Most recent papers:

• Effect of the Tax System ON R&D Intensity, Growth, Wages and Consumption Share.
  Óscar Afonso, Ana Maria Bandeira, Manuela Magalhães.
  Australian Economic Papers. October 13, 2017
  We propose a general equilibrium knowledge‐driven (semi‐)endogenous‐growth model with horizontal R&D, which is extended to consider two types of labour, skilled and unskilled, and exogenous government expenditure, financed through taxes on financial assets and on labour income, to analyse the implications of the tax system on R&D intensity, economic growth, wage inequality and consumption share in the output. In particular, we show that: (i) taxes have negative influence in the consumption share, being higher the marginal effect of the labour‐income tax; (ii) for any given government expenditure share, an increase (a decrease) in financial‐assets tax decreases (increases) the labour‐income tax; (iii) only the financial‐assets tax affects negatively the R&D intensity and the skill‐premium; thus, to reduce the skill‐premium the financial‐assets tax must increase; (iv) ignoring the effect on wage inequality and on R&D intensity, taxes are substitutes.

  October 13, 2017   doi: 10.1111/1467-8454.12102   open full text
• A Note on Optimal Industrial Policy Towards Bertrand Homogeneous Duopoly.
  Qi Duan, Jie Ma.
  Australian Economic Papers. October 13, 2017
  Recent studies in strategic trade and industrial policy analysis suggest that an investment subsidy, in the form of an R&D subsidy, a capacity subsidy or an advertising subsidy, would be a robust industrial policy recommendation towards an international differentiated oligopoly. However, in this paper, we show that this result does not carry over to the case of a Bertrand homogeneous duopoly. This result together with the fact that the optimal industrial policy is to set an investment subsidy when in product market competition firms play a Cournot output game, imply immediately that there hardly exists a robust industrial policy recommendation towards homogeneous goods industries.

  October 13, 2017   doi: 10.1111/1467-8454.12101   open full text
• The Bilateral J‐Curve in Australia: A Nonlinear Reappraisal.
  Mohsen Bahmani‐Oskooee, Muhammad Shafiullah, Faridul Islam.
  Australian Economic Papers. September 26, 2017
  Since the introduction of error‐correction and cointegration techniques, the J‐curve effect implies an initial short‐run deterioration of the trade balance, followed by improvement later due to currency devaluation. In a previous study of Australia’s bilateral trade, with each of her 23 partners, using the linear Autoregressive Distributed Lag (ARDL) approach we found the J‐curve effect in the model with the United Kingdom only. However, after incorporating the ARDL model that allows for nonlinear adjustment of exchange rate changes, we found the effect on four more partners – all asymmetrically. Furthermore, we document short‐run asymmetry in exchange rate changes in almost all models; short‐run adjustment asymmetry, and impact‐asymmetry in almost half of the models.

  September 26, 2017   doi: 10.1111/1467-8454.12099   open full text
• Does Institutional Quality Matter for Financial Development and Growth? Further Evidence from MENA Countries.
  Ali M. Kutan, Nahla Samargandi, Kazi Sohag.
  Australian Economic Papers. September 26, 2017
  This study scrutinises the role of institutional quality in the linkage of financial development and economic growth in 21 Middle East and North African (MENA) countries. Using the common correlated effect mean pooled approach and annual data for the period 1980–2012, we find that not all measures of financial development promote economic growth in the absence of institutional quality, but they all augment growth in the presence of institutional quality. Furthermore, we find that foreign direct investment enhances the growth of MENA countries by the development of financial markets.

  September 26, 2017   doi: 10.1111/1467-8454.12097   open full text
• Choosing Price or Quantity? The Role of Delegation and Network Externalities in a Mixed Duopoly.
  Yasuhiko Nakamura.
  Australian Economic Papers. June 06, 2017
  This paper considers a differentiated goods managerial mixed duopoly composed of one social welfare‐maximising public firm and one profit‐maximising private firm. We model the firm choice of the strategic contract. We find that when the strength of network effects is sufficiently strong, the price competition can become the unique equilibrium market structure. Furthermore, we show that there exists an area of the degree of product differentiation and the strength of network effects such that the situation wherein the public firm chooses its price contract whereas the private firm chooses its quantity contract can become the unique equilibrium structure.

  June 06, 2017   doi: 10.1111/1467-8454.12079   open full text
• Diversification into Emerging Markets – An Australian and the US Perspective Using a Time‐varying Approach.
  Rakesh Gupta, Junhao Yang, Thadavillil Jithendranathan.
  Australian Economic Papers. June 06, 2017
  Over the past two decades, a number of studies have examined the benefits of diversifying equity investments internationally, particularly into emerging markets. In the portfolio construction process, many researchers have criticised Markowitz's Portfolio Theory because of its inherent assumptions such as symmetric and constant correlations. In this study, we use a conditional copula model to estimate the time‐varying asymmetric correlations of stock markets and construct optimal portfolios by using estimated correlations. We find that optimised portfolios provide significant benefits for both Australian and the US investors. Out‐of‐sample results show Copula model provides results closer to the in‐sample‐estimated benefits of diversification. The results have important implications for portfolio managers who seek to diversify into emerging markets.

  June 06, 2017   doi: 10.1111/1467-8454.12081   open full text
• Cyclical Multiplier and Zero Low Bound Effects of Government Expenditure on Economic Growth: Evidence for Greece.
  Constantinos Alexiou, Joseph G. Nellis.
  Australian Economic Papers. June 06, 2017
  This study explores the impact of government expenditure multipliers on economic growth utilising an Autoregressive Distributed Lag (ARDL) approach. We provide evidence on the short‐term dynamics as well as the long‐run expenditure multiplier effects on economic growth for the Greek economy over the period 1960–2014. We find that the size of the multiplier does not differ substantially over the phases of the business cycle. Our results also indicate that irrespective of the scale of inflation, government expenditure positively affects economic growth, whilst inconclusive evidence is obtained in the case of exceptionally low interest rates.

  June 06, 2017   doi: 10.1111/1467-8454.12084   open full text
• Optimal Sovereign Debt for an Overdebted Country.
  Basil Dalamagas, Stefanos Tantos.
  Australian Economic Papers. June 06, 2017
  In this study, the role of debt maturity is analysed in a framework that blends a number of key macro‐economic factors with a process of estimating an optimal debt maturity maximising net present value. The purpose is to reduce the real value of government liabilities for a highly indebted country, as for example in the case of Greece, over a 35‐year period. The conclusion that emerges is that management of debt maturity is an essential component of the equilibrium policy and, as such, it can play an important role both in implementing tax smoothing programmes and in reducing costs associated with debt financing.

  June 06, 2017   doi: 10.1111/1467-8454.12080   open full text
• Business Cycle Asymmetries and Nonlinearity in UAE Macroeconomic Time Series.
  Mohamed Osman, Ariful Hoque, Kamrul Hassan.
  Australian Economic Papers. March 23, 2017
  This study investigates the dynamic behaviour of macroeconomic time series variables of the United Arab Emirates. We first examined whether there are non‐Gaussian characteristics associated with the macroeconomic variables of the United Arab Emirates. Through application of the BDS nonlinearity test, our results indicated that there is a substantial nonlinear dependence in the data set for all the variables. We also assessed the asymmetric behaviour of these variables by exploring whether they exhibit two particular forms of asymmetry, which are deepness and steepness asymmetries. These results have shown that there is no empirical evidence of business cycle asymmetry in all the variables at any conventional level of significance in the sample period. Also, through application of further robust testing, our findings indicate the presence of pro‐cyclical asymmetry in some of the variables and at the same time indicate the presence of asymmetries in the volatility.

  March 23, 2017   doi: 10.1111/1467-8454.12093   open full text
• Capital Inflows and House Prices: Aggregate and Regional Evidence from China.
  Hui An, Lijie Yu, Rakesh Gupta.
  Australian Economic Papers. March 23, 2017
  Rising house prices in China have been of concern for investors and policymakers. Prices have risen substantially in the last decade, especially in large urban cities, and some economists have expressed concerns about the affordability of residential housing for young adults. This phenomenon becomes a major concern for policymakers, in terms of managing policies to balance the residential needs of individuals and the transition to a market economy. Theoretically, house prices ought to be linked to economic factors such as disposable income, availability of land to build and credit policy. However, it appears that traditional economic theories fail to appropriately explain house prices in China. We provide an explanation from the perspective of capital inflows into China. In terms of per capita remittances, China receives the highest inflow of foreign capital, and this may have a significant impact on risk adjusted returns in the Chinese market. To investigate this relationship, we use the vector error correction model to assess the impact of capital inflows on house prices. We find that capital inflows have a significant positive effect on house prices. The study makes important contributions to understanding the relationship between house prices and foreign remittances after controlling for other economic factors. China is a large economy. Because the impact of economic development in China has not been consistent across the country, we address the regional differences in the house price changes to capital inflows. Using regional data, we show that capital inflows have an asymmetric effect on the housing market across different provinces and cities of China. This has important implications for the development of economic policies in China that aim to provide fair access to residential housing for everyone. These findings are also relevant to investors in the housing market, whether investing for a personal residential home or as part of their diversified investment portfolio. It will also be informative to see how a reversal of capital inflows associated with tighter financing conditions in advanced countries will affect house prices in China.

  March 23, 2017   doi: 10.1111/1467-8454.12095   open full text
• Interest Rate Linkages between Offshore and Onshore Renminbi Markets.
  Yongqi Feng, Tianshu Zhang.
  Australian Economic Papers. March 23, 2017
  We examine the interest rate volatility spillover between the offshore and onshore Renminbi (RMB) markets. The Hong Kong inter‐bank RMB offer rate (CNY HIBOR) and the Shanghai inter‐bank offer rate (SHIBOR) are used, respectively, as the interest rates for the offshore and onshore RMB markets. The results of our research show that there was significant volatility spillover between the offshore and onshore RMB prior to 21 June 2013 and that direction of the spillover from the SHIBOR to the CNY HIBOR is stronger than that from CNY HIBOR to SHIBOR. However, the spillover declined in strength between 21 June 2013 and 20 April 2016. We also find that the interest rate correlations are low and unstable. Our research reveals that the offshore RMB interest rate has been an independent system that is not determined by the onshore market, and that the determination of the offshore RMB interest rate is very complicated. The Hong Kong market is increasingly playing a more important role in the determination of the RMB. This study contributes to our understanding of the interest rate determination in China and has important implications for policy makers in terms of interest rate policies in the offshore and onshore RMB markets.

  March 23, 2017   doi: 10.1111/1467-8454.12094   open full text
• Out‐of‐Sample Exchange Rate Forecasting and Macroeconomic Fundamentals: The Case of Japan.
  Takashi Matsuki, Ming‐Jen Chang.
  Australian Economic Papers. March 23, 2017
  This study explores the respective out‐of‐sample exchange rate forecasting abilities of five macroeconomic fundamental models in comparison to a naïve random walk model for Japan during the post‐Bretton Woods era. To assess the influence of major economic changes, we estimate both linear and nonlinear models for all the macroeconomic fundamentals. Overall, most structural exchange rate models outperform a naïve random walk model in terms of forecasting accuracy in the short horizon. When the fundamentals are only linearly modelled, the forecasting ability of the Taylor rule is generally superior to other fundamental models. When the fundamentals are nonlinearly specified, the predictability of some other models rises dramatically to match that of the Taylor rule models in short and/or long horizons. Of importance, we determine that the yen/dollar exchange rate forecasting performance effectively improves in several fundamental models when influential economic changes are incorporated.

  March 23, 2017   doi: 10.1111/1467-8454.12088   open full text
• Firm Value, Corporate Cash Holdings and Financial Constraint: A Study from a Developing Market.
  Thi Lien Hoa Nguyen, Le Ngan Trang Nguyen, Thi Phuong Vy Le.
  Australian Economic Papers. March 23, 2017
  This paper investigates the nonlinear relationship between firm value and corporate cash holdings in a sample of non‐financial Vietnamese firms from 2008 to 2013. We focus on both static and dynamic regressions to test for a nonlinear relationship. Our results reveal an ‘inverse U‐shape’ relationship between firm value and cash holdings, which is in line with trade‐off theory. Specially, we further test whether the optimal cash level changes under different financial conditions. In turn, this paper shows evidence of a nonlinear relationship between firm value and cash holdings under different financial circumstances and that each type of firm will adjust its optimal cash level based on business conditions.

  March 23, 2017   doi: 10.1111/1467-8454.12082   open full text
• Management Behaviour in Vietnamese Commercial Banks.
  Thanh Pham Thien Nguyen, Son Hong Nghiem, Eduardo Roca.
  Australian Economic Papers. March 23, 2017
  This study identifies managerial behaviour in Vietnamese banks between the years 2000 and 2014, based on the managerial framework of banks, as identified by Rossi et al. (). This framework is built on the interrelationships between efficiency, risk, capital and diversification. This study uses the Z‐score to measure insolvency risk, the SFA to estimate cost efficiency, the ratio of total equity to total assets to capture bank capital and the HHI index to measure the diversification of revenue and earning assets. The results from the 3SLS estimator indicate that revenue diversification has an insignificant impact on insolvency risk, capital ratio and cost efficiency, but earning assets diversification has a negative effect on these three variables, supporting ‘classical diversification’, ‘economic capital’ and ‘monitoring’ behaviours. Moreover, a decline in cost efficiency leads to a rise in insolvency risk, implying ‘bad management’ behaviour; an increase in risk results in a reduction in cost efficiency, indicating ‘bad luck’ behaviour; and a reduction in capital ratio in the poorly capitalised banks leads to a growth in risk, suggesting ‘moral hazard’ behaviour. The results remain strongly robust when using an alternative risk measurement (the loan loss provision ratio) and an alternative SFA model.

  March 23, 2017   doi: 10.1111/1467-8454.12085   open full text
• Ownership Structure and Capital Structure: A Study of Vietnamese Listed Firms.
  Thi Phuong Vy Le, Kathy Tannous.
  Australian Economic Papers. March 23, 2017
  This paper examines the relationships between ownership structure and capital structure for non‐financial listed firms in Vietnam during the period 2007–2012. Although different approaches are applied in this research, all results from those models are consistent. The study finds that while foreign ownership has a negative impact on leverage, state ownership has a positive influence. Managerial ownership has a positive relation with debt level, while the effect of large ownership on debt level is not conclusive.

  March 23, 2017   doi: 10.1111/1467-8454.12089   open full text
• Government Size and Stochastic Growth.
  Shin‐Chyang Lee, Shang‐Fen Wu, Cheng‐Te Lee.
  Australian Economic Papers. January 20, 2017
  This paper analyses the effects of the size of government on economic growth in a stochastic endogenous growth model involving the supply‐side effect and demand‐side effect produced by government spending. We show that a rise in the government spending affects economic growth through three channels, including the crowding‐out effect, the spin‐off effect and the resource mobilisation effect. We demonstrate that there exists an optimal size of government that maximises the economic growth rate.

  January 20, 2017   doi: 10.1111/1467-8454.12086   open full text
• Australian Bond Excess Returns: An Asset Allocation Perspective.
  Rui Chen, Meng Wang, Jiri Svec.
  Australian Economic Papers. January 20, 2017
  We examine the out‐of‐sample predictability of excess returns in the Australian government bond market. Our results confirm previous findings that a linear combination of forward rates provides a statistically significant prediction of bond excess returns on 1‐ to 5‐year maturity bonds. However, from an asset allocation perspective, our predictive model fails to obtain positive economic utility against the no‐predictability benchmark. Our results are robust to the sample period and different parameter assumptions.

  January 20, 2017   doi: 10.1111/1467-8454.12087   open full text
• Environmental Kuznets Curve with Adjusted Net Savings as a Trade‐Off Between Environment and Development.
  Martin Neve, Bertrand Hamaide.
  Australian Economic Papers. January 20, 2017
  The Environmental Kuznets Curve (EKC) hypothesises that emissions first increase at low stages of development then decrease once a certain threshold has been reached. The EKC concept is usually used with per capita Gross Domestic Product as the explanatory variable. As others, we find mixed evidence, at best, of such a pattern for CO2 emissions with respect to per capita GDP. We also show that the share of manufacture in GDP and governance/institutions play a significant role in the CO2 emissions–income relationship. As GDP presents shortcomings in representing income, development in a broad perspective or human well‐being, it is then replaced by the World Bank's Adjusted Net Savings (ANS, also known as Genuine Savings). Using the ANS as an explanatory variable, we show that the EKC is generally empirically supported for CO2 emissions. We also show that human capital and natural capital are the main drivers of the downward sloping part of the EKC.

  January 20, 2017   doi: 10.1111/1467-8454.12078   open full text
• Corporation Diversification and Firm Performance: Evidence from Vietnamese Listed Firms.
  Duc Nam Phung, Anil V. Mishra.
  Australian Economic Papers. January 20, 2017
  We examine the effect of corporate diversification on the performance of firms listed on the Vietnamese stock exchanges, using 2744 firm year observations over the period from 2007 to 2012. We find that corporate diversification has a negative impact on firm performance. Our results are robust to various econometric estimation techniques including fixed effect, instrumental fixed effect, Heckman selection model and system generalised method of moments. In the Vietnamese context, the lack of an efficient corporate governance system may encourage firms to follow corporate diversification strategies, thus impairing their performance.

  January 20, 2017   doi: 10.1111/1467-8454.12083   open full text
• Designing the optimal public pension system.
  Takao Fujii, Fumiaki Hayashi, Jun Iritani, Kazumasa Oguro.
  Australian Economic Papers. January 20, 2017
  This paper uses a two‐period overlapping generations model in order to provide a theoretical design for the optimal public pension system based on a partial equilibrium analysis. Household preferences depend on two periods' consumption and leisure and are positively homogeneous of degree m with respect to consumption in the working and retired periods. We present characteristic features of the optimal public pension system in this paper. First, differences in the population growth rate do not affect the large/small relation between the optimal net lifetime burden rates of generations. Second, we present the optimal public pension system explicitly if m < 1 and m ≠ 0. Third, the difference between the market time‐preference rate and the social time‐preference rate provides a crucial insight into the optimal burden rate of each generation.

  January 20, 2017   doi: 10.1111/1467-8454.12077   open full text
• Economic Integration, Growth and Income Distribution.
  Kuo‐Hsing Kuo, Cheng‐Te Lee.
  Australian Economic Papers. September 19, 2016
  This paper constructs a two‐sector growth model with heterogeneous labour, to explore the impact of the economic integration on growth and income distribution. There are two sectors in each country, including the consumption‐good sector and the R&D sector. We suppose that the R&D sector produces new blueprints or ideas for these innovations, and hence provides the engine of growth. Assume that the talent's distribution of workers is the uniform distribution. We show that the economic integration will stimulate the developing countries' economic growth and then decrease its income inequality. In addition, we also demonstrate that if the growth rate of the advanced country rises after the integration, then income inequality of that will increase, and vice versa.

  September 19, 2016   doi: 10.1111/1467-8454.12076   open full text
• Endogenous Growth and Intellectual Property Rights: A North–South Modelling Proposal with Population Ageing.
  Mónica L. Azevedo, Óscar Afonso, Sandra T. Silva.
  Australian Economic Papers. September 19, 2016
  This paper studies the effect of intellectual property rights (IPR) on economic growth, in the light of population ageing, i.e., in a more realistic context. The analysis is motivated by the implications of population ageing on economic growth. Moreover, this study analyses this relationship in a north–south framework where there is a healthcare sector. We conclude that population ageing has no impact on the sign of the IPR effect on economic growth. However, it positively affects the steady‐state growth rate. Finally, under some conditions, the presence of the healthcare sector also increases the steady‐state growth rate.

  September 19, 2016   doi: 10.1111/1467-8454.12075   open full text
• Monetary Policy Transmission in Vietnam: Evidence from a VAR Approach.
  Xuan Vinh Vo, Phuc Canh Nguyen.
  Australian Economic Papers. August 25, 2016
  A thorough understanding of the transmission mechanism is a key requirement for central banks for successful implementation of monetary policy. This paper investigates the existence of the interest rate channel, exchange rate channel and asset price channel in Vietnam by employing a vector autoregressive model analysis using monthly data ranging from 2003M1 to 2012M12. The results from the analysis present evidence for a cost channel. However, we find no evidence for the existence of an exchange rate channel or asset price channel of monetary transmission in Vietnam.

  August 25, 2016   doi: 10.1111/1467-8454.12074   open full text
• Asymmetry Effects of Exchange Rate Changes on Domestic Production: Evidence from Nonlinear ARDL Approach.
  Mohsen Bahmani‐Oskooee, Amirhossein Mohammadian.
  Australian Economic Papers. June 03, 2016
  Currency depreciation is said to have positive or negative effects on domestic production. Previous studies that tried to address this issue using Australian data have been inconclusive at best but mostly showed no effects. One common feature of all studies is that they have assumed that the effects of exchange rate changes are symmetric. In this paper, we use the concept of partial sum and separate appreciations from depreciations to test whether the effects are symmetric or asymmetric. Application of the nonlinear ARDL approach of Shin et al. (2014) reveals that indeed the effects of changes in the real effective exchange rate of the Australian dollar are asymmetric in the short run as well as in the long run. While in the short run both appreciations and depreciations affect Australian domestic production, only effects of appreciation last into the long run, a unique finding.

  June 03, 2016   doi: 10.1111/1467-8454.12073   open full text
• Optimal Intertemporal Consumption and Involuntary Memories of Consumption.
  Stan Miles, Peter Smoczynski.
  Australian Economic Papers. June 03, 2016
  Recent studies introduce the notion of treating autobiographical memories of past pleasurable experiences as assets and expanding the discounted utility model to include the utility of memories of past consumption. Recent studies in psychology have found that involuntary autobiographical memories are common in everyday life. This paper builds on these two strands in the literature by expanding the discounted utility model to include the utility of involuntary memories of past consumption. Optimal control theory is used to develop a continuous‐time optimal consumption model that takes into account the fact that consumption may generate involuntary memories that arrive at random times. The model is used in an in‐depth analysis of optimal consumption with memories. It is shown that memories shift consumption to earlier times. This effect gets weaker as the time horizon gets longer, and it vanishes entirely when the time horizon is infinite.

  June 03, 2016   doi: 10.1111/1467-8454.12072   open full text
• “Fair go” for all? Wealth and Risk Aversion of Australian Households*.
  Stamatios Tsigos, Kevin Daly.
  Australian Economic Papers. May 25, 2016
  A mean‐variance framework is applied to Australian household financial portfolios in order to provide estimates of relative risk aversion in the economy. Controlling for various socio‐economic characteristics, we explore whether risk aversion heterogeneity is a function of wealth heterogeneity. In contrast to most studies, we find evidence of very high risk aversion amongst the majority of households of poor households but vastly lower risk aversion amongst the high percentiles in the wealth distribution. Applying a first differences model across three survey waves spanning 2002 to 2010, we find that risk tolerance increases significantly with wealth. Risk tolerance is positively associated with mortgage payments, but rental payments have no relationship. In addition, we found no evidence that holding a university education has any discernible impact on risk aversion. Lastly, we present some preliminary findings as to the impact of financial advice on observed risk aversion. Financial advice is found to accentuating risk aversion, particularly amongst the wealthiest households. The findings have potential implications for the distribution of wealth in Australia that has received renewed interest recently.

  May 25, 2016   doi: 10.1111/1467-8454.12064   open full text
• Monetary Policy Announcements, Communication, and Stock Market Liquidity.
  Jieun Lee, Doojin Ryu, Ali M. Kutan.
  Australian Economic Papers. May 25, 2016
  Using the high‐quality intraday transaction data from 2001–2012, we investigate changes in stock market liquidity in response to the monetary policy announcements of the Bank of Korea (BOK). We find that liquidity impairment associated with informed trading occurs prior to the announcements but it disappears subsequent to the global financial crisis. In addition, liquidity impairment appears to become more severe with insufficient experts' predictability and accuracy rather than with policy rate change itself and unscheduled announcements. Finally, the Federal Open Market Committee (FOMC) announcements, changes in the Volatility Index (VIX), and trading by foreign investors play a limited role in explaining stock market liquidity changes. Overall, results indicate that central bank communication plays a significant role in reducing liquidity impairment by enhancing the predictability of policy actions, and therefore, mitigating information asymmetry.

  May 25, 2016   doi: 10.1111/1467-8454.12069   open full text
• How Well Does the Australian Aged Pension Provide Social Insurance?
  Emily Dabbs, Cagri Kumru.
  Australian Economic Papers. April 18, 2016
  Social security plays an essential role in an economy, but if designed incorrectly, it can distort individuals' labour supply and savings behaviour. We explore how well the Australian means‐tested pension system provides social insurance by changing the settings of the system and calculating the impact on welfare. In order to exclude trivial welfare gains, we keep the cost of the programmes constant. We find that the means‐tested pension system is welfare reducing, but does provide a better outcome than a PAYG system of equivalent cost. We also find that if the benefit amount is held constant, and hence the cost of the pension programme is allowed to vary, a taper rate of 1.0 is optimal. However, once we hold the cost of the programme constant, a universal benefit scheme provides the best welfare outcome.

  April 18, 2016   doi: 10.1111/1467-8454.12070   open full text
• Forecasting the Government Bond Term Structure in Australia.
  Rui Chen, Jiri Svec, Maurice Peat.
  Australian Economic Papers. April 14, 2016
  In this paper, we evaluate the performance of the dynamic Nielsen and Siegel interest rate model in forecasting Australian government bond yields. We compare a two‐stage OLS estimation procedure to a more powerful and robust state‐space framework estimated via a Kalman filter. We show that the one‐step approach generates smaller forecast errors than the two‐step procedure or a benchmark random walk model when forecasting the Australian government term structure across various horizons.

  April 14, 2016   doi: 10.1111/1467-8454.12071   open full text
• City Size and Wage Disparity in Segmented Labour Market in China.
  Liqun Pan, Pundarik Mukhopadhaya, Jing Li.
  Australian Economic Papers. April 13, 2016
  The relation between city size and wage inequality is well established for Western countries. This paper finds that city size–wage premium exists across Chinese cities to a lower extent than the Western world. Further, using a simplified model on the Chinese Household Income Project survey data, we find that the city size–wage premium varies with difference in skills among urban citizens. The variation amounts to 50% more for the high‐skill workers compared with their low‐skill counterparts. Moreover, owing to the presence of segmented labour market, the patterns of city size–wage premium and city size–wage inequality premium are notably different for the migrants, who receive a much lesser wage than the citizens and do not experience wage variation owing to their skill heterogeneity.

  April 13, 2016   doi: 10.1111/1467-8454.12065   open full text
• A Closed‐form Solution of a Two‐sector Endogenous Growth Model with Habit Formation.
  Constantin Chilarescu, Ioana Viasu.
  Australian Economic Papers. April 06, 2016
  This paper determines a closed‐form solution of the two‐sector endogenous growth model with habit formation. Differently to the paper of Hiraguchi, but similar to other approaches as those of Gomez, Turnovsky and Monteiro, we consider that the habits are formed in an external manner and enter additively into the utility function.

  April 06, 2016   doi: 10.1111/1467-8454.12067   open full text
• Trade and Investment Linkages and Stock Market Long‐Run Relationship.
  Sudharshan Reddy Paramati, Rakesh Gupta, An Hui.
  Australian Economic Papers. March 23, 2016
  This paper aims to examine whether the intensity of trade and investment linkages among the countries matter for their stock market long‐run relationship. To achieve this, we classify Australia's bilateral trade and investment partners into major, medium and minor. Empirical findings of an asymmetric generalised dynamic conditional correlation generalised autoregressive conditional heteroskedasticity model show that correlations are time varying and increased significantly during the global financial crisis (GFC). Results of multivariate cointegration test confirm the long‐run equilibrium relationship between the stock markets of Australia and its major partners in the pre‐GFC and during GFC. Based on the full‐sample results, it indicates that the GFC has segmented the stock markets from the long‐run equilibrium relationship. Granger non‐causality test results on full sample show that Australian stock market causes only the New Zealand market while the USA, the UK, Germany, Canada, Switzerland and Italy drives the Australian market. Our results therefore suggest that the intensity of bilateral trade and investment linkages among the countries matter for their stock markets' long‐term relationship.

  March 23, 2016   doi: 10.1111/1467-8454.12066   open full text
• Leadership and Privatisation in a Mixed Multi‐product Oligopoly: An Endogenous Timing Model.
  Guangliang Ye.
  Australian Economic Papers. March 09, 2016
  This paper examines both leadership choice and welfare consequences of privatisation in an endogenous timing mixed multi‐product oligopoly. It shows that a multi‐product firm undermines the welfare‐maximising efforts of a public firm by cross‐subsidising. The paper demonstrates that a unique subgame perfect Nash equilibrium emerges in a multi‐product market, in contrast to the multiple equilibria of a single‐product market. This unique equilibrium indicates that profit‐maximising private firms retain leadership while a welfare‐maximising public firm acts as a follower. Even on the off‐equilibrium path where the public firm acts as a leader, it rarely generates maximum social welfare. However, privatising the public firm usually harms social welfare and results in a different timing structure in equilibrium.

  March 09, 2016   doi: 10.1111/1467-8454.12062   open full text
• Does Ecological Footprint Impede Economic Growth? An Empirical Analysis Based on the Environmental Kuznets Curve Hypothesis.
  Gazi A. Uddin, Khorshed Alam, Jeff Gow.
  Australian Economic Papers. March 09, 2016
  This paper examines the relationship between income and environmental quality using environmental Kuznets curve (EKC) hypothesis. The hypothesised link is tested using time‐series analysis of 22 countries over the period 1961–2011. The degree of environmental impacts of economic activity is measured using ecological footprint (EF) per capita as explanatory variable, while real gross domestic product (GDP) per capita and its quadratic and cubic forms are used as predictor variables in these countries. First, the EKC hypothesis is tested through examining the relationship between EF and GDP using linear, quadratic and cubic functions. Further, the long‐run relationship between EF and GDP is investigated using a vector error correction model. It was found that there is a cointegrated relationship between the variables in almost all countries, which was statistically significant, and EKC supported in 10 countries. Additionally, almost all error correction terms are correct in sign and are significant, which implies that some percentage of disequilibria in EF in the previous year adjusts back to the long‐run equilibrium in the current year. Therefore, an efficient trade‐off between environmental protection and economic benefits should be taken, and EF should be reduced through changing consumption patterns, improving the efficiency of use of resources and cleaner technology choices.

  March 09, 2016   doi: 10.1111/1467-8454.12061   open full text
• Do Education and Sex Matter for Intergenerational Earnings Mobility? Some Evidence from Australia.
  David Fairbrother, Renuka Mahadevan.
  Australian Economic Papers. March 09, 2016
  This paper analyses the intergenerational earnings mobility in Australia for all combinations of mothers, fathers, sons and daughters. We find that mobility is highest between parents and children of the opposite sex. Daughters are more mobile than sons with respect to fathers' earnings, but there is no statistical difference between the sexes' mobility with respect to mothers' earnings. We also consider how differing levels of mobility between the sexes may be related to the education level of the children. It was found that the father–son elasticity increases with son's education level and that the difference between son–father and daughter–father mobility may be associated with the higher levels of education obtained by females from less affluent backgrounds.

  March 09, 2016   doi: 10.1111/1467-8454.12068   open full text
• Wage Inequality and Human Capital Formation under Migration Possibilities.
  Akira Shimada.
  Australian Economic Papers. December 23, 2013
  I examine the problem in the relationship between wage inequality and human capital formation under migration possibilities. Unlike previous analyses, I incorporate the education market and the education price into the analysis, and assume that workers bear the pecuniary cost for receiving education. Given such an assumption, migration possibilities do not necessarily increase education demand since the larger demand for education raises the education price and lowers the net return on education. By modelling an economy where workers in the home country (the labour‐sending country) comprise skilled and unskilled workers and they can migrate to the foreign country (the labour‐receiving country), I show that brain gain and brain drain occur simultaneously in the home country. In particular, if wage inequality is larger in the foreign country than in the home country, skilled workers experience brain gain and unskilled workers experience brain drain in the home country. On the other hand, if wage inequality is sufficiently larger in the home country, brain drain occurs in skilled workers and brain gain in unskilled workers.

  December 23, 2013   doi: 10.1111/1467-8454.12016   open full text
• Eagles and Turkeys: Human Capital Externalities, Departmental Co‐authorship and Research Productivity.
  Frank Neri, Joan R. Rodgers.
  Australian Economic Papers. December 23, 2013
  Lucas (1988) hypothesised that human capital externalities explain persistent productivity growth and become manifest via interactions between workplace colleagues. Consistent with the first part of this hypothesis, Fox and Milbourne (2006) concluded that an increase in the average level of human capital in Australian economics departments raised the research productivity of departmental members. This paper tests the robustness of this finding by using a direct, rather than a proxy, measure of human capital and confirms the existence of human capital externalities within Australian economics departments. But we extend the analysis in two important dimensions. Firstly, we investigate the second part of Lucas' hypothesis by testing whether the externality becomes manifest via co‐authoring. We find no evidence that this type of interaction is associated with higher research productivity, especially for higher quality outputs. Secondly, we control for the likely endogeneity of one's peer group via instrumental variables estimation. In this case, we find that the peer group effect disappears completely for the highest quality outputs but remains for research output more broadly defined.

  December 23, 2013   doi: 10.1111/1467-8454.12015   open full text
• Stock Prices and Exchange Rates in Australia: Are Commodity Prices the Missing Link?
  Nicolaas Groenewold, James E.H. Paterson.
  Australian Economic Papers. December 23, 2013
  There are still significant gaps in our knowledge of the relationship between stock prices and exchange rates; not least, the ambiguity about the sign of the coefficient linking them. One explanation which we explore in the Australian context in this paper is the omission of commodity prices. We show that a relationship which omits commodity prices performs poorly but, once commodity prices are added, our results are plausible and robust. We also throw light on the commodity‐currency issue: the link from the exchange rate to commodity prices is stronger and more consistent than that in the opposite direction.

  December 23, 2013   doi: 10.1111/1467-8454.12014   open full text
• Some Taxation Theorems in the Hotelling Model.
  Hui Wen Cheng, Chin Wei Yang.
  Australian Economic Papers. December 23, 2013
  In this paper, we investigate the relationship between the demand ad valorem, cost ad valorem and unit taxes in terms of price, quantity and tax revenue. In particular, we prove that the Musgravian transformation holds in the Hotelling model. In addition, we show that the Suits‐Musgrave theorem must be revised as output in the Hotelling model remains invariant in the presence of different taxes. That is, for a given price instead of a given output, the tax revenue under demand ad valorem tax exceeds that under the corresponding unit tax as long as profit levels for both stores are positive, a very general assumption. The exception is when the two stores are located close to each other and transportation cost is zero. Only in this case, are tax revenues and price under both tax regimes the same. If both stores are symmetrically located, the superiority of the ad valorem tax holds true except when the two stores are located back to back. Finally the farther away the location of a firm from the end point is, the smaller the difference in tax revenues between demand ad valorem and unit tax will be: the effect of the Suits‐Musgrave theorem weakens in the presence of location clustering.

  December 23, 2013   doi: 10.1111/1467-8454.12013   open full text
• Efficiency and Equity in Funding for Government Schools in Australia.
  Kalyan Chakraborty, Vincent C. Blackburn.
  Australian Economic Papers. December 23, 2013
  This study measures cost inefficiency for government school in New South Wales, Australia using a two‐stage data envelopment analysis (TSDEA) model and the inefficiency‐effects model (Battese & Coelli, 1995). The study found overall primary schools are 75 per cent and secondary schools are 89 per cent cost efficient. However, cost efficiency for primary schools has decreased and for secondary schools has increased marginally over the study period. The study found that social disadvantage in primary schools exerts a strong negative impact on students’ achievement scores causing inefficient use of available resources. For secondary schools no such conclusive relationship is observed.

  December 23, 2013   doi: 10.1111/1467-8454.12012   open full text
• A Non‐linear Model of the Trade Cycle: Mathematical Reflections on Hugh Hudson's Classic.
  V. Ragupathy, Stefano Zambelli, K. Vela Velupillai.
  Australian Economic Papers. July 25, 2013
  Hugh Hudson's classic article on A Model of the Trade Cycle has never, to the best of our knowledge, received the serious attention it deserved. It was written in what we would like to call the classic Hicks‐Kaldor mode, i.e. relying on ingenious diagrammatic techniques for expository purposes, and, indeed, developing an innovative model of the trade cycle where interaction of monetary and real forces were modelled in terms of elements common to the classic nonlinear endogenous models of these two pioneers. In this paper we reconsider the analytical contents of Hudson's classic, and its expository technique, in the light of later, mathematical, approaches to the same topic. It is a clear example of how a mathematical reading and reformulation of an economically motivated geometric method proves fruitful in furthering the frontiers of economic analysis. Our conclusion is that there is still much to be gained in the expository style adopted by Hudson, especially when viewed mathematically; but, more importantly, there are innovative suggestions and still relevant reflections on theorising and understanding actual performances of advanced industrial economies. Above all Hudson's classic is permeated with the policy underpinnings of a rich model of the trade cycle.

  July 25, 2013   doi: 10.1111/1467-8454.12010   open full text
• Airline Schedule Competition and the Entry Route Choices of Low‐Cost Carriers.
  Akio Kawasaki, Ming Hsin Lin.
  Australian Economic Papers. July 25, 2013
  This study investigates the entry route choices of low‐cost carriers (LCCs). A LCC considers whether to enter a spoke route or a rim route of a major carrier's hub‐spoke network. Under a Cournot schedule competition model, we demonstrate that rim entry is more profitable for LCCs if connecting passengers' hub‐through additional travel time cost is large, and spoke entry is more profitable if this time cost is small. Welfare analysis shows that rim entry is socially preferable when the time cost is large and that spoke entry is socially preferable when the time cost is small. In a certain range of time costs, however, LCCs choose spoke entry even though it is not socially preferable.

  July 25, 2013   doi: 10.1111/1467-8454.12011   open full text
• Simultaneity, Forecasting and Profits in London Copper Futures.
  Barry A. Goss, S. Gulay Avsar.
  Australian Economic Papers. July 25, 2013
  Previous research on price determination for non‐ferrous metals at the London Metal Exchange (LME) suffers from three limitations: first it has employed single equation methods only, which cannot explain the simultaneous determination of spot and futures prices; second, by focusing on current and lagged prices, previous research does not analyse the effect on price determination of critical variables such as expectations, consumption and inventories; third, the outcome of prior research regarding market efficiency is ambiguous. This paper, which addresses these issues, develops a simultaneous model of the copper market at the LME, with representation of the activities of hedgers, speculators and consumers. This model produces post‐sample forecasts of the spot price which outperform conventional benchmarks, thus providing evidence against the efficient market hypothesis. Model‐derived forecasts are employed as the foundation of a trading program which produces risk‐adjusted profits (net of commission costs) for holding periods of one week and one month, thus fulfilling the ‘sufficient condition’ for market inefficiency. This study, therefore, provides new insights into price determination on the LME copper market, and resolves the ambiguity of previous research regarding the efficiency of that market. This is the first application of the model forecasting approach to the question of performance of the market for copper.

  July 25, 2013   doi: 10.1111/1467-8454.12008   open full text
• Wage‐Setting Institutions and R&D Collaboration Networks.
  Ben Ferrett, Vasileios Zikos.
  Australian Economic Papers. July 25, 2013
  We analyse how union structures that differ in the degree of wage‐setting centralisation affect the pattern of R&D network formation. Within the context of a three‐firm industry, a central union that sets a uniform wage is shown to induce a partial R&D network that includes two firms but excludes the third. In contrast, we find that, under less centralised union structures, firms have incentives to form R&D networks with a larger number of alliances. This result is consistent with the stylised facts for industrialised countries: recent decades have seen an upsurge in R&D alliances along with labour market deregulation towards more flexible wage‐setting institutions.

  July 25, 2013   doi: 10.1111/1467-8454.12009   open full text