the southern Negro generally has great incentive to move North, and all Negroes have great incentive to continue their education. This indicates more black schooling, migration, and, in the absence of reward for those accomplishments, greater frustration.

This article presents a note on model specification. The authors discuss the use of regression analysis in conducting financial research and explain various aspects involved with the proper use and design of this method. They examine how to properly fit these models and address some of the common assumptions related to regression analysis.

This article presents information on closed-form stock price models. The authors are interested in presenting a closed-form model that has greater flexibility in assumptions than provided in previous models. They believe that such a model would produce a more realistic estimation of the shape of the dividend stream over time. They examine three popular closed-form stock price models including a constant growth rate model, a two-stage growth rate model, and a constant incremental dividend model. The authors then introduce and discuss a decaying growth rate model and some of the limitations of closed-form models in general.

The article focuses on the use of computers in teaching elementary college economics. It states that college education of economics is often divided into two sections, microeconomics and macroeconomics. It mentions that graphic analysis is a significant part of microeconomics. It states that beginning economics students are often deficient in calculus and comments on how even simple problems require complex mathematics to be adequately stated. It presents a mathematical formula for a simple macroeconomic model.

One of the problems which has plagued microeconomic theory is the difficulty in achieving close correspondence between formal models and practical market situations. The most widely accepted models envisage the firm set in a static mold with the implication that profits will be maximized in every period. The model is more generally acceptable in the case of perfect competition, for then the market results are most likely to be "as if" the firms acted marginally to maximize profits. Only the profit maximizers will survive. While such a scheme may lead to realistic results in the case of perfect competition, this condition does not bulk large in the United States economy. [ABSTRACT FROM AUTHOR]

Professor Solow's article, "Technical Change and the Aggregate Production Function," now virtually classic, has made a great impact on economists generally and in the last few years the subject has received unprecedented attention in economic literature. The reason for this extraordinary emphasis on "Technical Change" has been the conclusion—in Solow's above-mentioned article—based on statistical evidence, that gross output per man-hour in the United States nonfarm economy doubled over the period 1909-1949, "with 87.5 percent of the increase attributable to technical change and the remaining 12.5 percent to increased use of capital." Technical change is defined as shifts in the production function as against the movements along an isoquant. Recent studies by Massel, Edward and Drane, and Dhar and Seth, using exactly the same methods have supported this conclusion. It is the contention of this note that the importance of technical change as a contributor to the growth of output per man-hour has been overestimated because of the upward bias involved in the implied assumptions used in the method of estimation. [ABSTRACT FROM AUTHOR]

To take a representative sample of Keran's approach to empirical research, consider his equation (7), reproduced as equation II-1 in Table 1 of the H & K paper. This equation purports to show that the "major factors determining stock prices are ... expected corporate earnings and current interest rates" (Keran, p. 31). What it actually shows is an index of stock prices regressed on the current and one lagged value of a long-term interest rate, and on the current and 19 lagged values of corporate profits, with the coefficients constrained to lie along a sixth-order polynomial of the Almon variety. Despite the continual use of the term, "expected corporate earnings," when referring to these lagged values, no attempt is ever made to disentangle the presumed forecasting weights from the presumed explanatory coefficients, nor to validate the expectation by direct predictive tests, nor to compare its predictive performance with other possible proxies. [ABSTRACT FROM AUTHOR]

This paper reports the preliminary results of a project aimed at developing an empirical model explaining capital flows among the major OECD countries. The work is based on the portfolio-equilibrium, stock-adjustment view of capital flows. Here we discuss the estimation of equations explaining the net capital flows--the capital account balance--for six countries: the U.K., Canada, Japan, France, Western Germany, and Italy. Even with these highly aggregated and imperfect data, stable relationships between net flows and various interest rates can be estimated. [ABSTRACT FROM AUTHOR]

This article presents a model that is designed to determine the most effective cash management strategy for a firm. The author examines the costs associated with holding securities and holding cash. When a firm holds securities they have to pay transaction costs when turning the securities into cash; however, when a firm holds cash they lose out on the money that can be made off interest. The author's model determines how to create the optimal balance between these two holdings and has important managerial implications.

The article develops supply and demand functions for the commercial paper market. Between 1965 and 1968 the value of short-term debt issued by corporations more than tripled. The author estimates equations for supply and demand using quarterly data for the period 1954-1968. Results for several different industries are presented and discussed. Although the model worked will within the sample time frame, it performed less well for the two subsequent quarters, owing to structural changes in the market.

The article seeks to determine firms' investments in plant and equipment using only financial variables such as interest rates, expected cash returns, and dollar cost of investment. More typical are frameworks such as the Wharton model that define investment in terms of both financial variables and real ones--capacity utilization, output, etc. The author tests a model developed by Myron Gordon, performing regression analysis on empirical data for the period 1954-1968. Results indicate the feasibility of predicting investment based on financial variables alone.