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Abstract: This paper provides a root-n consistent, asymptotically normal weighted least squares estimator of the coefficients in the truncated regression model. The distribution of the errors is unknown and permits general forms of unknown heteroscedasticity. Also provided is an instrumental variables based two stage least squares estimator for this model, which can be used when the errors are correlated with some regressors. Estimation is based on a 'special' regressor as in Lewbel (2000). Our limiting distributions include a new result regarding asymptotic trimming for root-n convegence of density weighed extremum estimators.
Abstract: This chapter uses data from the 1992/93 and 1997/98 Vietnam Living Standards Surveys (VLSS) to describe patterns of money transfers between households. Rapid economic growth during the 1990's did little to diminish the importance of private transfers in Vietnam. Private transfers are large and widespread in both surveys,and they are much larger than public transfers are. Private transfers appear to function like means-tested public transfers, flowing from better off to worse off households and providing old-age support in retirement. Panel evidence suggests some hysteresis in private transfer patterns, but many households also changed from recipients to givers and vice versa between surveys. Changes in private transfers appear responsive to changes in household pre- transfer income, demographic changes and life-course events. Transfer inflows rise upon retirement and widowhood, for example, and are positively associated with increases in health expenditures. It also appears that private transfer inflows increased for households affected by Typhoon Linda, which devastated Vietnam's southernmost provinces in late 1997.
Abstract: Death statutes in the United States list elements of loss for which a defendant must make compensatory payment. The element that economists as expert witnesses are called upon to calculate is net income, roughly defined as the decedent's income minus personal expenses. The existence of joint or shared consumption goods complicates the definition and calculation of net income. Net income can be interpreted as the money required for survivors to attain the same standard of living as before. Equivalence scales traditionally used for this type of calculation are flawed. A new method for calculating net income is proposed, based on a collective household model.
Abstract: The purpose of this paper is to develop a model that integrates inventory and labor decisions. We extend a model of inventory behavior to include a detailed specification of the role of labor input in the production process and of the costs associated with it. In particular, we distinguish between employment, hours and effort per worker, and allow for adjustment costs associated with employment changes. We assume that the requirement function for effective hours has a general trans-logarithmic form, and derive an estimable system of Euler equations for inventories and employment with implied cross-equation restrictions. The econometric results shed light on several important topics, including the shape of the marginal cost of output and the role of labor hoarding as an explanation of procyclical productivity and the persistence of inventory stocks. Moreover, they raise questions about the adequacy of commonly used specifications such as Cobb-Douglas approximations to the production process and the definition of labor input as the product of employment and effective hours worked per worker.
Abstract: In this paper we investigate the impact of macroeconomic uncertainty on bank lending behavior. Using a simple signal extraction framework, we demonstrate that an increase in macroeconomic uncertainty will lead to a narrowing of the crossÐsectional distribution of banks' loanÐto-asset ratios. We test this prediction on a comprehensive U.S. commercial bank data set, and find that as macroeconomic uncertainty increases, captured by an increase in the variability of industrial production or inflation, banks behave more homogeneously. Our results are robust to the inclusion of macroeconomic factors, and provide broadly similar findings across three major categories of bank loans and total loans.
Abstract: Employing VAR and factor analytic models to quarterly U.K. sectoral business investment data, we show that both common and sector specific shocks have important effects in explaining business investment fluctuations.
Abstract: This paper develops a new methodology that makes use of the factor structure of large dimensional panels to understand the nature of non-stationarity in the data. We refer to it as PANICÐ a 'Panel Analysis of Non-stationarity in Idiosyncratic and Common components'. PANIC consists of univariate and panel tests with a number of novel features. It can detect whether the nonstationarity is pervasive, or variable-specific, or both. It tests the components of the data instead of the observed series. Inference is therefore more accurate when the components have different orders of integration. PANIC also permits the construction of valid panel tests even when cross-section correlation invalidates pooling of statistics constructed using the observed data. The key to PANIC is consistent estimation of the components even when the regressions are individually spurious. We provide a rigorous theory for estimation and inference. In Monte Carlo simulations, the tests have very good size and power. PANIC is applied to a panel of inflation series.
Abstract: This paper uses a decomposition of the data into common and idiosyncratic components to develop procedures that test if these components satisfy the null hypothesis of stationarity. The decomposition also allows us to construct pooled tests that satisfy the cross-section independence assumption. In simulations, tests on the components separately generally have better properties than testing the observed series. However, the results are less than satisfactory, especially in comparison with similar procedures developed for unit root tests. The problem can be traced to the properties of the stationarity test, and is not due to the weakness of the common-idiosyncratic decomposition. We apply both panel stationarity and unit root tests to real exchange rates. We found evidence in support of a large stationary common factor. Rejections of PPP are likely due to non-stationarity of country-specific variations.
Abstract: I show how to implement in a simple manner the comparison of alternative monetary policy rules in a two-country model of the new generation. These rules are: Full Price Stability, Taylor, Fixed and Managed Exchange Rates. I find, first, that the exchange rate dynamic is non-stationary unless some form of management is undertaken by the respective monetary authorities of the two countries. However, eliminating the excess volatility of the exchange rate does not significantly alter the overall macroeconomic volatility. Second, a floating exchange rate regime based on a Taylor-type rule seems to better approximate the full price stability benchmark, but at the cost of boosting interest rate volatility. In this respect limiting exchange rate flexibility is desirable. Finally, in all cases the model delivers positive cross-country correlation of interest rates but negative cross-country correlation of output.
Abstract: Planned shopping malls usually have one or more department stores (anchor stores) and multiple specialized retail stores in each commodity category. This paper presents a model of shopping malls in which these two types of stores sell noncomplementary commodities. If anchor stores sell standard (riskless yet low-value) commodities and retail stores sell specialized (high variance yet high expected value) commodities, then each type of store may bene t from collocating with the other, even though the stores sell substitutable products. The underlying intuition is that the presence of each type of retailer enhances consumer traffic at the shopping mall, which benefits the retailer or retailers of the other type. Under some parametric restrictions, the value of this increased traffic more than offsets the loss in markups due to competition from additional sellers at the mall. In this case, it is in a land developer's interest to rent retail space in the mall to both types of retailers. A Tiebout-like argument explains the striking similarity in the composition of stores in planned shopping malls.
Abstract: In this paper, we analyze capacity manipulation games in hospital-intern markets inspired by the real-life entry-level labor markets for young physicians seeking residencies at hospitals. In these markets, where the matching is determined by a centralized clearinghouse called the National Residency Matching Program (NRMP) in the USA, hospitals usually report the number of vacant positions to the NRMP as well as their preferences. We consider a model where preferences of hospitals and interns are common knowledge, and hospitals play a game of reporting their capacities. We characterize the equilibria of the game-form for the two most widely used stable rules: hospital-optimal and intern-optimal stable rules. We show that (i) there may not be a pure strategy equilibrium in general; and (ii) when a pure strategy equilibrium exists other than true-capacities, truthful capacity revelation is weakly Pareto-dominated for hospitals. We also analyze other properties of the set of Nash equilibria. Finally, we present sufficient conditions on preferences to guarantee the existence of pure strategy equilibria.
Abstract: Despite recent advances in data collection and the growing number of empirical studies that examine private intergenerational transfers, there still exist significant gaps in our knowledge. Who transfers what to whom, and why do they it? I argue that some of these gaps could be filled by departing from the standard parent-child framework and concentrating instead on fathers, mothers, sons and daughters in a way that accounts for fundamental - and sometimes obvious - male-female differences in concerns and objectives in family life. Elementary sex differences in reproductive biology constitute the basic building blocks of studies of family behavior in many disciplines, but despite recent progress they get far less attention than they deserve in economic studies of the family. I explore, separately, the implications of three basic biological facts for intergenerational transfer behavior. The first is paternity uncertainty: how does it affect the incentives of fathers, mothers and of various grandparents to invest in children? The second is differing reproductive prospects of sons versus daughters: when are sons a better investment than daughters and vice versa? The third is conflict: How much acrimony might we expect to occur in families, and why? In examining these issues I also explore household survey data from the United States. This preliminary evidence is consistent with non-biological as well as biological explanations of behavior. Nonetheless, the biological focus confers two advantages, by generating falsifiable predictions and by illuminating new avenues for empirical work. There is enormous potential for further micro-data-based empirical work in this area.
Abstract: This paper provides characterization theorems for preferences. The main assumption is partial separability, where changing a common component of two vectors does not reverse strict preferences, but may turn strict preferences into indifference. We discuss applications of our results to social choice.
Abstract: This note shows that Machina's (1982) assumption that preferences over lotteries are smooth has some economic implications. We show that Fréchet differentiability implies that preferences represent second order risk aversion (as well as conditional second order risk aversion). This implies, among other things, that decision makers buy full insurance only at the absence of marginal loading. We also show that with constant absolute and relative risk aversion, expected value maximization, second order risk aversion, and Fréchet differentiability are equivalent.
Abstract: The American and some other constitutions entrench property rights by requiring super majoritarian voting amending or revoking their own provisions. Following Buchanan and Tullock [5], this paper analyzes individuals' interests behind a veil of ignorance, and shows that under some standard assumptions, a (simple) majoritarian rule should be adopted. This result changes if one assumes that prefer- ences are consistent with the behavioral phenomenon known as the endowment effect." It then follows that (at least some) property rights are best defended by super majoritarian protection. The paper then shows that its theoretical results are consistent with a number of doctrines underlying American Constitutional Law.
Abstract: This paper examines the role of interest rate policy in a small open economy subject to terms of trade shocks and time-varying currency risk responding to domestic exchange rate volatility. The private sector makes optimal decisions in an intertemporal non-linear setting with rational,forward-looking expectations. In contrast,the monetary authority practices least-squares learning about the evolution of inflation, output growth, and exchange rate depreciation in alternative policy scenarios. Interest rates are set by linear quadratic optimization, with the objectives for inflation, output growth, or depreciation depending on current conditions. The simulation results show that the preferred stance is one which targets inflation and growth, not inflation only nor inflation, growth and depreciation. Including exchange rate changes as targets significantly increases output variability, but marginally reduces inflation variability.
Abstract: The paper develops a general equilibrium model of migration, assimilation and trade, using a random matching framework of culture and trade. The market equilibrium and the social plannerÕs solution are contrasted and policy implications are given. The model predicts that the presence of immigrants who do not assimilate into the mainstream culture is economically inefficient, but whether such migration occurs depends on the underlying parameters. Because of the endogeneity of the migration decision, care must be taken to select the optimal policy instruments. In particular, subsidizing assimilation or auctioning immigration permits do not achieve the first best. Instead, a mix of selective immigration, border control and aid to the source country can be used to promote efficiency.
Abstract: We revisit Obstfeld and Rogoff's (1995) results on exchange rate dynamics in a two-country, monetary model with incomplete asset markets, stationary net foreign assets, and endogenous nominal interest rate setting a la Taylor (1993). Under flexible prices, the nominal exchange rate exhibits a unit root. However, today's exchange rate also depends on the stock of real net foreign assets accumulated in the previous period. The predictive power of net assets for the exchange rate is stronger the closer assets to non-stationary and the higher the degree of substitutability between domestic and foreign goods in consumption. When prices are sticky, the exchange rate still exhibits a unit root. The current level of the exchange rate depends on the past GDP differential, along with net foreign assets. Endogenous monetary policy and asset dynamics have consequences for exchange rate overshooting under both flexible and sticky prices.
Abstract: This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. In particular, we investigate how different types of fiscal policy affect profits and , as a result, investment. We find a sizable negative effect of public spending -- and in particular of its public wage component -- on business investment. This result is consistent with models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than the effect of taxes. Our results have important implications for the so called 'Non-Keynesian' (i.e. expansionary) effects of fiscal adjustments.
Abstract: Has financial liberalization improved the efficiency with which investment funds are allocated to competing uses? In this paper, we address this question, using firm level panel data from twelve developing countries. The basic idea is to investigate whether financial liberalization has increased the share of investment going to firms with a higher marginal return to capital. To this end we develop a summary index of the efficiency of allocation of investment. We then examine the relationship between this index and various measures of financial liberalization. The results suggest that in the majority of cases financial reform has lead to an increase in the efficiency with which investment funds are allocated.
Abstract: We present the sampling distributions for the coefficient of skewness, kurtosis, and a joint test of normality for time series observations. In contrast to independent and identically distributed data, the limiting distributions of the statistics are shown to depend on the long run rather than the short-run variance of relevant sample moments. Monte Carlo simulations show that the test statistics for symmetry and normality have good finite sample size and power. However, size distortions render testing for kurtosis almost meaningless except for distributions with thin tails such as the normal distribution. Nevertheless, this general weakness of testing for kurtosis is of little consequence for testing normality. Combining skewness and kurtosis as in Bera and Jarque (1981) is still a useful test of normality provided the limiting variance accounts for the serial correlation in the data.