Economics Commons^™

Reviewing The Leverage Cycle, Ana Fostel, John Geanakoplos

Cowles Foundation Discussion Papers

We review the theory of leverage developed in collateral equilibrium models with incomplete markets. We explain how leverage tends to boost asset prices, and create bubbles. We show how leverage can be endogenously determined in equilibrium, and how it depends on volatility. We describe the dynamic feedback properties of leverage, volatility, and asset prices, in what we call the Leverage Cycle. We also describe some cross-sectional implications of multiple leverage cycles, including contagion, flight to collateral, and swings in the issuance volume of the highest quality debt. We explain the differences between the leverage cycle and the credit cycle literature. …

Reflections On Macroeconometric Modeling, Ray C. Fair

Cowles Foundation Discussion Papers

I have been doing research in macroeconomics since the late 1960s, almost 50 years. In this paper I pause and take stock. The paper is part personal reflections on macroeconometric modeling, part a road map of the techniques of macroeconometric modeling, and part comments on what I think I have learned about how the macroeconomy works from my research in this area.

The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris

Cowles Foundation Discussion Papers

We define and characterize a notion of correlated equilibrium for games with incomplete information, which we call Bayes correlated equilibrium: The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the information structure is characterized and shown to be equivalent to the set of Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures — which we call individual …

The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris

Cowles Foundation Discussion Papers

The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the given information structure is characterized and shown to be equivalent to the set of a version of incomplete information correlated equilibria which we dub Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures — which we call individual sufficiency — under which more information shrinks the set …

Estimating Smooth Structural Change In Cointegration Models, Jiti Gao, Degui Li, Peter C.B. Phillips

Cowles Foundation Discussion Papers

This paper studies nonlinear cointegration models in which the structural coefficients may evolve smoothly over time. These time-varying coefficient functions are well-suited to many practical applications and can be estimated conveniently by nonparametric kernel methods. It is shown that the usual asymptotic methods of kernel estimation completely break down in this setting when the functional coefficients are multivariate. The reason for this breakdown is a kernel-induced degeneracy in the weighted signal matrix associated with the nonstationary regressors, a new phenomenon in the kernel regression literature. Some new techniques are developed to address the degeneracy and resolve the asymptotics, using a …

Bayes Correlated Equilibrium And The Comparison Of Information Structures In Games, Dirk Bergemann, Stephen Morris

Cowles Foundation Discussion Papers

The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the given information structure is equivalent to the set of a version of incomplete information correlated equilibrium which we dub Bayes correlated equilibrium . A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We identify a partial order on many player information structures (individual sufficiency) under which more information shrinks the set of Bayes correlated equilibria.

Testing For Multiple Bubbles: Limit Theory Of Real Time Detectors, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu

Cowles Foundation Discussion Papers

This paper provides the limit theory of real time dating algorithms for bubble detection that were suggested in Phillips, Wu and Yu (2011, PWY) and Phillips, Shi and Yu (2013b, PSY). Bubbles are modeled using mildly explosive bubble episodes that are embedded within longer periods where the data evolves as a stochastic trend, thereby capturing normal market behavior as well as exuberance and collapse. Both the PWY and PSY estimates rely on recursive right tailed unit root tests (each with a different recursive algorithm) that may be used in real time to locate the origination and collapse dates of bubbles. …

Norming Rates And Limit Theory For Some Time-Varying Coefficient Autoregressions, Offer Lieberman, Peter C.B. Phillips

Cowles Foundation Discussion Papers

A time-varying autoregression is considered with a similarity-based coefficient and possible drift. It is shown that the random walk model has a natural interpretation as the leading term in a small-sigma expansion of a similarity model with an exponential similarity function as its autoregressive coefficient. Consistency of the quasi-maximum likelihood estimator of the parameters in this model is established, the behaviors of the score and Hessian functions are analyzed and test statistics are suggested. A complete list is provided of the normalization rates required for the consistency proof and for the score and Hessian functions standardization. A large family of …

Testing Linearity Using Power Transforms Of Regressors, Yae In Baek, Jin Seo Cho, Peter C.B. Phillips

Cowles Foundation Discussion Papers

We develop a method of testing linearity using power transforms of regressors, allowing for stationary processes and time trends. The linear model is a simplifying hypothesis that derives from the power transform model in three different ways, each producing its own identification problem. We call this modeling difficulty the trifold identification problem and show that it may be overcome using a test based on the quasi-likelihood ratio (QLR) statistic. More specifically, the QLR statistic may be approximated under each identification problem and the separate null approximations may be combined to produce a composite approximation that embodies the linear model hypothesis. …

Heterogeneous Response Of Disaggregate Inflation To Monetary Policy Regime Change: The Role Of Price Stickiness, Chi-Young Choi, Róisín O'Sullivan

Economics: Faculty Publications

This paper explores the impact of monetary policy regime change on sectoral and regional inflation by analyzing the case of Canada and its adoption of inflation targeting (IT). Using disaggregated CPI data for Canada from 1978, we find that responses to the change in the monetary policy framework are quite heterogeneous, particularly across sectors. While inflation series in the traditionally volatile commodity sectors exhibit weak responses to the regime change, those in the so-called core sectors are highly responsive. This pattern is evident in both national and provincial level data, indicating that it is the core sectors that are crucial …

Casinos Would Not Help New York’S Schools, John Yinger

Center for Policy Research

It’s Elementary is a series of essays on topics in education and education policy. The main focus is on education finance in New York State, but general research findings in education and education policy issues in several other states are also discussed. John Yinger, Professor of Economics and Public Administration at the Maxwell School, Syracuse University is the author of most of these essays, although a few are written by or co-authored with other scholars.

Does Gender Inequality Retard Productivity In Nigeria?: A Search For Evidence, P. D. Golit, O. Adesanya

Economic and Financial Review

The paper adopted the bounds test and autoregressive distributed lag approach to evaluate the impact of gender inequality in education on real productivity in Nigeria using quarterly data from 1985 to 2011. Empirical evidence to establish the rejection of the null hypothesis of no cointegration among the variables was provided . The empirical results suggest that gender inequality in education depresses real productivity, with an output elasticity of -0.1 per cent per quarter. Further empirical evidence indicates that higher school enrolment of males enhances real productivity in Nigeria, while the influence of female school enrolment was not affirmative owing to …

Government Size And Economic Growth In Nigeria: A Test Of Wagner's Hypothesis, M. Y. Dogo, U. M. Okpanachi, A. A. Muhammad, C. V. Umolu, K. J. Ajayi

Economic and Financial Review

This paper attempts an empirical validation of Wagner's law in Nigeria using quarterly data for the period 1982 to 2012. The hypothesis that real income does not Granger-cause government expenditure was rejected. Adopting the Fully Modified Ordinary Least Square (FMOLS) regression techniques, the study found support for the Wagner's hypothesis in Nigeria. The analysis provided empirical evidence to support the existence of a long-run equilibrium relationship between economic activity and government expenditure in Nigeria. Overall, the results corroborated the Goffman's version of the Wagner's law in Nigeria. Thus, government needs to create fiscal space to enable deployment of more resources …

Peer Effects In The Demand For Housing Quality, Eleonora Patacchini, Giuseppe Venanzoni-Sapienza

Center for Policy Research

Using detailed data on friendship networks within neighborhoods, we investigate the importance of social interactions in one's own residential neighborhood in the demand for housing quality. We find evidence consistent with the presence of peer effects, especially for households living in urban areas. Our findings are in line with the prediction of a model where conformity preferences are the key element underlying economic outcomes that involve interactions with peers.

Determinants Of Bilateral Trade Performance Of The Member Countries Of The West African Monetary Zone (Wamz), E. Osuji

Economic and Financial Review

This study sought to identify the drivers of import demand in the region, as a basis for proposing achievable alternative strategies for enhancing the level of intra-regional trade in the Zone. The study estimated a global import trade model for the Zone to establish the key determinants of its import demand. Using the pooled regression technique, the study analyzed quarterly data spanning the period 1985 to 2012, for the five original member countries of the WAMZ. The following is a highlight of the outcome of the analyses: given its positive sign and significance, trade liberalisation has the potential of boosting …

I&M Exclusive Interview: Dr. Ishrat Husain, I&M

Faculty Research - Newspaper and Magazine Articles

Dr. Ishrat Husain, we admire your extraordinary contributions to the development of Pakistan's economy in very senior government positions and as an economist through your writings and speeches. You have enriched the proceedings of many conferences and seminars with your presentations and speeches. Today, throughout Pakistan, you are respected for your wisdom and you are a source of inspiration for young professionals.

Simulation Analysis Of The Louisiana Unemployment Insurance Tax System: Final Report, Christopher J. O'Leary

Upjohn Institute Technical Reports

Unemployment insurance (UI) is a federal-state program designed to provide adequate partial income replacement to workers during temporary periods of involuntary joblessness. The UI system acts as an automatic macroeconomic stabilizer, increasing spending during recessions and reducing aggregate spending during recoveries. The program helps prevent recipients from slipping into poverty during unemployment.

This report reviews the recent history of financing regular UI benefits in Louisiana, assesses the adequacy of financing, and suggests areas where the financing system could be improved. The project aims to identify possible system reforms that will 1) assure long-term financial stability, 2) increase tax equity, and …

Mountain Monitor - 2nd Quarter 2013, Kenan Fikri, Mark Muro

Mountain Monitor Quarterly

Economic recovery progressed steadily across the metropolitan Mountain West in the second quarter of 2013. Many of the region’s major metro areas counted among the strongest economic performers nationally, but output growth slowed over the quarter and the region‘s unemployment recovery looked to be stagnating. Moderate job growth and a fast and accelerating housing recovery buoyed the Mountain West economy in the second quarter.

The Effects Of School Desegregation On Teenage Fertility, Robert Bifulco, Leonard M. Lopoo, Sun Jung Oh

Center for Policy Research

The school desegregation efforts following the historic Supreme Court ruling in Brown v. Board of Education (1954) represent one of the most important social policy initiatives of the 20th century. Despite a large research literature on desegregation and educational outcomes, its effects on the lives of individuals are still not fully understood. In this paper we examine the effects of desegregation on the fertility of teenagers. Our findings suggest that desegregation increased the fertility of African American teens and is unrelated to the fertility of white teens.

Exchange-Rate Pass Through, Openness, And The Sacrifice Ratio, Joseph P. Daniels, David D. Vanhoose

Economics Faculty Research and Publications

Considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation–output trade-off and suggests that the ultimate effect of openness on the output–inflation relationship is influenced by a variety of factors. In this paper, we consider the impact of exchange-rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio. We develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output–inflation relationship. Next we empirically explore the nature of these two variables and their interaction. Results indicate that greater …

The Political Investment Cycle Within China: The Next Transition And Its Investment Implications, Abdur Chowdhury, Barry K. Mendelson

Economics Faculty Research and Publications

No abstract provided.

Sentiment Bias In National Basketball Association Betting, Arne Feddersen, Brad R. Humphreys, Brian P. Soebbing

Economics Faculty Working Papers Series

We develop evidence of bettors with sentiment bias in the betting market on National Basketball Association (NBA) games. We use novel measures of team popularity, arena capacity-utilization and team all star votes received, as proxies for the presence of biased investors. Analysis of point spreads and bet outcomes for more than 33,000 NBA games played in 1981-2012 shows that bookmakers oer favorable point spreads on games involving popular teams, an outcome consistent with sentiment bias. These favorable point spreads do not translate into higher returns for informed bettors, suggesting that bookmakers shade point spreads to increase their profits.

Sentiment Bias And Asset Prices: Evidence From Sports Betting Markets And Social Media, Arne Feddersen, Brian P. Soebbing, Brad R. Humphreys

Economics Faculty Working Papers Series

Previous research using attendance-based proxies for the number of investors with sentiment bias supported the presence of investor sentiment in sports betting markets. We use data from social media (Facebook "Likes") to proxy for participants with investor sentiment and analyze variation in prices set by bookmakers for evidence of influence from investor sentiment. Based on prices and outcomes over two seasons in seven professional sports leagues in Europe and North America, we develop new evidence that asset prices reflect the presence of investor sentiment in these markets, or that bookmakers believe they exist, by offering favorable betting lines …

Do Markets Promote Immoral Behavior?, Fred Foldvary

Faculty Publications

Pure markets enhance good behavior, because in such arrangements, voluntary acts are rewarded and involuntary acts are punished. A pure market, as we define it, consists only of voluntary human action. That’s because a truly free market includes governance structuresthat penalize coercive harm, and such pure markets do not impose any restrictions or costs on honest and peaceful human activity.Critics of markets think otherwise. They point to slave markets or a market for stolen goods as examples of market immorality.

Oil Prices Once Again: The Link Towards Middle East Economies, Erhan Aslanoğlu, Pinar Deniz

Topics in Middle Eastern and North African Economies

Recently, it is observed that current account surplus in oil exporting countries have been rising with the help of peaking oil prices. Expansionary monetary policies of major central banks boosting the speculation on commodity prices, political turmoil in Middle East region which is called the “Arab Spring,” and most importantly rising energy demand in the world economy due to high average growth rates of developing countries are argued to be the main reasons for the rising oil prices. This study aims to clarify the global stance of oil prices examining causes and how this affects Middle East economies (MEEs) separately …

Turkey’S Comparative Advantages And Dynamic Market Positioning In The Eu Market, Seda Ekmen-Özçelik, Güzin Erlat

Topics in Middle Eastern and North African Economies

No abstract provided.

Unemployment Insurance, Stephen A. Woodbury

Upjohn Institute Working Papers

Unemployment insurance (UI) provides temporary income support to workers who have lost their jobs and are seeking reemployment. This paper reviews the origins of the federal-state UI system in the United States and outlines its principles and goals. It also describes the conditions for benefit eligibility, the benefits themselves, and their financing through the UI payroll tax. The UI system is complex and includes many interested parties, including employers, worker advocates, state UI administrators, and the federal government. These parties’ differing views have led to controversies over benefit eligibility, adequacy, and whether the states or federal government should bear primary …

Modeling Myopia: Application To Non-Renewable Resource Extraction, Tomoki Fujii

Research Collection School Of Economics

We develop a parsimonious model of myopia with an infinitesimal period of commitment as an extension to a standard dynamic optimization in a continuous-time environment. We clearly distinguish the processes of planning future controls and choosing the current control, which makes the model both analytically and numerically convenient. In its application to a simple non-renewable resource extraction problem, we show that whether the terminal time is free or fixed determines the appropriateness of the approximation to myopic agents by constant discounting. We also show that the expiry of extraction permits may be useful in the presence of myopia.

Shrinkage Empirical Likelihood Estimator In Longitudinal Analysis With Time-Dependent Covariates: Application To Modeling The Health Of Filipino Children, Denis H. Y. Leung, Dylan S. Small, Jing Qin, Min Zhu

Research Collection School Of Economics

The method of generalized estimating equations (GEE) is a popular tool for analysing longitudinal (panel) data. Often, the covariates collected are time-dependent in nature, for example, age, relapse status, monthly income. When using GEE to analyse longitudinal data with time-dependent covariates, crucial assumptions about the covariates are necessary for valid inferences to be drawn. When those assumptions do not hold or cannot be verified, Pepe and Anderson (1994, Communications in Statistics, Simulations and Computation 23, 939–951) advocated using an independence working correlation assumption in the GEE model as a robust approach. However, using GEE with the independence correlation assumption may …

Heteroskedasticity And Non-Normality Robust Lm Tests Of Spatial Dependence, Badi H. Baltagi, Zhenlin Yang

Research Collection School Of Economics

The standard LM tests for spatial dependence in linear and panel regressions are derived under the normality and homoskedasticity assumptions of the regression disturbances. Hence, they may not be robust against non-normality or heteroskedasticity of the disturbances. Following Born and Breitung (2011), we introduce general methods to modify the standard LM tests so that they become robust against heteroskedasticity and non-normality. The idea behind the robustification is to decompose the concentrated score function into a sum of uncorrelated terms so that the outer product of gradient (OPG) can be used to estimate its variance. We also provide methods for improving …