A Qualitative Response Analysis of UK Firms' Employment and Output Decisions

James McIntosh (), Fabio Schiantarelli and William Low

Journal of Applied Econometrics, 1989, vol. 4, issue 3, 251-64

Abstract: This paper investigates firms' employment and output decisions and presents some empirical evidence concerning the rationality of firms' expectations. The dynamic model is based on the assumptions of convex adjustment costs and monopolistic competition in the product market. The results are obtained using categorical information individual firms contained in business surveys collected by the Confederation of British Industry. Ordered probit models are used to estimate the employment and output equations. We find that expected demand is a critical determinant of firms' decisions, the effect of changes in cost conditions is not as well determined, and the data are not consistent with the rational expectations hypothesis. Copyright 1989 by John Wiley & Sons, Ltd.

Date: 1989
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