Social and Behavioral Sciences Commons^™

Trade And Divergence In Education Systems, Pao Li Chang, Fali Huang

Research Collection School Of Economics

This paper presents a theory on the endogenous choice of a country's education policy and the two-way causal relationship between trade and education systems. The setting of a country's education system determines its talent distribution and comparative advantage in trade; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further diferentiate their education systems and reinforces the initial pattern of comparative advantage. Specifically, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices, although the difference is still less than …

Sequential Investment, Hold-Up And Strategic Delay, Juyuan Zhang, Yi Zhang

Research Collection School Of Economics

We investigate hold-up with simultaneous and sequential investment. We show that if the encouragement effect of sequential complementary investments dominates the delay effect, sequential investment alleviates the underinvestment caused by the hold-up problem. Further, if it is allowed to choose when to invest, strategic delay occurs when the encouragement effect of sequential complementary investments dominates the delay effect.

The Wto Trade Effect, Pao Li Chang, Myoung-Jae Lee

Research Collection School Of Economics

This paper reexamines the GATT/WTO membership effect on bilateral trade flows, using nonparametric methods including pair-matching, permutation tests, and a Rosenbaum (2002) sensitivity analysis. Together, these methods provide an estimation framework that is robust to misspecification biases, allows general forms of heterogeneous treatment effects, and addresses potential hidden selection biases. This is in contrast to most conventional parametric studies on this issue. Our results suggest large GATT/WTO trade-promoting effects, robust to various restricted matching criteria, alternative indicators for GATT/WTO involvement, different matching methodologies, non-random incidence of positive trade flows, and inclusion of multilateral resistance terms.

Need Singapore Fear Floating? A Dsge-Var Approach, Hwee Kwan Chow, Paul D. Mcnelis

Research Collection School Of Economics

This paper uses a DSGE-VAR model to examine the managed exchange-rate system at work in Singapore and asks if the country has any reason to fear floating the exchange rate with a Taylor rule inflation-targeting mechanism that uses the short term interest rate instead of the exchange rate as the benchmark monetary policy instrument. Our simulation results show that the use of a more flexible exchange rate system will reduce volatility in inflation and investment but consumption volatility will increase. Overall, there are neither signi…cant welfare gains or losses in the regime shift. Given the highly open and trade …

Micro-Level Estimation Of Child Undernutrition Indicators In Cambodia, Tomoki Fujii

Research Collection School Of Economics

One major limitation to addressing child undernutrition is a lack of the information required to target resources. This article extends the small-area estimation technique of Elbers, Lanjouw, and Lanjouw (2002, 2003) to jointly estimate multiple equations while allowing for individual-specific random errors across equations (in addition to cluster- and household-specific random errors). Estimates of the prevalence of stunting and underweight for children under age 5 in Cambodia from 17 Demographic and Health Survey strata are disaggregated into 1,594 communes by combining the Demographic and Health Survey data. The estimates are consistent with the surveyonly estimates at the aggregate and primary …

Testing Structural Change In Partially Linear Models, Liangjun Su, Halbert White

Research Collection School Of Economics

We consider two tests of structural change for partially linear time-series models. The first tests for structural change in the parametric component, based on the cumulative sums of gradients from a single semiparametric regression. The second tests for structural change in the parametric and nonparametric components simultaneously, based on the cumulative sums of weighted residuals from the same semiparametric regression. We derive the limiting distributions of both tests under the null hypothesis of no structural change and for sequences of local alternatives. We show that the tests are generally not asymptotically pivotal under the null but may be free of …

Unpacking Sources Of Comparative Advantage: A Quantitative Approach, Davin Chor

Research Collection School Of Economics

This paper develops an approach for quantifying the importance of different sources of comparative advantage, by extending the Eaton and Kortum (2002) model to predict industry trade flows. In this framework, comparative advantage is determined by the interaction of country and industry characteristics, with countries specializing in industries whose production needs they can best meet with their factor endowments and institutional strengths. I estimate the model parameters using: (i) OLS; and (ii) a simulated method of moments procedure that accounts for the prevalence of zeros in the bilateral trade data. I apply the model to explore various quantitative questions, such …

Group Reputation, Anonymous Matching, And External Monitoring In A Model Of Corruption, Huan Wang, Yi Zhang

Research Collection School Of Economics

We explore what group reputation is and model its formation and evolution. Based solely on group signals, we define a player’s group reputation as the belief that others have about the characteristics of the group the player belongs to. A model of group reputation of civil servants with anonymous matching and external monitoring is constructed to characterize the strategic behavior of potential bribers and civil servants, the corresponding levels of corruption, possible anti-corruption policies, and the effects of these policies. Our results indicate that as there are two types of corruption behavior of civil servants: accepting bribes and dereliction of …

Conformism And Turnout, Massimiliano Landi, Mauro Sodini

Research Collection School Of Economics

This paper proposes a model of turnout in which citizens have a preference for conformism, which adds to the instrumental preference for the electoral outcome. Under this environment multiple equilibria arise, some that generate a (more realistic) high level of turnout, for a wide rage of parameter values. It is also shown that high levels of turnout are robust to the introduction of asymmetry and heterogeneity in the parameter governing the preference for conformism and with respect to the reference group for conformism.

This model suggests that high turnout can only be achieved as the outcome of a particular coordination …

Sex Ratios, Divorce Laws And The Marriage Market, Brishti Guha

Research Collection School Of Economics

We show how an interaction between the skewness of the sex ratio and the jump in divorce rates after a liberalization in divorce laws can obtain in a model of marriage market matching with non-transferable utility. This model is partly motivated by a significant cross-country correlation between these two variables. We also find that men’s hopes or fears about women’s marriage market odds are self-confirming under mutual consent, resulting in multiple equilibria. The multiplicity vanishes with a more skewed sex ratio or a liberalization of divorce laws. Our work sheds some light on the possible implications of divorce liberalization and …

Smoothing Local-To-Moderate Unit Root Theory, Peter C. B. Phillips, Tassos Magdalinos, Liudas Giraitis

Research Collection School Of Economics

A limit theory is established for autoregressive time series that smooths the transition between local and moderate deviations from unity and provides a transitional form that links conventional unit root distributions and the standard normal. Edgeworth expansions of the limit theory are given. These expansions show that the limit theory that holds for values of the autoregressive coefficient that are closer to stationarity than local (i.e. deviations of the form rho = 1 + c/n, where n is the sample size and c < 0) holds up to the second order. Similar expansions around the limiting Cauchy density are provided for the mildly explosive case. (C) 2010 Elsevier B.V. All rights reserved.

Bayesian Hypothesis Testing In Latent Variable Models, Yong Li, Jun Yu

Research Collection School Of Economics

Hypothesis testing using Bayes factors (BFs) is known to suffer from several problems in the context of latent variable models. The first problem is computational. Another problem is that BFs are not well defined under the improper prior. In this paper, a new Bayesian method, based on decision theory and the EM algorithm, is introduced to test a point hypothesis in latent variable models. The new statistic is a by-product of the Bayesian MCMC output and, hence, easy to compute. It is shown that the new statistic is appropriately defined under improper priors because the method employs a continuous loss …

Bias-Corrected Estimation For Spatial Autocorrelation, Zhenlin Yang

Research Collection School Of Economics

The biasedness issue arising from the maximum likelihood estimation of the spatial autoregressive model (SAR) is further investigated under a broader set-up than that in Bao and Ullah (2007a). A major difficulty in analytically evaluating the expectations of ratios of quadratic forms is overcome by a simple bootstrap procedure. With that, the corrections on bias and variance of the spatial estimator can easily be made up to third-order, and once this is done, the estimators of other model parameters become nearly unbiased. Compared with the analytical approach, the new approach is much simpler, and can easily be extended to other …

International Capital Flows And Aggregate Output, Jurgen Von Hagen, Haiping Zhang

Research Collection School Of Economics

We develop a tractable multi-country overlapping-generations model and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. Domestic financial frictions in our model distort interest rates and aggregate output in the less financially developed countries. International capital flows help ameliorate the two distortions. International flows of financial capital and foreign direct investment affect aggregate output in each country directly through affecting the size of aggregate investment. In addition, they affect aggregate output indirectly through affecting the composition of aggregate investment and the size of aggregate savings. Under certain conditions, the indirect effects may …

Estimating The Garch Diffusion: Simulated Maximum Likelihood In Continuous Time, Tore Selland Kleppe, Jun Yu, Hans J. Skaug

Research Collection School Of Economics

A new algorithm is developed to provide a simulated maximum likelihood estimation of the GARCH diffusion model of Nelson (1990) based on return data only. The method combines two accurate approximation procedures, namely, the polynomial expansion of Ait-Sahalia (2008) to approximate the transition probability density of return and volatility, and the Efficient Importance Sampler (EIS) of Richard and Zhang (2007) to integrate out the volatility. The first and second order terms in the polynomial expansion are used to generate a base-line importance density for an EIS algorithm. The higher order terms are included when evaluating the importance weights. Monte Carlo …

Bias In Estimating Multivariate And Univariate Diffusions, Xiaohu Wang, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

Multivariate continuous time models are now widely used in economics and finance. Empirical applications typically rely on some process of discretization so that the system may be estimated with discrete data. This paper introduces a framework for discretizing linear multivariate continuous time systems that includes the commonly used Euler and trapezoidal approximations as special cases and leads to a general class of estimators for the mean reversion matrix. Asymptotic distributions and bias formulae are obtained for estimates of the mean reversion parameter. Explicit expressions are given for the discretization bias and its relationship to estimation bias in both multivariate and …

Measurement And High Finance, Peter C. B. Phillips, Jun Yu, Eric Ghysels

Research Collection School Of Economics

Turbulence in the world of banking and finance over the last two years has riveted media attention on the financial industry, exposing practices, products and risks in the industry to widespread public scrutiny. Questions continue to be asked about the management and regulation of an industry whose performance is now seen to affect the world’s financial health and its prospects as much as it does national savings and individual retirement funds.

Simulation-Based Estimation Methods For Financial Time Series Models, Jun Yu

Research Collection School Of Economics

This paper overviews some recent advances on simulatio n-based methods of estimating time series models and asset pricing models that are widely used in finance. The simulation based methods have proven to be particularly useful when the likelihood function and moments do not have tractable forms and hence the maximum likelihood method (MLE) and the generalized method of moments (GMM) are difficult to use. They can also be useful for improving the finite sample performance of the traditional methods when financial time series are highly persistent and when the quantity of interest is a highly nonlinear function of system parameters.The …

Asymptotic Distributions Of The Least Squares Estimator For Diffusion Processes, Qiankun Zhou, Jun Yu

Research Collection School Of Economics

The asymptotic distributions of the least squares estimator of the mean reversion parameter (κ) are developed in a general class of diffusion models under three sampling schemes, namely, ongspan, in-fill and the combination of long-span and in-fill. The models have an affine structure in the drift function, but allow for nonlinearity in the diffusion function. The limiting distributions are quite different under the alternative sampling schemes. In particular, the in-fill limiting distribution is non-standard and depends on the initial condition and the time span whereas the other two are Gaussian. Moreover, while the other two distributions are discontinuous at κ …

A Conversation With Eric Ghysels, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

Eric Ghysels is the Bernstein Distinguished Professor of Economics and Professor of Finance at University of North Carolina at Chapel Hill. In 2008, Eric Ghysels and Robert Engle (2003 Nobel co-Laureate in Economic Science with Clive Granger) founded the Society for Financial Econometrics (SoFiE), establishing a global network of academics and practitioners dedicated to the fast-growing field of financial econometrics. In June 2010, Eric visited the Centre for Financial Econometrics (CoFiE) and the Sim Kee Boon Institute (SKBI) of Financial Economics at Singapore Management University. During his visit we conversed with him about SoFiE and the growing toolroom of financial …

A New Bayesian Unit Root Test In Stochastic Volatility Models, Yong Li, Jun Yu

Research Collection School Of Economics

A new posterior odds analysis is proposed to test for a unit root in volatility dynamics in the context of stochastic volatility models. This analysis extends the Bayesian unit root test of So and Li (1999, Journal of Business Economic Statistics) in two important ways. First, a numerically more stable algorithm is introduced to compute the Bayes factor, taking into account the special structure of the competing models. Owing to its numerical stability, the algorithm overcomes the problem of diverged “size” in the marginal likelihood approach. Second, to improve the “power” of the unit root test, a mixed prior specification …

Standardized Lm Tests For Spatial Error Dependence In Linear Or Panel Regressions, Badi H. Baltagi, Zhenlin Yang

Research Collection School Of Economics

The robustness of the LM tests for spatial error dependence of Burridge (1980) for the linear regression model and Anselin (1988) for the panel regression model are examined. While both tests are asymptotic ally robust against distributional misspecification, their finite sample behavior can be sensitive to the spatial layout. To overcome this shortcoming, standardized LM tests are suggested. Monte Carlo results show that the new tests possess good finite sample properties. An important observation made throughout this study is that the LM tests for spatial dependence need to be both mean- and variance-adjusted for good finite sample performance to be …

A Study Of Price Evolution In Online Toy Market, Zhenlin Yang, Lydia L Gan, Fang-Fang Tang

Research Collection School Of Economics

We study and contrast pricing and price evolution of online only (Dotcom) and online branch of multi-channel retailers (OBMCRs) based on two panel data sets collected from online toy markets. Panel data regression analyses reveal several interesting empirical results: over time, OBMCRs and Dotcoms charge similar prices on average but Dotcoms significantly increase their shipping costs that eventually drive the overall average price of Dotcoms higher than that of OBMCRs. Price dispersions of both types of retailers are persistent. The price dispersion of OBMCRs is higher than that of Dotcoms at the beginning and does not change much over time, …

Macroeconomic Effects Of Over-Investment In Housing In An Aggregative Model Of Economic Activity, Hian Teck Hoon

Research Collection School Of Economics

Is there a theoretical basis for the view that the end of a period of over-investment necessarily leads to a period of below-normal employment as the excess capital stock is run down? We study the repercussions of a false boom in housing driven by prior expectations of future housing prices not justified by fundamentals. When these expectations are corrected, the result is a precipitous drop in housing prices and, on that account alone, some drop in employment. There is also a bulge in the housing stock. In the closed economy case, the downward shift of the term structure of interest …

An Asian Response To International Financial Reforms, Hoe Ee Khor, Kim Song Tan

Research Collection School Of Economics

Asia has emerged as a much more important player in the global economy after the recent financial crisis. Together with other emerging market economies, Asia is expected to be a key driver for global economic growth in the near to medium term. Along with this, there is a rising chorus for an “Asian approach” to financial reforms in the region and internationally. There are also calls for Asia to play a bigger role in designing the new architecture for the global financial system.

Macroeconomic Effects Of Over-Investment In Housing In An Aggregative Model Of Economic Activity, Hian Teck Hoon

Research Collection School Of Economics

Is there a theoretical basis for the view that the end of a period of over-investment necessarily leads to a period of below-normal employment as the excess capital stock is run down? We study the repercussions of a false boom in housing driven by prior expectations of future housing prices not justified by fundamentals. When these expectations are corrected, the result is a precipitous drop in housing prices and, on that account alone, some drop in employment. There is also a bulge in the housing stock. In the case of a closed economy, the downward shift of the term structure …

Using Financial Econometrics To Measure Risk, Peter C. B. Phillips, Jun Yu, Eric Ghysels

Research Collection School Of Economics

No abstract provided.

Indescribability And Its Irrelevance For Contractual Incompleteness, Takashi Kunimoto

Research Collection School Of Economics

The incomplete contracts literature often cites indescribable contingencies as a major obstacle to the creation of completecontracts. Using agents’ minimum foresight concerning possible future payoffs, Maskin and Tirole (Rev Econ Stud 66:83–114, 1999) show that indescribability does not matter for contractual incompletenessas long as there is symmetric information at both the contracting stage and the trading stage. This is called the irrelevance theorem. The following generalization of the irrelevance theorem is shown here: indescribability does not matter even in the presenceof asymmetric information at the trading stage, as long as there is symmetric information at the contracting stage. This isan …

Labor Supply Responses To The 1990s Japanese Tax Reforms, Ken Yamada

Research Collection School Of Economics

The consumption-leisure choice model implies that an exogenous change in tax rates will induce a change in labor supply. This implication is expected to be important to labor supplied by secondary earners under a progressive tax system when spousal income alters effective marginal tax rates. This paper examines labor supply responses to the income tax changes associated with Japanese tax reforms during the 1990s. The results indicate that the hours-of-work elasticity with respect to the net-of-tax rate is 0.8 for married women.

A Robust Lm Test For Spatial Error Components, Zhenlin Yang

Research Collection School Of Economics

This paper presents previous termanext term modified previous termLM test of spatial error components,next term which is shown to be previous termrobustnext term against distributional misspecifications and previous termspatialnext term layouts. The proposed previous termtestnext term differs from the previous termLM testnext term of Anselin (2001) by previous termanext term term in the denominators of the previous termtestnext term statistics. This term disappears when either the previous termerrorsnext term are normal, or the variance of the diagonal elements of the product of previous termspatialnext term weights matrix and its transpose is zero or approaches to zero as sample size goes …