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Singapore Management University

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Research Collection School Of Economics

2011

Articles 1 - 30 of 65

Full-Text Articles in Social and Behavioral Sciences

Out Of Sight, Out Of Mind: The Value Of Political Connections In Social Networks, Quoc-Anh Do, Bang Dang Nguyen, Yen Teik Lee, Kieu-Trang Nguyen Dec 2011

Out Of Sight, Out Of Mind: The Value Of Political Connections In Social Networks, Quoc-Anh Do, Bang Dang Nguyen, Yen Teik Lee, Kieu-Trang Nguyen

Research Collection School Of Economics

This paper investigates the impact of social-network connections to politicians on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Using the Regression Discontinuity Design based on close elections from 2000 to 2008, we identify that a director’s connection to an elected congressman causes a Weighted Average Treatment Effect on Cumulative Abnormal Returns of -2.65% surrounding the election date. The effect is robust and consistent through various specifications, parametric and nonparametric, with different outcome measures and social network definitions, and across many subsamples. We find evidence to support the …

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International Capital Flows With Limited Commitment And Incomplete Markets, Jürgen Von Hagen, Haiping Zhang Dec 2011

International Capital Flows With Limited Commitment And Incomplete Markets, Jürgen Von Hagen, Haiping Zhang

Research Collection School Of Economics

Recent literature has proposed two alternative types of financial frictions, i.e., limited commitment and incomplete markets, to explain the patterns of international capital flows between developed and developing countries observed in the past two decades. This paper integrates both types of frictions into a two-country overlapping-generations framework to facilitate a direct comparison of their effects. In our model, limited commitment distorts the investment made by agents with different productivity, which creates a wedge between the interest rates on equity capital vs. credit capital; while incomplete markets distort the investment among projects with different riskiness, which creates a wedge between the …

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One Mandarin Benefits The Whole Clan: Hometown Infrastructure And Nepotism In An Autocracy, Kieu-Trang Nguyen, Quoc-Anh Do, Anh Tran Dec 2011

One Mandarin Benefits The Whole Clan: Hometown Infrastructure And Nepotism In An Autocracy, Kieu-Trang Nguyen, Quoc-Anh Do, Anh Tran

Research Collection School Of Economics

This paper studies nepotism by government officials in an authoritarian regime. We collect a unique dataset of political promotions of officials in Vietnam and estimate their impact on public infrastructure in their hometowns. We find strong positive effects on several outcomes, some with lags, including roads to villages, marketplaces, clean water access, preschools, irrigation, and local radio broadcasters, as well as the hometown’s propensity to benefit from the State’s “poor commune support program”. Nepotism is not limited to only top-level officials, pervasive even among those without direct authority over hometown budgets, stronger when the hometown chairperson’s and promoted official’s ages …

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Power Maximization And Size Control Of Heteroscedasticity And Autocorrelation Robust Tests With Exponentiated Kernels, Yixiao Sun, Peter C. B. Phillips, Sainan Jin Dec 2011

Power Maximization And Size Control Of Heteroscedasticity And Autocorrelation Robust Tests With Exponentiated Kernels, Yixiao Sun, Peter C. B. Phillips, Sainan Jin

Research Collection School Of Economics

Using the power kernels of Phillips, Sun, and Jin (2006, 2007), we examine the large sample asymptotic properties of the t-test for different choices of power parameter (ρ). We show that the nonstandard fixed-ρ limit distributions of the t-statistic provide more accurate approximations to the finite sample distributions than the conventional large-ρ limit distribution. We prove that the second-order corrected critical value based on an asymptotic expansion of the nonstandard limit distribution is also second-order correct under the large-ρ asymptotics. As a further contribution, we propose a new practical procedure for selecting the test-optimal power parameter that addresses the central …

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Uniform Asymptotic Normality In Stationary And Unit Root Autoregression, Chirok Han, Peter C. B. Phillips, Donggyu Sul Dec 2011

Uniform Asymptotic Normality In Stationary And Unit Root Autoregression, Chirok Han, Peter C. B. Phillips, Donggyu Sul

Research Collection School Of Economics

While differencing transformations can eliminate nonstationarity, they typically reduce signal strength and correspondingly reduce rates of convergence in unit root autoregressions. The present paper shows that aggregating moment conditions that are formulated in differences provides an orderly mechanism for preserving information and signal strength in autoregressions with some very desirable properties. In first order autoregression, a partially aggregated estimator based on moment conditions in differences is shown to have a limiting normal distribution that holds uniformly in the autoregressive coefficient rho, including stationary and unit root cases. The rate of convergence is root n when vertical bar rho vertical bar < 1 and the limit distribution is the same as the Gaussian maximum likelihood estimator (MLE), but when rho = 1 the rate of convergence to the normal distribution is within a slowly varying factor of n. A fully aggregated estimator (FAE) is shown to have the same limit behavior in the stationary case and to have nonstandard limit distributions in unit root and near integrated cases, which reduce both the bias and the variance of the MLE. This result shows that it is possible to improve on the asymptotic behavior of the MLE without using an artificial shrinkage technique or otherwise accelerating convergence at unity at the cost of performance in the neighborhood of unity. Confidence intervals constructed from the FAE using local asymptotic theory around unity also lead to improvements over the MLE.

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A Simple And Robust Method Of Inference For Spatial Lag Dependence, Zhenlin Yang, Yan Shen Dec 2011

A Simple And Robust Method Of Inference For Spatial Lag Dependence, Zhenlin Yang, Yan Shen

Research Collection School Of Economics

A simple and reliable method of inference for the spatial parameter in spatial autoregressive models is introduced, based on a statistic obtained by centering and rescaling the numerator of the concentrated Gaussian score function. The resulted tests and confidence intervals are robust against the distributional misspecifications and are insensitive to the spatial layouts and the error standard deviation. In contrast, the standard methods based on Gaussian score and information matrix may lead to inconsistent inference when errors are non normal, and can be quite sensitive to the spatial layouts and the error standard deviation even when errors are normally distributed. …

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Singapore Consumer’S Inflation Expectations And Creation Of Singapore Index Of Inflation Expectations, Aurobindo Ghosh, Jun Yu Dec 2011

Singapore Consumer’S Inflation Expectations And Creation Of Singapore Index Of Inflation Expectations, Aurobindo Ghosh, Jun Yu

Research Collection School Of Economics

The aim of this report is to highlight a broad spectrum of issues that brings about the measurement of the disagreement and the uncertainity and the formation of inflation expectations among economic agents in Singapore.

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Score Tests For Inverse Gaussian Mixtures, A. F. Desmond, Zhenlin Yang Dec 2011

Score Tests For Inverse Gaussian Mixtures, A. F. Desmond, Zhenlin Yang

Research Collection School Of Economics

The mixed inverse Gaussian given by Whitmore (Scand. J. Statist., 13, 1986, 211–220) provides a convenient way for testing the goodness-of-fit of a pure inverse Gaussian distribution. The test is a one-sided score test with the null hypothesis being the pure inverse Gaussian (i.e. the mixing parameter is zero) and the alternative a mixture. We devise a simple score test and study its finite sample properties. Monte Carlo results show that it compares favourably with the smooth test of Ducharme (Test, 10, 2001, 271-290). In practical applications, when the pure inverse Gaussian distribution is rejected, one is interested in making …

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Mncs And The Labour Crunch: Local Jobs May Suffer If Foreign Supply Is Curbed, Hian Teck Hoon Nov 2011

Mncs And The Labour Crunch: Local Jobs May Suffer If Foreign Supply Is Curbed, Hian Teck Hoon

Research Collection School Of Economics

No abstract provided.

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A New Necessary Condition For Implementation In Iteratively Undominated Strategies, Takashi Kunimoto, Roberto Serrano Nov 2011

A New Necessary Condition For Implementation In Iteratively Undominated Strategies, Takashi Kunimoto, Roberto Serrano

Research Collection School Of Economics

We uncover a new necessary condition for implementation in iteratively undominated strategies by mechanisms that satisfy the “best element property” where for each agent, there exists a strategy profile that gives him the highest payoff in the mechanism. This class includes finite and regular mechanisms. We conclude that either the quasilinearity-like assumptions of available sufficiency results cannot be completely dispensed with or some mechanisms that do not satisfy the best element property must be employed. We term the condition “restricted deception-proofness.” It requires that, in environments with identical preferences, the social choice function be immune to all deceptions, making it …

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Specification Sensitivity In Right-Tailed Unit Root Testing For Explosive Behavior, Peter C. B. Phillips, Shu-Ping Shi, Jun Yu Nov 2011

Specification Sensitivity In Right-Tailed Unit Root Testing For Explosive Behavior, Peter C. B. Phillips, Shu-Ping Shi, Jun Yu

Research Collection School Of Economics

Right-tailed unit root tests have proved promising for detecting exuberance in economic and financial activities. Like left-tailed tests, the limit theory and test performance are sensitive to the null hypothesis and the model specification used in parameter estimation. This paper aims to provide some empirical guidelines for the practical implementation of right-tailed unit root tests, focusing on the sup ADF test of Phillips, Wu and Yu (2011), which implements a right-tailed ADF test repeatedly on a sequence of forward sample recursions. We analyze and compare the limit theory of the sup ADF test under deferent hypotheses and model specifications. The …

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Specification Testing For Nonparametric Structural Models With Monotonicity In Unobservables, Stefan Hoderlein, Liangjun Su, Halbert White Nov 2011

Specification Testing For Nonparametric Structural Models With Monotonicity In Unobservables, Stefan Hoderlein, Liangjun Su, Halbert White

Research Collection School Of Economics

Monotonicity in a scalar unobservable is a now common assumption in economic theory and applications. Among other things, it allows one to recover the underlying structural function from certain conditional quantiles of observables. Nevertheless, monotonicity is a strong assumption, and its failure can have substantive adverse consequences for structural inference. So far, there are no generally applicable nonparametric specification tests designed to detect monotonicity failure. This paper provides such a test for cross-section data. We show how to exploit an exclusion restriction together with a conditional independence assumption, plausible in a variety of applications, to construct a test. Our statistic …

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Dating The Timeline Of Financial Bubbles During The Subprime Crisis, Peter C. B. Phillips, Jun Yu Nov 2011

Dating The Timeline Of Financial Bubbles During The Subprime Crisis, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a technology for identifying bubble behavior with consistent dating of their origination and collapse. The tests serve as an early warning diagnostic of bubble activity and a new procedure is introduced for testing bubble migration across markets. Three relevant financial series are investigated, including a financial asset price (a house price index), a commodity price (the crude oil price), and one bond price (the spread …

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Intertemporal Substitution In The Time Allocation Of Married Women, Ken Yamada Nov 2011

Intertemporal Substitution In The Time Allocation Of Married Women, Ken Yamada

Research Collection School Of Economics

This paper studies a life-cycle model of home production to examine how married women change their allocation of time in response to evolutionary movements along the life-cycle wage profile in Japan. After accounting for the potential bias due to heterogeneity, measurement error, weak instruments, and missing data, the estimates of intertemporal substitution elasticity obtained from the home production model are moderate and similar to those obtained from the standard labor supply model.

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Custodes Invicem Custodiunt: Commitment Through Competition, Madhav S. Aney, Giovanni Ko Nov 2011

Custodes Invicem Custodiunt: Commitment Through Competition, Madhav S. Aney, Giovanni Ko

Research Collection School Of Economics

How can specialists in violence, such as the military or the police, commit not to expropriate from producers? In this paper we propose competition between these agents as one of the mechanisms that can deter predation. In our model, even if specialists in violence could expropriate all output costlessly, it is attractive to protect producers from predators. This is because there is a marginal defensive advantage and consequently defense is an effective way to potentially eliminate other specialists in violence, reducing competition and leading to higher future payoffs. Hence, producers can offer transfers to specialists in violence that make defense …

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Arrow-Fisher-Hanemann-Henry And Dixit-Pindyck Option Values Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa Nov 2011

Arrow-Fisher-Hanemann-Henry And Dixit-Pindyck Option Values Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa

Research Collection School Of Economics

We extend the Arrow-Fisher-Hanemann-Henry (AFHH) and Dixit-Pindyck (DP) option values to game situations. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with the conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.

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Impact Of Food Inflation On Poverty In The Philippines, Tomoki Fujii Nov 2011

Impact Of Food Inflation On Poverty In The Philippines, Tomoki Fujii

Research Collection School Of Economics

We simulate the impact of actual food price increase between June 2006 and June 2008 on poverty across different areas and whether the household’s main income source is agricultural activities. We explicitly treat heterogeneity in food price changes and the patterns of consumption and production by merging a expenditure survey dataset and a price dataset at the provincial level or lower. While the increase of head count index is larger for non-agricultural households than agricultural households, the opposite is true for the poverty gap and poverty severity measures, because poor agricultural households are particularly vulnerable to food inflation.

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Double Asymptotics For An Explosive Continuous Time Model, Xiaohu Wang, Jun Yu Nov 2011

Double Asymptotics For An Explosive Continuous Time Model, Xiaohu Wang, Jun Yu

Research Collection School Of Economics

This paper develops a double asymptotic limit theory for the persistent parameter (θ) in an explosive continuous time model with a large number of time span (N) and a small number of sampling interval (h). The limit theory allows for the joint limits where N → ∞ and h → 0 simultaneously, the sequential limits where N → ∞ is followed by h → 0, and the sequential limits where h → 0 is followed by N → ∞. All three asymptotic distributions are the same. The initial condition, either fixed or random, appears in the limiting distribution. The simultaneous …

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Linear Programming-Based Estimators In Simple Linear Regression, Daniel P. A. Preve, Marcelo C. Medeiros Nov 2011

Linear Programming-Based Estimators In Simple Linear Regression, Daniel P. A. Preve, Marcelo C. Medeiros

Research Collection School Of Economics

In this paper we introduce a linear programming estimator (LPE) for the slope parameter in a constrained linear regression model with a single regressor. The LPE is interesting because it can be superconsistent in the presence of an endogenous regressor and, hence, preferable to the ordinary least squares estimator (LSE). Two different cases are considered as we investigate the statistical properties of the LPE. In the first case, the regressor is assumed to be fixed in repeated samples. In the second, the regressor is stochastic and potentially endogenous. For both cases the strong consistency and exact finite-sample distribution of the …

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Tilted Nonparametric Estimation Of Volatility Functions With Empirical Applications, Ke-Li Xu, Peter C. B. Phillips Oct 2011

Tilted Nonparametric Estimation Of Volatility Functions With Empirical Applications, Ke-Li Xu, Peter C. B. Phillips

Research Collection School Of Economics

This article proposes a novel positive nonparametric estimator of the conditional variance function without reliance on logarithmic or other transformations. The estimator is based on an empirical likelihood modification of conventional local-level nonparametric regression applied to squared residuals of the mean regression. The estimator is shown to be asymptotically equivalent to the local linear estimator in the case of unbounded support but, unlike that estimator, is restricted to be nonnegative in finite samples. It is fully adaptive to the unknown conditional mean function. Simulations are conducted to evaluate the finite-sample performance of the estimator. Two empirical applications are reported. One …

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Optimal Jackknife For Discrete Time And Continuous Time Unit Root Models, Ye Chen, Jun Yu Oct 2011

Optimal Jackknife For Discrete Time And Continuous Time Unit Root Models, Ye Chen, Jun Yu

Research Collection School Of Economics

Maximum likelihood estimation of the persistence parameter in the discrete time unit root model is known for su§ering from a downward bias. The bias is more pronounced in the continuous time unit root model. Recently Chambers and Kyriacou (2010) introduced a new jackknife method to remove the Örst order bias in the estimator of the persistence parameter in a discrete time unit root model. This paper proposes an improved jackknife estimator of the persistence parameter that works for both the discrete time unit root model and the continuous time unit root model. The proposed jackknife estimator is optimal in the …

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The Informal Economy And Bribery In North Korea, Byung-Yeon Kim, Yumi Koh Oct 2011

The Informal Economy And Bribery In North Korea, Byung-Yeon Kim, Yumi Koh

Research Collection School Of Economics

This paper uses the data of 227 North Korean refugees who have settled in South Korea to investigate the relationship between working in the informal economy (market component of the economy) and bribe-giving, and between bribe-giving and the number of hours worked in the formal sector (planned component of the economy). The first relationship is positive, and the second relationship is negative. These results imply that widespread informal economy activities in North Korea have been undermining the socialist regime through bribery.

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Non-Parametric Regression Under Location Shifts, Peter C. B. Phillips, Liangjun Su Oct 2011

Non-Parametric Regression Under Location Shifts, Peter C. B. Phillips, Liangjun Su

Research Collection School Of Economics

Recent work by Wang and Phillips (2009b, 2011) has shown that ill-posed inverse problems do not arise in non-stationary non-parametric regression and there is no need for non-parametric instrumental variable estimation. Instead, simple Nadaraya–Watson non-parametric estimation of a cointegrating regression equation is consistent irrespective of the endogeneity in the regressor. The present paper shows that some closely related results apply in the case of structural non-parametric regression with independent data when there are continuous location shifts in the regressor. Some interesting cases are discovered where non-parametric regression is consistent, whereas parametric regression is inconsistent even when the true regression functional …

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Family Background And Economic Outcomes In Japan, Ken Yamada Oct 2011

Family Background And Economic Outcomes In Japan, Ken Yamada

Research Collection School Of Economics

There has been increasing concern about the influence of elements of family background on children’s future outcomes in Japan. This paper empirically examines the long-term impact of family background, including sibling composition and parental attributes, and reveals how these elements of Japanese women’s family backgrounds affect their educational attainment and investment, labor market outcomes, family formation, and spousal characteristics.

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Money, Bargaining, And Risk Sharing, Nicolas L. Jacquet, Serene Tan Sep 2011

Money, Bargaining, And Risk Sharing, Nicolas L. Jacquet, Serene Tan

Research Collection School Of Economics

We investigate the dual role of money as a self-insurance device and a means of payment when perfect risk sharing is not possible, and when the two roles of money are disentangled. We use a variant of Lagos–Wright (2005) where agents face a risk in the centralized market (CM): in the decentralized market (DM) money’s main role is as a means of payment, while in the CM it is as a self-insurance device. We show that state-contingent inflation rates can improve agents’ ability to self-insure in the CM, thereby improving the terms of trade in the DM. We then characterize …

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The Wto Trade Effect, Pao Li Chang, Myoung-Jae Lee Sep 2011

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

Research Collection School Of Economics

This paper re-examines 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 bias, allows general forms of heterogeneous membership effects, and addresses potential hidden selection bias. This is in contrast to most conventional parametric studies on this issue. Our results suggest large GATT/WTO trade-promoting effects that are robust to various restricted matching criteria, alternative GATT/WTO indicators, non-random incidence of positive trade flows, inclusion of multilateral resistance terms, and different matching methodologies.

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Risk And The Technology Content Of Fdi: A Dynamic Model, Pao Li Chang, Chia-Hui Lu Aug 2011

Risk And The Technology Content Of Fdi: A Dynamic Model, Pao Li Chang, Chia-Hui Lu

Research Collection School Of Economics

This paper incorporates risk into the FDI decisions of firms. The risk of FDI failure increases with the gap between the South's technology frontier and the technology complexity of a firm's product. This leads to a double-crossing sorting pattern of FDI firms of intermediate technology levels are more likely than others to undertake FDI. It is with the attempt to relax the upper bound of the technology content of FDI, we argue, that many FDI policies are created. The theory's predictions are consistent with the empirical pattern of FDI in China by US and Taiwanese manufacturing firms.

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Testing For Multiple Bubbles, Peter C. B. Phillips, Shu-Ping Shi, Jun Yu Aug 2011

Testing For Multiple Bubbles, Peter C. B. Phillips, Shu-Ping Shi, Jun Yu

Research Collection School Of Economics

Identifying explosive bubbles that are characterized by periodically collapsing behavior over time has been a major concern in the literature and is of great importance for practitioners. The complexity of the nonlinear structure in multiple bubble phenomena diminishes the discriminatory power of existing tests, as evidenced in early simulations conducted by Evans (1991). Multiple collapsing bubble episodes within the same sample period make bubble diagnosis particularly difficult and complicate attempts at econometric dating. The present paper systematically investigates these issues and develops new procedures for practical implementation and surveillance strategies by central banks. We show how the testing procedure and …

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Simulated Maximum Likelihood Estimation For Latent Diffusion Models, Tore Selland Kleppe, Jun Yu, Hans J. Skaug Aug 2011

Simulated Maximum Likelihood Estimation For Latent Diffusion Models, Tore Selland Kleppe, Jun Yu, Hans J. Skaug

Research Collection School Of Economics

In this paper a method is developed and implemented to provide the simulated maximum likelihood estimation of latent diffusions based on discrete data. The method is applicable to diffusions that either have latent elements in the state vector or are only observed at discrete time with a noise. Latent diffusions are very important in practical applications in financial economics. The proposed approach synthesizes the closed form method of Ait-Sahalia (2008) and the efficient importance sampler of Richard and Zhang (2007). It does not require any infill observations to be introduced and hence is computationally tractable. The Monte Carlo study shows …

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Specification Sensitivities In Right-Tailed Unit Root Testing, Shu-Ping Shi, Peter C. B. Phillips, Jun Yu Aug 2011

Specification Sensitivities In Right-Tailed Unit Root Testing, Shu-Ping Shi, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

Right-tailed unit root tests have proved promising for detecting exuberance in economic and financial activities. Like left-tailed tests, the limit theory and test performance are sensitive to the null hypothesis and the model specification used in parameter estimation. This paper aims to provide some empirical guidelines for the practical implementation of right-tailed unit root tests, focusing on the sup ADF test of Phillips, Wu and Yu (2011), which implements a right-tailed ADF test repeatedly on a sequence of forward sample recursions. We analyze and compare the limit theory of the sup ADF test under different hypotheses and model specifications. The …

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