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ISSUES in CONTEMPORARY ECONOMICS Volume 2: Macroeconomics and Econometrics ISSUES in CONTEMPORARY ECONOMICS Congress Editor: Amartya Sen

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ISSUES in CONTEMPORARY ECONOMICS Volume 2: Macroeconomics and Econometrics ISSUES in CONTEMPORARY ECONOMICS Congress Editor: Amartya Sen ISSUES IN CONTEMPORARY ECONOMICS Volume 2: Macroeconomics and Econometrics ISSUES IN CONTEMPORARY ECONOMICS Congress Editor: Amartya Sen Volume 1 MARKETS AND WELFARE Kenneth J. Arrow (editor) Volume 2 MACROECONOMICS AND ECONOMETRICS Marc Nerlove (editor) Volume 3 POLICY AND DEVELOPMENT Partha Dasgupta (editor) Volume 4 WOMEN'S WORK IN THE WORLD ECONOMY Nancy Folbre, Barbara Bergmann, Bina Agarwal and Maria Floro (editors) Volume 5 THE GREEK ECONOMY: ECONOMIC POLICY FOR THE 1990s Thanos S. Skouras (editor) lEA conference volume series Series Standing Order If you would like to receive future titles in this series as they are published, you can make use of our standing order facility. To place a standing order please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address and the name of the series. Please state with which title you wish to begin your standing order. (If you live outside the United Kingdom we may not have the rights for your area, in which case we will forward your order to the publisher concerned.) Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire, R02l 2 XS, England. Issues in Contemporary Economics Proceedings of the Ninth World Congress of the International Economic Association, Athens, Greece Congress Editor: Amartya Sen Volume 2 MACROECONOMICS AND ECONOMETRICS Edited by Marc Nerlove in association with the M PALGRAVE MACMILLAN MACMILLAN © International Economic Association 1991 Softcover reprint of the hardcover 1st edition 1991 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 33-4 Alfred Place, London WClE 7DP. Any person who does any unauthorised act in relation to this publication !Day be liable to criminal prosecution and civil claims for damages. First published 1991 UNESCO Subvention 199~91IDG/7.6.2/SUB.16(SHS) Published by MACMILLAN ACADEMIC AND PROFESSIONAL LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data International Economic Association, World Congress (9th: 1989: Athens, Greece) Issues in contemporary economics: proceedings of the Ninth World Congress of the International Economic Association, Athens, Greece. - (lEA conference volume series). Vol. 2, Macroecomics and econometrics 1. Economics I. Title II. Nerlove, Marc III. Series 330.9 ISBN 978-1-349-11578-5 ISBN 978-1-349-11576-1 (eBook) DOI 10.1007/978-1-349-11576-1 Contents Preface by Amartya Sen vii The International Economic Association xi Acknowledgements xiii lEA Programme Committee xiv Local Organising Committee and Local Advisory Board xv List of Contributors and Section Leaders xvi Abbreviations and Acronyms xviii Introduction Marc Nerlove xxi PART I MACROECONOMIC ASPECTS OF UNEMPLOYMENT 1 Should Keynesian Economics Dispense with the Phillips Curve? Lawrence H. Summers 3 2 Testing Keynesian Unemployment Theory against Structuralist Theory: Global Evidence of the Past Two Decades Edmund S. Phelps 21 3 Unemployment through 'Learning from Experience' Steve Alpern and Dennis J. Snower 42 4 Unemployment and Labour Market Imperfections Assar Lindbeck 75 5 Two Tools for Analysing Unemployment Olivier Jean Blanchard 102 v vi Contents 6 The Potential Duration of Unemployment Benefits and the Duration of Unemployment Lawrence F. Katz and Bruce D. Meyer 128 PART II ECONOMICS OF INTEGRATION 7 The European Monetary System Ten Years on: The System's Architecture, Problems and Perspectives Rainer S. Masera 159 8 European Integration and Regional Development Policy in Portugal Manuel C. L. Porto 183 PART III ECONOMETRICS 9 The Interplay of Theory and Data in the Study of International Trade Edward E. Leamer 213 10 Price Elasticities from Survey Data: Extensions and Indonesian Results Angus Deaton 253 11 Family Labour Supply Decisions in Rural Peru Paul J. Gertler and John L. Newman 284 12 Survey Data on Expectations: What Have We Learnt? G. S. Maddala 319 Preface Amartya Sen 'Reading maketh a full man', according to Francis Bacon, and 'conference a ready man'. Those who missed the Ninth World Con­ gress of the International Economic Association, held at Athens during August-September 1989, may no longer have the chance of being 'ready' (for whatever), but these proceedings offer them an opportunity of reading the papers presented there, and thus achiev­ ing 'fullness' (presumably, a solid, if somewhat obscure, virtue). Less immodestly, we at the International Economic Association are happy to be able to make a selection of the many interesting and productive papers presented at the Ninth World Congress available in book form (in five volumes). Each of the previous World Congresses of the International Econ­ omic Association had one 'unifying' theme (the last one had the theme 'The Balance between Industry and Agriculture in Economic Development' 1). The Ninth Congress had no such unique theme. Instead papers were invited and contributions sought in a number of different theme areas, covering different parts of the discipline of economics. The purpose of choosing a plurality of themes was to make it possible for economists all over the world to participate in this World Congress despite wide variations in their specialisation. To some extent this had been implicitly permitted in previous confer­ ences too by taking a rather liberal view of the allegedly unifying theme - and by practising what I can only describe as 'diversity in unity'. The Ninth Congress went a good deal further in making the conference open to economists of different interests and expertise. Since these conferences are three-yearly phenomena, it seems un­ reasonable to make economists of particular specialisation wait many multiples of three years for their tum to come up. We were rewarded in the Ninth Congress by the attendance of economists of widely different fields and practice. As the variety of papers in these volumes indicate, the range of economic issues covered was quite remarkable. The programme consisted of twenty-two sections - fifteen sections for presentation of invited and contributed papers and seven sections vii viii Preface for panel discussion. The conference was planned by a Programme Committee, which I was privileged to chair. Each member of the committee took particular responsibility for inviting and selecting papers for one session. Paper Sections 1. General microeconomics (Takashi Negishi) 2. General macroeconomics (Jean-Paul Fitoussi) 3. Welfare and social choice (Kenneth Arrow) 4. Econometrics (Marc Nerlove) 5. Centrally Planned Economies (Bela Csik6s-Nagy) 6. Economic History (Marcello de Cecco) 7. International Economics (Elhanan Helpman) 8. Economic Development (Victor Urquidi) 9. Labour Economics (Richard Layard) 10. Public Economics (Lawrence Summers) 11. Industrial Economics (Jean Gabszewicz) 12. Agricultural Economics (Glenn Johnson) 13. Food and Nutrition (Amartya Sen) 14. Theory of Policy (Heraklis Polemarchakis) 15. Economics of Integration (George Kottis) Panel Sections P.l. Women's and Men's Role in the Economy of the Future (Barbara Bergmann) P.2. The Greek Economy Today (Thanos Skouros) P.3. Game Theory and Economics (Partha Dasgupta) P.4. Rational Expectations after the Event (Frank Hahn) P.5. Neo-Marxian Perspectives on Production Relations and Property Rights (Stephen Marglin) P.6. What Remains of Development Economics? (!..ouis Lefeber) P.7. Social Justice and Quality of Life (Zdzislaw Sadowski) The Programme Committee refereed the papers proposed for pres­ entation, and the final programme was drawn up on that basis. I take this opportunity of thanking the members of the Programme Com­ mittee for their immense help in making the Ninth World Congress a success. Not only did they select, severally or jointly, the invited paper writers and assess the contributed papers, but they were also Amartya Sen ix responsible for the selection and appropriate revision of the invited papers for inclusion in these proceedings. Neither the discussants' comments, nor any reports of the general deliberation in the sessions, are being published. Instead, the paper writers were encouraged to take note of the comments and sugges­ tions made in the sessions, with appropriate acknowledgement. There were also five invited plenary lectures (in addition to the presidential address), and we were lucky enough to have as plenary speakers: Abel G. Aganbegyan ('Economic Restructuring of the USSR and International Economic Relations'); A. B. Atkinson ('Basic Income Schemes and the Lessons from Public Economics'); Zsuzsa Ferge ('Mechanisms of Social Integration: the Role of the Markef); Frank Hahn ('History and Economic Theory'); and Mahar Mangahas ('Monitoring the Economic and Social Weather in the Philippines'). The proceedings of the congress are being published in five volumes, edited respectively by: Kenneth J. Arrow (vol. 1: Markets and Welfare); Marc Nerlove (vol. 2: Macroeconomics and Econometrics); Partha Dasgupta (vol. 3: Policy and Development); Nancy Folbre, Barbara Bergmann, Bina Agarwal and Maria Floro (vol. 4: Women's Work in the World Economy); Thanos S. Skouras (vol. 5: The Greek Economy:
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