Goldfeld, Stephen M. (1940–1995)
Goldfeld was born in Bronx, New York, and received his undergraduate training in
mathematics at Harvard University. He obtained a Ph.D. in economics from MIT in 1963.
Except for visiting appointments at Center for Operations Research
and Econometrics (CORE) at the Université Catholique de Louvain), the University of
California, Berkeley, and the Technion in Haifa, and a year as a member of the US
Council of Economic Advisors, he spent his professional life at Princeton University,
where he served as Provost from 1993 until his death.
Goldfeld largely divided his professional interests between monetary economics
and econometric methodology. In the former category are his early book (1966a) and two
definitive papers (1973a) and (1976) that are models of careful empirical econometrics.
They address the question of whether the money demand function is basically stable in
the short run. In estimating the money demand function for the post-war period, Goldfeld
exhaustively analyses specifications differing from one another in terms of the extent of
aggregation, the type of lag structure and the types of variables included in the demand
function. In (1973a), he finds no substantial short-run instability in the demand function.
He also concludes that disaggregation by sector probably helps explain money demand.
But the (1976) paper attacks the poor predictive performance of the money demand
equation in the period following 1973: the equation consistently over-predicts money
demand. An even more extensive and thorough analysis aimed at fixing this problem
makes him suggest that a more fundamental rethinking of money demand is indicated. He
also studied savings and loan associations and their behaviour with respect to rate setting
and allocational efficiency (1970), forecasting and policy evaluation in large-scale
econometric models (1971) and numerous related topics.
His methodological interests began with the construction of a new test for
homoscedasticity (1965), subsequently called the Goldfeld–Quandt test, followed in short
order by an abiding interest in nonlinear estimation (1968) and computational
econometrics (1966b). This led to the invention of the GRADX algorithm, which solves
the maximization problem for non-concave functions by embedding them in a concave
analogue. He then turned to the case of switching regressions: problems in which the
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parameters of a regression equation switch from one set of values to another, but at an
unknown point in time (1973b) (hence making the Chow test inappropriate). The
superficial similarity of these models to disequilibrium models, in which the observed
quantity represents the short side of the market, led him to an abiding interest in models
of the latter type, sometimes within the framework of financial institutions (1975; 1980).
A reconsideration of the Suits agricultural model may contain the first proof of the
unboundednes of a likelihood function for a disequilibrium model when sample
separation is not known a priori (1975). Because of the relatively intractable nature of the
econometrics when error terms are normally distributed in these models, he explored the
properties of a new distribution called the Sargan distribution (1981).
In the last few years of his life, Goldfeld was much interested in the
microtheoretic problems of socialist enterprises operating in the presence of a soft budget
constraint, a concept derived from János Kornai (1979; 1980; 1982). In the models, firms
can undertake ‘whining’ when they face losses and bail-outs permit them to continue
operating. These models confirm Kornai’s conjecture that the expectation of bail-outs
will lead to larger input demand than in the standard competitive case (1988; 1990).
Embedding the possibility of ‘whining’ in a multi-firm case in which inputs are rationed
and whining is intended to induce a more generous input allotment leads to the
determination of a Nash equilibrium in whining (1990).
Goldfeld had enormous range and creativity and was a precise, careful and
methodical worker as well as a much-loved teacher of both undergraduates and graduate
students. His premature death was a great loss to the profession.
Richard E. Quandt
See also command economy; money; nonlinear models in econometrics; numerical
optimization methods in economics
Selected works
1965. (With R. Quandt.) Some tests for homoscedasticity. Journal of the American
Statistical Association 60, 539–47.
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1966a. Commercial Bank Behavior and Economic Activity: A Structural Study of
Monetary Policy in the Postwar United States. Contributions to Economic
Analysis Series No. 43. Amsterdam: North-Holland.
1966b. (With R. Quandt and H. Trotter.) Maximization by quadratic hill-climbing.
Econometrica 34, 541–51.
1968. (With R. Quandt.) Nonlinear simultaneous equations: estimation and prediction.
International Economic Review 91, 113–36.
1970. (With D Jaffee.) The determinants of deposit-rate setting by savings and loan
associations. Journal of Finance 25, 615–32.
1971. Forecasting and policy evaluation using large scale econometric models: comment.
In Frontiers of Quantitative Economics, ed. M. Intriligator. Amsterdam: NorthHolland.
1972. (With R. Quandt.) Nonlinear Methods in Econometrics. Contributions to Economic
Analysis Series No. 77. Amsterdam: North-Holland.
1973a. The demand for money revisited. Brookings Papers on Economic Activity 1973:
3, 577–638.
1973b. (With R. Quandt.) The estimation of structural shifts by switching regressions.
Annals of Economic and Social Measurement 2, 475–85.
1974a. (With D. Aigner.) Estimation and prediction from aggregate data when aggregates
are measured more accurately than their components. Econometrica 42, 113–34.
1975. (With R. Quandt.) Estimation in a disequilibrium model and the value of
information. Journal of Econometrics 3, 325–48.
1976. The case of the missing money. Brookings Papers on Economic Activity 1976: 3,
683–730.
1980. (With D. Jaffe and R. Quandt.) A Model of FHLBB advances: rationing or market
clearing. Review of Economics and Statistics 62, 339–47.
1981. (With R. Quandt.) Econometrics modelling with nonnormal disturbances. Journal
of Econometrics 17, 141–55.
1988. (With R. Quandt.) Budget constraints, bailouts and the firm under central planning.
Journal of Comparative Economics 12, 502–20.
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1990. (With R. Quandt.) Output targets, the soft budget constraint and the firm under central
planning. Journal of Economic Behavior and Optimization 14, 205–22.
1994. (With R. Quandt.) The competition for rationed resources. Journal of Economic
Behavior and Organization 25, 53–71.
Bibliography
Kornai, J. 1979. Resource-constrained versus demand-constrained systems. Econometrica
47, 801–20.
Kornai, J. 1980. Economics of Shortage. Amsterdam: North-Holland,
Kornai, J. 1982. Growth, Shortage and Efficiency. Amsterdam: North-Holland.