Most recent papers:

• Data‐Driven Identification Constraints for DSGE Models.
  Markku Lanne, Jani Luoto.
  Oxford Bulletin of Economics and Statistics. October 17, 2017
  We propose imposing data‐driven identification constraints to alleviate the multimodality problem arising in the estimation of poorly identified dynamic stochastic general equilibrium models under non‐informative prior distributions. We also devise an iterative procedure based on the posterior density of the parameters for finding these constraints. An empirical application to the Smets and Wouters () model demonstrates the properties of the estimation method, and shows how the problem of multimodal posterior distributions caused by parameter redundancy is eliminated by identification constraints. Out‐of‐sample forecast comparisons as well as Bayes factors lend support to the constrained model.

  October 17, 2017   doi: 10.1111/obes.12217   open full text
• Multiple Testing for No Cointegration under Nonstationary Volatility.
  Matei Demetrescu, Christoph Hanck.
  Oxford Bulletin of Economics and Statistics. October 17, 2017
  With cointegration tests often being oversized under time‐varying error variance, it is possible, if not likely, to confuse error variance non‐stationarity with cointegration. This paper takes an instrumental variable (IV) approach to establish individual‐unit test statistics for no cointegration that are robust to variance non‐stationarity. The sign of a fitted departure from long‐run equilibrium is used as an instrument when estimating an error‐correction model. The resulting IV‐based test is shown to follow a chi‐square limiting null distribution irrespective of the variance pattern of the data‐generating process. In spite of this, the test proposed here has, unlike previous work relying on instrumental variables, competitive local power against sequences of local alternatives in 1/T‐neighbourhoods of the null. The standard limiting null distribution motivates, using the single‐unit tests in a multiple testing approach for cointegration in multi‐country data sets by combining P‐values from individual units. Simulations suggest good performance of the single‐unit and multiple testing procedures under various plausible designs of cross‐sectional correlation and cross‐unit cointegration in the data. An application to the equilibrium relationship between short‐ and long‐term interest rates illustrates the dramatic differences between results of robust and non‐robust tests.

  October 17, 2017   doi: 10.1111/obes.12214   open full text
• What Drives Fraud in a Credence Goods Market? – Evidence from a Field Study.
  Alexander Rasch, Christian Waibel.
  Oxford Bulletin of Economics and Statistics. September 12, 2017
  This paper investigates the impact of competition on an expert firm's incentive to defraud its customers in a credence goods market. Controlling for the competence of car repair shops, their financial situation, and reputational concerns, we use and complement the data set from a nationwide field study conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition lowers a firm's incentive to defraud its customers.

  September 12, 2017   doi: 10.1111/obes.12204   open full text
• Consequences of Linguistic Distance for Economic Growth.
  Erkan Gören.
  Oxford Bulletin of Economics and Statistics. September 05, 2017
  This paper advances a new country‐level measure of ethno‐linguistic diversity, making use of Greenberg's definition of diversity by synthesizing information on the share of different ethno‐linguistic groups in a country's population and, more importantly, information on intergroup linguistic distances derived from a recently developed lexicostatistical approach. I show that this measure captures ethno‐linguistic diversity at lower levels of linguistic aggregation. However, unlike the commonly used phylogenetic language tree approach, I found that these distance‐weighted diversity measures continue to have a strong negative statistical association with economic growth that is not sensitive to the underlying resemblance function between ethno‐linguistic groups.

  September 05, 2017   doi: 10.1111/obes.12205   open full text
• Semiparametric Estimator for Binary‐outcome Sample Selection: Prejudice Matters in Election.
  Jin‐Young Choi.
  Oxford Bulletin of Economics and Statistics. August 17, 2017
  a semiparametric estimator for binary‐outcome sample‐selection models is proposed that imposes only single index assumptions on the selection and outcome equations without specifying the error term distribution. I adopt the idea in Lewbel (2000) using a ‘special regressor’ to transform the binary response Y so that the transformed Y becomes linear in the latent index, which then makes it possible to remove the selection correction term by differencing the transformed Y equation. There are various versions of the estimator, which perform differently trading off bias and variance. A simulation study is conducted, and then I apply the estimators to US presidential election data in 2008 and 2012 to assess the impact of racial prejudice on the elections, as a black candidate was involved for the first time ever in the US history.

  August 17, 2017   doi: 10.1111/obes.12207   open full text
• Financial Constraints on German Firms after the Crisis: Evidence from Threshold Panel Estimation.
  Artur Tarassow.
  Oxford Bulletin of Economics and Statistics. August 03, 2017
  This article studies the existence and magnitude of financial investment constraints in Germany between 2006 and 2012 with a special emphasis on small and medium‐sized firms. The core contention is that the sensitivity of the investment rate to the cash flow rate is a function of a firm's financial position contributing to its access to external finance. The application of a nonlinear panel threshold model reveals that the marginal effect of the cash flow rate on the investment rate is almost twice as strong for ‘high debt’ firms compared to ‘low debt’ firms. This result holds for six out of seven balance sheet threshold variables. For a single specification, the results reveal a non‐monotonic relationship between the cash flow rate and investment rate. Firm size, however, does not explain differences in the cash‐flow‐investment nexus.

  August 03, 2017   doi: 10.1111/obes.12206   open full text
• Low Paid Employment in Britain: Estimating State‐Dependence and Stepping Stone Effects.
  Lixin Cai, Kostas Mavromaras, Peter Sloane.
  Oxford Bulletin of Economics and Statistics. August 03, 2017
  Using 18 waves of the British Household Panel Study, this paper examines state‐dependence and stepping stone effects of low pay. The results show that both state‐dependence and stepping stone effects of low pay are present. However, there is no evidence to support a low‐pay no‐pay cycle. The introduction of the national minimum wage does not appear to have affected state‐dependence and stepping stone effects of low pay.

  August 03, 2017   doi: 10.1111/obes.12197   open full text
• Multiple Visits and Data Quality in Household Surveys.
  Matthias Schündeln.
  Oxford Bulletin of Economics and Statistics. July 20, 2017
  In order to increase data quality some household surveys visit the respondent households several times to estimate one measure of consumption. For example, in Ghanaian Living Standards Measurement surveys, households are visited up to 10 times over a period of 1 month. I find strong evidence for conditioning effects as a result of this approach: In the Ghanaian data the estimated level of consumption is a function of the number of prior visits, with consumption being highest in the earlier survey visits. Telescoping (perceiving events as being more recent than they are) or seasonality (first‐of‐the‐month effects) cannot explain the observed pattern. To study whether earlier or later survey visits are of higher quality, I employ a strategy based on Benford's law. Results suggest that the consumption data from earlier survey visits are of higher quality than data from later visits. The findings have implications for the value of additional visits in household surveys, and also shed light on possible measurement problems in high‐frequency panels. They add to a recent literature on measurement errors in consumption surveys (Beegle et al., , Gibson et al., ), and complement findings by Zwane et al. () regarding the effect of surveys on subsequent behaviour.

  July 20, 2017   doi: 10.1111/obes.12196   open full text
• Bargaining and Wage Rigidity in a Matching Model for the US.
  James M. Malcomson, Sophocles Mavroeidis.
  Oxford Bulletin of Economics and Statistics. July 12, 2017
  This paper uses robust econometric methods to assess previous empirical results for the Mortensen and Pissarides () matching model. Assuming all wages are negotiated each period is inconsistent with the history dependence in US wages, even allowing for heterogeneous match productivities, time to build vacancies and credible bargaining. Flexible wages for job changers, with rigid wages for job stayers, allows the model to capture this history dependence and is not inconsistent with parameter calibrations in the literature. Such wage rigidity affects only the timing of wage payments over the duration of matches; conclusions about other characteristics are unaffected by it.

  July 12, 2017   doi: 10.1111/obes.12186   open full text
• Solving Models with Jump Discontinuities in Policy Functions.
  Christoph Görtz, Afrasiab Mirza.
  Oxford Bulletin of Economics and Statistics. July 04, 2017
  We compare global methods for solving models with jump discontinuities in the policy function. We find that differences between value function iteration (VFI) and other methods are economically significant and Euler equation errors fail to be a sufficient measure of accuracy in such models. VFI fails to accurately identify both the location and size of jump discontinuities, while the endogenous grid method (EGM) and the finite element method (FEM) are much better at approximating this class of models. We further show that combining VFI with a local interpolation step (VFI‐INT) is sufficient to obtain accurate approximations. The combination of computational speed, relatively easy implementation and adaptability make VFI‐INT especially suitable for approximating models with jump discontinuities in policy functions: while EGM is the fastest method, it is relatively complex to implement; implementation of VFI‐INT is relatively straightforward and it is much faster than FEM.

  July 04, 2017   doi: 10.1111/obes.12203   open full text
• Control Function Approach for Partly Ordered Endogenous Treatments: Military Rank Premium in Wage.
  Young‐Min Ju, Myoung‐Jae Lee.
  Oxford Bulletin of Economics and Statistics. June 26, 2017
  In treatment effect analysis, there are many cases where the treatment of interest is ordered (e.g. general‐education years or medicine doses) and the control treatment is not zero, but a different type of treatment (a vocational training or a surgery). We develop an approach to find effects of partly ordered treatments, while correcting for possible treatment endogeneity with nearly parametric control functions. We use this control function approach, along with its supplementary version, to estimate effects of military ranks (ordered treatments) on wage relative to non‐veteran status (control treatment) with the Wisconsin Longitudinal Study data. In our empirical analysis, the military rank effects differ much: officer has large positive effects, but enlisted ranks have small or no effects.

  June 26, 2017   doi: 10.1111/obes.12199   open full text
• The Long‐Term Effects of Legalizing Divorce on Children.
  Libertad González, Tarja Viitanen.
  Oxford Bulletin of Economics and Statistics. June 23, 2017
  We estimate the effect of divorce legalization on the long‐term well‐being of children, by exploiting the different timing of divorce legalization across Europe. We compare the adult outcomes of cohorts raised when divorce was banned with those of cohorts raised after divorce was legalized in the same country. We also have ‘control’ countries where all cohorts were exposed (or not exposed) to legal divorce as children. We find that women who grew up under legal divorce have lower earnings and income and worse health as adults compared with women who grew up under illegal divorce. These negative effects are not found for men.

  June 23, 2017   doi: 10.1111/obes.12200   open full text
• Young Adults Living with their Parents and the Influence of Peers.
  Effrosyni Adamopoulou, Ezgi Kaya.
  Oxford Bulletin of Economics and Statistics. June 21, 2017
  This study examines the impact of peer behaviour on the living arrangements of young adults in the US using data from the National Longitudinal Study of Adolescent Health. We achieve identification by exploiting the differences in the timing of leaving the parental home among peers, the individual‐specific nature of the peer groups that are based on friendship nominations, and by including network and cohort fixed effects. Our results indicate that there are statistically significant peer effects on young adults’ decisions to leave the parental home. We discuss various mechanisms and confirm the robustness of our results through a placebo exercise.

  June 21, 2017   doi: 10.1111/obes.12198   open full text
• Biases and Strategic Behaviour in Performance Evaluation: The Case of the FIFA's best soccer player award.
  Tom Coupe, Olivier Gergaud, Abdul Noury.
  Oxford Bulletin of Economics and Statistics. June 21, 2017
  In this paper, we study biases in performance evaluation by analysing votes for the FIFA Ballon d'Or award for best soccer player, the most prestigious award in the sport. Our findings suggest that ‘similarity’ biases are substantial, with jury members disproportionately voting for candidates from their own country, own national team, own continent and own league team. Further, we show that the impact of such biases on the total number of votes a candidate receives is fairly limited and hence is likely to affect the outcome of this competition only on rare occasions where the difference in quality between the leading candidates is small. Finally, analysing the incidence of ‘strategic voting’, we find jury members who vote for one leading candidate are more, rather than less, likely to also give points to his main competitor, as compared with neutral jury members. We discuss the implications of our findings for the design of awards, elections and performance evaluation systems in general and for the FIFA Ballon d'Or award in particular.

  June 21, 2017   doi: 10.1111/obes.12201   open full text
• Direct Estimation of Equivalence Scales and More Evidence on Independence of Base.
  Martin Biewen, Andos Juhasz.
  Oxford Bulletin of Economics and Statistics. June 18, 2017
  We explore a direct approach to estimating household equivalence scales from income satisfaction data. Our method differs from previous approaches to using satisfaction data for this purpose in that it can be used to directly fit and evaluate closed‐form and non‐parametric equivalence scales of any desired form. Its flexibility makes it easy to consider specific aspects such as income dependence or more specific information on household composition (such as whether household members live in a partner relationship). We estimate and evaluate a number of scales used in the literature. If the equivalence scale is assumed to be independent of income and to depend only on household size, we do not reject the validity of the widely used square‐root scale at conventional significance levels. We also test GESE and GAESE restrictions (Donaldson and Pendakur, 2003, 2006) and investigate in detail to what extent household economies of scale depend on income. Our results suggest that the income dependence differs fundamentally across household types (rising economies of scale for ‘family’ households, falling economies of scale for multi‐adult households without children and no income dependence for other households).

  June 18, 2017   doi: 10.1111/obes.12166   open full text
• Co‐integration Rank Determination in Partial Systems Using Information Criteria.
  Giuseppe Cavaliere, Luca De Angelis, Luca Fanelli.
  Oxford Bulletin of Economics and Statistics. June 14, 2017
  We investigate the asymptotic and finite sample properties of the most widely used information criteria for co‐integration rank determination in ‘partial’ systems, i.e. in co‐integrated vector autoregressive (VAR) models where a sub‐set of variables of interest is modelled conditional on another sub‐set of variables. The asymptotic properties of the Akaike information criterion (AIC), the Bayesian information criterion (BIC) and the Hannan–Quinn information criterion (HQC) are established, and consistency of BIC and HQC is proved. Notably, the consistency of BIC and HQC is robust to violations of weak exogeneity of the conditioning variables with respect to the co‐integration parameters. More precisely, BIC and HQC recover the true co‐integration rank from the partial system analysis also when the conditional model does not convey all information about the co‐integration parameters. This result opens up interesting possibilities for practitioners who can now determine the co‐integration rank in partial systems without being concerned about the weak exogeneity of the conditioning variables. A Monte Carlo experiment based on a large dimensional data generating process shows that BIC and HQC applied in partial systems perform reasonably well in small samples and comparatively better than ‘traditional’ methods for co‐integration rank determination. We further show the usefulness of our approach and the benefits of the conditional system analysis in two empirical illustrations, both based on the estimation of VAR systems on US quarterly data. Overall, our analysis shows the gains of combining information criteria with partial system analysis.

  June 14, 2017   doi: 10.1111/obes.12195   open full text
• Macroeconomic Forecasting using Low‐frequency Filters.
  João Valle e Azevedo, Ana Pereira.
  Oxford Bulletin of Economics and Statistics. June 08, 2017
  We consider univariate low‐frequency filters applicable in real‐time as a macroeconomic forecasting method. This amounts to targeting only low frequency fluctuations of the time series of interest. We show through simulations that such approach is warranted and, using US data, we confirm empirically that consistent gains in forecast accuracy can be obtained in comparison with a variety of other methods. There is an inherent arbitrariness in the choice of the cut‐off defining low and high frequencies, which calls for a careful characterization of the implied optimal (for forecasting) degree of smoothing of the key macroeconomic indicators we analyse. We document interesting patterns that emerge: for most variables the optimal choice amounts to disregarding fluctuations well below the standard business cycle cut‐off of 32 quarters while generally increasing with the forecast horizon; for inflation and variables related to housing this cut‐off lies around 32 quarters for all horizons, which is below the optimal level for federal government spending.

  June 08, 2017   doi: 10.1111/obes.12194   open full text
• Is the Quarter of Birth Endogenous? New Evidence from Taiwan, the US, and Indonesia.
  Elliott Fan, Jin‐Tan Liu, Yen‐Chien Chen.
  Oxford Bulletin of Economics and Statistics. June 01, 2017
  Recent evidence based on US data suggests that the quarter or month of birth (QOB or MOB) may be endogenous, since family characteristics can explain up to 50% of the effects of QOB on the education outcomes and earnings of adult males. In this study, based on a sample of one million Taiwanese siblings, we examine university admission at age 18 as our outcome variable and find that at school entry, the oldest (September born) children are 31–38% more likely to be admitted into university at age 18 than the youngest (August born) children, indicating strong seasonality in university admission. The inclusion of controls for family background is found to explain only a small portion of these effects, particularly for males. Given that such results are at odds with the recent US evidence, we revisit the US Census data and find that when racial differences are properly controlled for in the estimation, even a rich set of family characteristics is capable of explaining only a minor proportion of the QOB effects. Furthermore, using data from the US and Indonesia, we find that seasonal temperature variation is unlikely to be an important contributor to the US‐Taiwan disparity. Our findings imply that the validity of using QOB or MOB as an instrumental variable may be dependent on the population being studied and the sample selected.

  June 01, 2017   doi: 10.1111/obes.12175   open full text
• What We can Learn About the Behaviour of Firms from the Average Monthly Frequency of Price‐Changes: An Application to the UK CPI Data.
  Huw David Dixon, Kun Tian.
  Oxford Bulletin of Economics and Statistics. May 24, 2017
  The monthly frequency of price‐changes is a prominent feature of many studies of the CPI micro‐data. In this paper, we see what the frequency implies for the behaviour of price‐setters in terms of the cross‐sectional distribution average of price‐spell durations across firms. We derive a lower bound for the mean duration of price‐spells averaged across firms. We use the UK CPI data at the aggregate and sectoral level and find that the actual mean is about twice the theoretical minimum consistent with the observed frequency. We construct hypothetical Bernoulli–Calvo distributions from the frequency data which we find can result in similar impulse responses to the estimated hazards when used in the Smets–Wouters (2003) model.

  May 24, 2017   doi: 10.1111/obes.12173   open full text
• Imperfect Information and Consumer Inflation Expectations: Evidence from Microdata.
  Lena Dräger, Michael J. Lamla.
  Oxford Bulletin of Economics and Statistics. May 22, 2017
  This paper explores which factors trigger an adjustment in consumers’ inflation expectations and looks at the implications regarding forecast errors. We find support for imperfect information models, as inflation volatility and news trigger an adjustment in expectations. Furthermore, we document that individual expectations become more accurate if they have been adjusted.

  May 22, 2017   doi: 10.1111/obes.12189   open full text
• Bayesian Inference in Spatial Sample Selection Models.
  Osman Doğan, Süleyman Taşpinar.
  Oxford Bulletin of Economics and Statistics. May 16, 2017
  In this study, we consider Bayesian methods for the estimation of a sample selection model with spatially correlated disturbance terms. We design a set of Markov chain Monte Carlo algorithms based on the method of data augmentation. The natural parameterization for the covariance structure of our model involves an unidentified parameter that complicates posterior analysis. The unidentified parameter – the variance of the disturbance term in the selection equation – is handled in different ways in these algorithms to achieve identification for other parameters. The Bayesian estimator based on these algorithms can account for the selection bias and the full covariance structure implied by the spatial correlation. We illustrate the implementation of these algorithms through a simulation study and an empirical application.

  May 16, 2017   doi: 10.1111/obes.12187   open full text
• Measuring Spot Variance Spillovers when (Co)variances are Time‐varying – The Case of Multivariate GARCH Models.
  Matthias R. Fengler, Helmut Herwartz.
  Oxford Bulletin of Economics and Statistics. May 16, 2017
  We propose global and disaggregated spillover indices that allow us to assess variance and covariance spillovers, locally in time and conditionally on time‐t information. Key to our approach is the vector moving average representation of the half‐vectorized ‘squared’ multivariate GARCH process of the popular BEKK model. In an empirical application to a four‐dimensional system of broad asset classes (equity, fixed income, foreign exchange and commodities), we illustrate the new spillover indices at various levels of (dis)aggregation. Moreover, we demonstrate that they are informative of the value‐at‐risk violations of portfolios composed of the considered asset classes.

  May 16, 2017   doi: 10.1111/obes.12191   open full text
• Financial Risk Propensity, Business Cycles and Perceived Risk Exposure.
  Alessandro Bucciol, Raffaele Miniaci.
  Oxford Bulletin of Economics and Statistics. May 15, 2017
  We analyse whether individual financial risk propensity changes over time with background financial conditions, as well as personal and subjective portfolio risk exposure. We elicit risk propensity from six different self‐assessed facets collected in a long panel data set from the DNB Household Survey, annually covering the period 1995–2015. Risk propensity is generally higher during periods of economic growth and lower during periods of recession, but is untrended when elicited, using questions referring to safe investments. Our risk propensity measure is also higher following positive stock market returns or subjectively large risk exposure in own past investments.

  May 15, 2017   doi: 10.1111/obes.12193   open full text
• Efficiency Gains in Rank‐ordered Multinomial Logit Models.
  Arie Beresteanu, Federico Zincenko.
  Oxford Bulletin of Economics and Statistics. May 13, 2017
  This paper considers estimation of discrete choice models when agents report their ranking of the alternatives (or some of them) rather than just the utility maximizing alternative. We investigate the parametric conditional rank‐ordered Logit model. We show that conditions for identification do not change even if we observe ranking. Moreover, we fill a gap in the literature and show analytically and by Monte Carlo simulations that efficiency increases as we use additional information on the ranking.

  May 13, 2017   doi: 10.1111/obes.12190   open full text
• Virtually No Effect? Different Uses of Classroom Computers and their Effect on Student Achievement.
  Oliver Falck, Constantin Mang, Ludger Woessmann.
  Oxford Bulletin of Economics and Statistics. May 13, 2017
  Most studies find little to no effect of classroom computers on student achievement. We suggest that this null effect may combine positive effects of computer uses without equivalently effective alternative traditional teaching practices and negative effects of uses that substitute more effective teaching practices. Our correlated random effects models exploit within‐student between‐subject variation in different computer uses in the international TIMSS test. We find positive effects of using computers to look up information and negative effects of using computers to practice skills, resulting in overall null effects. Effects are larger for students with high socioeconomic status and mostly confined to developed countries.

  May 13, 2017   doi: 10.1111/obes.12192   open full text
• Does it Pay to Work for Free? Negative Selection and the Wage Returns to Volunteer Experience.
  Guido Cozzi, Noemi Mantovan, Robert M. Sauer.
  Oxford Bulletin of Economics and Statistics. May 02, 2017
  This paper offers the first instrumental variables estimates of the wage returns to volunteer experience. The returns are substantial and differ considerably by gender. The results imply that the unequal valuation of volunteer experience by gender is more important in explaining the gender earnings gap than is the unequal valuation of part‐time paid work experience. The results also indicate negative selection into unpaid work. In a simple model of optimal volunteering, negative selection implies that a lower cost of volunteering would produce both an expanded and higher‐skilled pool of volunteers, and greater societal benefits from volunteer work.

  May 02, 2017   doi: 10.1111/obes.12183   open full text
• On the Identification of Interdependence and Contagion of Financial Crises.
  Emanuele Bacchiocchi.
  Oxford Bulletin of Economics and Statistics. April 24, 2017
  In this paper we propose a new framework for modelling heteroskedastic structural vector autoregressions. The identification of the structural parameters is obtained by exploiting the heteroskedasticity in the data naturally arising during crisis periods. More precisely, we provide identification conditions when heteroskedasticity and traditional restrictions on the parameters are jointly considered. Although the framework is general enough to find potential applications in many empirical economic fields, it proves to be well suited for distinguishing between interdependence and contagion in the literature related to the transmission of financial crises. This methodology is used to investigate the relationships between sovereign bond yields for some highly indebted EU countries.

  April 24, 2017   doi: 10.1111/obes.12188   open full text
• Ranking Economics Journals Using Data From a National Research Evaluation Exercise.
  Arne Risa Hole.
  Oxford Bulletin of Economics and Statistics. April 10, 2017
  This paper describes an algorithm for creating a ranking of economics journals, using data from the 2014 UK Research Excellence Framework (REF) exercise. The ranking generated by the algorithm can be viewed as a measure of the average quality of the papers published in the journal, as judged by the REF Economics and Econometrics sub‐panel, based on the outputs submitted to the REF.

  April 10, 2017   doi: 10.1111/obes.12185   open full text
• Inflation Target Credibility: Do the Financial Markets Find the Targets Believable?
  Bedri Kamil Onur Tas, Mustafa Cagri Peker.
  Oxford Bulletin of Economics and Statistics. April 10, 2017
  We investigate the credibility of inflation targeting (IT) central banks (CBs) by estimating perceived inflation targets of the financial markets. We calculate financial markets’ beliefs about the inflation targets of 24 IT countries. Then, we analyse whether the financial markets’ beliefs about inflation targets match the announced targets. We conclude that the perceived upper bound of the inflation target is significantly higher than the announced one in many countries. Additionally, the perceived target band is narrower and asymmetric around the mid‐point of the target for most CBs. We examine the implications of these findings and find that IT CBs are more likely to miss their targets when the perceptions of the financial markets are higher than the announced IT targets. These results indicate that IT CBs should pay attention to the perceptions of the announced targets when implementing policy actions.

  April 10, 2017   doi: 10.1111/obes.12181   open full text
• Quantile Aggregation of Density Forecasts.
  Fabio Busetti.
  Oxford Bulletin of Economics and Statistics. April 10, 2017
  Quantile aggregation (or ‘Vincentization’) is a simple and intuitive way of combining probability distributions, originally proposed by S.B. Vincent in 1912. In certain cases, such as under Gaussianity, the Vincentized distribution belongs to the same family as that of the individual distributions and it can be obtained by averaging the individual parameters. This article compares the properties of quantile aggregation with those of the forecast combination schemes normally adopted in the econometric forecasting literature, based on linear or logarithmic averages of the individual densities. Analytical results and Monte Carlo experiments indicate that the properties of quantile aggregation are between those of the linear and the logarithmic pool. Larger differences among the combination schemes occur when there are biases in the individual forecasts: in that case quantile aggregation seems preferable on the whole. The practical usefulness of Vincentization is illustrated empirically in the context of linear forecasting models for Italian GDP and quantile predictions of euro area inflation.

  April 10, 2017   doi: 10.1111/obes.12163   open full text
• Mergers Along the Global Supply Chain: Information Technologies and Routine Tasks.
  Sergi Basco, Martí Mestieri.
  Oxford Bulletin of Economics and Statistics. April 10, 2017
  This paper empirically analyses how the adoption of Information Technologies (IT) has changed the organization of global supply chains. We focus on international mergers, which are a growing and important component of foreign direct investment. We use data on North–South mergers and acquisitions (M&As). We show that the effect of IT adoption on the number of vertical M&As is decreasing with the routine intensity of the industry. Our interpretation is that the IT revolution enabled new monitoring mechanisms. This allowed Northern headquarters to better monitor suppliers, especially those in less routine‐intensive industries –which were harder to monitor before.

  April 10, 2017   doi: 10.1111/obes.12165   open full text
• Squeezing the Last Drop Out of Your Suppliers: An Empirical Study of Market‐Based Purchasing Policies for Generic Pharmaceuticals.
  Mats A. Bergman, David Granlund, Niklas Rudholm.
  Oxford Bulletin of Economics and Statistics. April 05, 2017
  We study the effect of the degree of exclusivity for the lowest bidder on the average price of generic pharmaceuticals in the short and long terms. Our results indicate that a 1‐percentage‐point gain in market share of the lowest bidder reduces average costs by 0.2% in the short term and 0.8% in the long term, but also reduces the number of firms by 1%. We find that reducing the number of firms has a strong positive (and hence counteracting) effect on average prices, a 1% reduction raising prices by approximately 1%.

  April 05, 2017   doi: 10.1111/obes.12180   open full text
• Life‐Cycle Consumption and Children: Evidence from a Structural Estimation.
  Thomas H. Jørgensen.
  Oxford Bulletin of Economics and Statistics. April 05, 2017
  I estimate by maximum likelihood a dynamic model of optimal intertemporal allocation of consumption in the presence of children using high‐quality Danish longitudinal data. The number and age of all children can affect the marginal utility of consumption while income uncertainty, credit constraints and postretirement motives also influence household behaviour. While I estimate that children have a surprisingly small effect on the marginal utility of non‐durable consumption, data simulated from the estimated model replicates similar correlations between log consumption growth and changing household composition as found in the Danish data and typically found in UK and US data. To reconcile the results with existing studies, I illustrate how ignoring precautionary motives increases the estimated importance of children. The results indicate that precautionary motives might play a larger role than children in explaining the observed consumption age profile.

  April 05, 2017   doi: 10.1111/obes.12170   open full text
• A Simple Approach for Diagnosing Instabilities in Predictive Regressions.
  Jean‐Yves Pitarakis.
  Oxford Bulletin of Economics and Statistics. April 05, 2017
  We introduce a method for detecting the presence of structural breaks in the parameters of predictive regressions linking noisy variables such as stock returns to persistent predictors such as valuation ratios. Our approach relies on the least squares‐based squared residuals of the predictive regression and is straightforward to implement. The distributions of the two test statistics we introduce are shown to be free of nuisance parameters, valid under dependent errors, already tabulated in the literature and robust to the degree of persistence of the chosen predictor. Our proposed method is subsequently applied to the predictability of US stock returns.

  April 05, 2017   doi: 10.1111/obes.12184   open full text
• Return Migration, Self‐selection and Entrepreneurship.
  Catia Batista, Tara McIndoe‐Calder, Pedro C. Vicente.
  Oxford Bulletin of Economics and Statistics. March 28, 2017
  Are return migrants more entrepreneurial? Existing literature has not addressed how estimating the impact of return migration on entrepreneurship is affected by double unobservable migrant self‐selection, both at the initial outward migration and at the final inward return migration stages. This paper exploits exogenous variation provided by the civil war and the incidence of agricultural plagues in Mozambique, as well as social unrest and other shocks in migrant destination countries. The results lend support to overall negative unobservable return migrant self‐selection, which results in an under‐estimation of the effects of return migration on entrepreneurial outcomes when using a ‘naïve’ estimator that does not control for self‐selection at both the initial migration and at the final return migration stages.

  March 28, 2017   doi: 10.1111/obes.12176   open full text
• On Maximum Likelihood Estimation of Dynamic Panel Data Models.
  Maurice J.G. Bun, Martin A. Carree, Artūras Juodis.
  Oxford Bulletin of Economics and Statistics. March 27, 2017
  We analyse the finite sample properties of maximum likelihood estimators for dynamic panel data models. In particular, we consider transformed maximum likelihood (TML) and random effects maximum likelihood (RML) estimation. We show that TML and RML estimators are solutions to a cubic first‐order condition in the autoregressive parameter. Furthermore, in finite samples both likelihood estimators might lead to a negative estimate of the variance of the individual‐specific effects. We consider different approaches taking into account the non‐negativity restriction for the variance. We show that these approaches may lead to a solution different from the unique global unconstrained maximum. In an extensive Monte Carlo study we find that this issue is non‐negligible for small values of T and that different approaches might lead to different finite sample properties. Furthermore, we find that the Likelihood Ratio statistic provides size control in small samples, albeit with low power due to the flatness of the log‐likelihood function. We illustrate these issues modelling US state level unemployment dynamics.

  March 27, 2017   doi: 10.1111/obes.12156   open full text
• Impact of Changes in Consumer Preferences on Sectoral Labour Reallocation: Evidence from the Italian Economy.
  William Addessi, Manuela Pulina, Federico Sallusti.
  Oxford Bulletin of Economics and Statistics. March 24, 2017
  This study empirically investigates the impact of changes in consumer preferences on labour reallocation across the Italian economic sectors. For this purpose, coherent sectoral time series of consumer preferences and labour units are constructed from Italian national accounts and consumption expenditure data. In line with recent firm‐level evidence, empirical findings indicate a positive and significant effect of preference changes on labour reallocation. Results are robust to several econometric specifications, different procedures to elicit preference changes, as well as the introduction of time‐varying price coefficient and sector‐specific effects of total consumption expenditure.

  March 24, 2017   doi: 10.1111/obes.12179   open full text
• Knowledge Spillovers, ICT and Productivity Growth.
  Carol Corrado, Jonathan Haskel, Cecilia Jona‐Lasinio.
  Oxford Bulletin of Economics and Statistics. March 24, 2017
  This paper looks at the channels through which intangible assets affect productivity growth. The econometric analysis exploits a new data set on intangible investment (INTAN‐Invest) in conjunction with EUKLEMS productivity estimates for 10 EU member states from 1998 to 2007. We find that (a) the output elasticity of intangible capital depends upon ICT intensity, consistent with complementarities between ICT and intangible capital; (b) non‐R&D intangible capital has a higher estimated output elasticity than its factor share, as does (c) an index of labour composition. The last two findings are consistent with growth spillovers from investments in knowledge‐based/intangible capital and skills.

  March 24, 2017   doi: 10.1111/obes.12171   open full text
• Monetary Policy and Macroprudential Policy: New Evidence from a World Panel of Countries.
  Nicholas Apergis.
  Oxford Bulletin of Economics and Statistics. March 24, 2017
  The event of the recent financial crisis raises the question of whether policy makers could have done more or something different to prevent the build‐up of financial imbalances. This paper contributes to the field of regulatory impact by tackling the debate on whether central banks should ‘lean against the wind’, while in case the response is positive, how macroprudential policies should be combined with monetary policy. Using an augmented Taylor rule and a sample of 127 global economies, the results provide evidence on the importance of macroprudential issues for the implementation of an effective monetary policy. They also document that the type of adopted macroprudential instrument has a substantial effect on such effectiveness, with this policy mix being less ‘integrated’ when the monetary rule aims at primarily safeguarding inflation stability. The results survive robustness checks under alternative assets.

  March 24, 2017   doi: 10.1111/obes.12182   open full text
• Measuring Business Cycles Intra‐Synchronization in US: A Regime‐switching Interdependence Framework.
  Danilo Leiva‐Leon.
  Oxford Bulletin of Economics and Statistics. March 23, 2017
  This paper proposes a Markov‐switching framework to endogenously identify periods where economies are more likely to (i) synchronously enter recessionary and expansionary phases, and (ii) follow independent business cycles. The reliability of the framework is validated with simulated data in Monte Carlo experiments. The framework is applied to assess the time‐varying intra‐country synchronization in the US. The main results report substantial changes over time in the cyclical affiliation patterns of US states, and show that the more similar the economic structures of states, the higher the correlation between their business cycles. A synchronization‐based network analysis discloses a change in the propagation pattern of aggregate contractionary shocks across states, suggesting that the US has become more internally synchronized since the early 1990s.

  March 23, 2017   doi: 10.1111/obes.12157   open full text
• Identification Based on Difference‐in‐Differences Approaches with Multiple Treatments.
  Hans Fricke.
  Oxford Bulletin of Economics and Statistics. March 22, 2017
  This paper discusses identification based on difference‐in‐differences (DiD) approaches with multiple treatments. It shows that an appropriate adaptation of the common trend assumption underlying the DiD strategy for the comparison of two treatments restricts the possibility of effect heterogeneity for at least one of the treatments. The required assumption of effect homogeneity is likely to be violated because of non‐random assignment to treatment based on both observables and unobservables. However, this paper shows that, under certain conditions, the DiD estimate comparing two treatments identifies a lower bound in absolute values on the average treatment effect on the treated compared to the unobserved non‐treatment state, even if effect homogeneity is violated. This is possible if the treatments have ordered treatment effects, that is, in expectation, the effects of both treatments compared to no treatment have the same sign, and one treatment has a stronger effect than the other treatment on the respective recipients. Such assumptions are plausible if treatments are ordered or vary in intensity.

  March 22, 2017   doi: 10.1111/obes.12178   open full text
• Testing for Flexible Nonlinear Trends with an Integrated or Stationary Noise Component.
  Pierre Perron, Mototsugu Shintani, Tomoyoshi Yabu.
  Oxford Bulletin of Economics and Statistics. March 22, 2017
  This paper proposes a new test for the presence of a nonlinear deterministic trend approximated by a Fourier expansion in a univariate time series for which there is no prior knowledge as to whether the noise component is stationary or contains an autoregressive unit root. Our approach builds on the work of Perron and Yabu () and is based on a Feasible Generalized Least Squares procedure that uses a super‐efficient estimator of the sum of the autoregressive coefficients α when α = 1. The resulting Wald test statistic asymptotically follows a chi‐square distribution in both the I(0) and I(1) cases. To improve the finite sample properties of the test, we use a bias‐corrected version of the OLS estimator of α proposed by Roy and Fuller (). We show that our procedure is substantially more powerful than currently available alternatives. We illustrate the usefulness of our method via an application to modelling the trend of global and hemispheric temperatures.

  March 22, 2017   doi: 10.1111/obes.12169   open full text
• Low Wage Returns to Schooling in a Developing Country: Evidence from a Major Policy Reform in Turkey.
  Abdurrahman Aydemir, Murat G. Kirdar.
  Oxford Bulletin of Economics and Statistics. March 22, 2017
  In this paper, we estimate returns to schooling for young men and women in Turkey using the exogenous and substantial variation in schooling across birth cohorts brought about by the 1997 reform of compulsory schooling within a fuzzy regression discontinuity design. We estimate that the return from an extra year of schooling is about 7–8% for women and an imprecisely estimated 2–2.5% for men. The low level of the estimates for men contrasts starkly with those estimated for other developing countries. We identify several reasons why returns to schooling are low for men and why they are higher for women in our context. In particular, the policy alters the schooling distributions of men and women differently, thus the average causal effect puts a higher weight on the causal effect of schooling at higher grade levels for women than for men.

  March 22, 2017   doi: 10.1111/obes.12174   open full text
• A Cautionary Tale About Control Variables in IV Estimation.
  Eva Deuchert, Martin Huber.
  Oxford Bulletin of Economics and Statistics. March 22, 2017
  Many instrumental variable (IV) regressions include control variables to justify (conditional) independence of the instrument and the potential outcomes. The plausibility of conditional IV independence crucially depends on the timing when the control variables are determined. This paper works through different IV models and discusses the (conditions for the) satisfaction of conditional IV independence depending on whether the control variables are measured prior to or after instrument assignment. To illustrate the identification issues, we consider the Vietnam War draft risk as instrument either for veteran status or education to evaluate the effects of these variables on labour market and health outcomes. Our empirical analysis based on the ‘Young Men in High School and Beyond’ survey suggests that commonly used conditional IV strategies to estimate the impact of draft induced military service or education may be severely biased due to the use of improper controls.

  March 22, 2017   doi: 10.1111/obes.12177   open full text
• Meta‐Regression Models and Observational Research.
  Stephan B. Bruns.
  Oxford Bulletin of Economics and Statistics. March 22, 2017
  Meta‐regression models were originally developed for the synthesis of experimental research where randomization ensures unbiased and consistent estimation of the effect of interest. Most economics research is, however, observational and specification searches may often result in estimates that are biased and inconsistent, for example, due to omitted‐variable biases. We show that if the authors of primary studies search for statistically significant estimates in observational research, meta‐regression models tend to make false‐positive findings of genuine empirical effects. More research is needed to better understand how meta‐regression models need to be specified to help identifying genuine empirical effects in observational research.

  March 22, 2017   doi: 10.1111/obes.12172   open full text
• Heterogeneity in Labour Supply Responses: Evidence from a Major Tax Reform.
  Mauro Mastrogiacomo, Nicole M. Bosch, Miriam D. A. C. Gielen, Egbert L. W. Jongen.
  Oxford Bulletin of Economics and Statistics. March 17, 2017
  We use a large and rich administrative household panel data set to estimate labour supply responses for a large number of subgroups in the Netherlands. The identification of the parameters benefits from a major tax reform in the data period. We uncover large differences in behavioural responses. In particular, we find differences in labour supply responses between households with and without children that are much bigger than suggested by previous studies that had to pool these household types in the estimation of preferences. An efficient tax‐benefit system should take the substantial heterogeneity in behavioural responses into account.

  March 17, 2017   doi: 10.1111/obes.12168   open full text
• Do Smaller Classes Always Improve Students’ Long‐run Outcomes?
  Torberg Falch, Astrid Marie Jorde Sandsør, Bjarne Strøm.
  Oxford Bulletin of Economics and Statistics. February 24, 2017
  We exploit the strict class size rule in Norway and matched individual and school register information for 1982–2011 to estimate long‐run causal effects on income and educational attainment. Contrary to recent evidence from the US and Sweden, we do not find any significant average effect on long‐run outcomes of reduced class size. We further use the large register data set and quasi‐experimental strategy to estimate whether the class size effect depends on external conditions facing students and schools, such as teacher quality, extent of upper secondary school choice, school district size, local fiscal constraints and labour market conditions. Overall, we find that the class size effect does not depend on these factors measured at the school district level. The absence of class size effects on long‐run outcomes in Norway is consistent with earlier findings for short‐run outcomes, using comparable data and empirical strategies.

  February 24, 2017   doi: 10.1111/obes.12161   open full text
• Land Market Restrictions, Women's Labour Force Participation and Wages in a Rural Economy.
  M. Shahe Emran, Forhad Shilpi.
  Oxford Bulletin of Economics and Statistics. February 24, 2017
  We analyse the effects of land market restrictions on the rural labour market outcomes for women. The existing literature emphasizes two mechanisms through which land restrictions can affect economic outcomes: collateral value of land, and (in)security of property rights. Our analysis focuses on an alternative mechanism where land restrictions increase costs of migration out of villages. Testable prediction of collateral channel is that wages remain unchanged, but the effects on labour force participation are ambiguous. Insecurity of property rights in land reduces labour force participation, but leaves wages undisturbed. In contrast, if land restrictions work primarily through higher migration costs, labour force participation increases, while wages decline. For identification, we exploit a natural experiment in Sri Lanka where historical malaria played a unique role in land policy. We provide robust evidence of a positive effect of land restrictions on women's labour force participation, but a negative effect on female wages. The empirical results thus contradict a collateral or insecure property rights effect, but supports migration costs as the primary mechanism.

  February 24, 2017   doi: 10.1111/obes.12159   open full text
• A Factor Analytical Approach to Price Discovery.
  Joakim Westerlund, Simon Reese, Paresh Narayan.
  Oxford Bulletin of Economics and Statistics. February 24, 2017
  Existing econometric approaches for studying price discovery presume that the number of markets are small, and their properties become suspect when this restriction is not met. They also require making identifying restrictions and are in many cases not suitable for statistical inference. The current paper takes these shortcomings as a starting point to develop a factor analytical approach that makes use of the cross‐sectional variation of the data, yet is very user‐friendly in that it does not involve any identifying restrictions or obstacles to inference.

  February 24, 2017   doi: 10.1111/obes.12167   open full text
• The Macroeconomic Effects of Shocks to Large Banks’ Capital.
  Jean‐Stéphane Mésonnier, Dalibor Stevanovic.
  Oxford Bulletin of Economics and Statistics. February 24, 2017
  We propose a simple approach to quantifying the macroeconomic effects of shocks to large banks’ leverage. We first estimate a standard dynamic model of leverage targeting at the bank level and use it to derive an aggregate measure of the economic capital buffer of large US bank holding corporations. We then evaluate the response of key macro variables to a shock to this aggregate bank capital buffer using standard monetary VAR models. We find that shocks to the capital of large US banks explain a substantial share of the variance of credit to firms and real activity.

  February 24, 2017   doi: 10.1111/obes.12162   open full text
• The Sorting of Female Careers after First Birth: A Competing Risks Analysis of Maternity Leave Duration.
  Melanie Arntz, Stephan Dlugosz, Ralf A. Wilke.
  Oxford Bulletin of Economics and Statistics. February 21, 2017
  A number of contributions have found evidence that motherhood is a critical life event for women's employment careers. This study presents a detailed analysis for the duration of maternity leave in which young mothers can make a transition into different types of employment, unemployment as well as the next birth. We provide a comprehensive picture of the sorting mechanisms that lead to the differentiation of women's employment careers after birth. Our empirical evidence is derived from large‐linked administrative individual labour market data from Germany for a period of three decades. We obtain unprecedented insights into how women's skills, the quality of the previous job match, firm level characteristics, labour market conditions and leave legislation are related to the length of maternity duration. Expansionary leave policies, e.g. are found to be a key factor for the rising share of women who have their second child out of inactivity.

  February 21, 2017   doi: 10.1111/obes.12158   open full text
• Financial Depth and the Asymmetric Impact of Monetary Policy.
  Mustafa Caglayan, Ozge Kandemir Kocaaslan, Kostas Mouratidis.
  Oxford Bulletin of Economics and Statistics. February 21, 2017
  This paper investigates the importance of financial depth in evaluating the asymmetric impact of monetary policy on real output over the course of the US business cycle. We show that monetary policy has a significant impact on output growth during recessions. We also show that financial deepening plays an important role by dampening the effects of monetary policy shocks in recessions. The results are robust to the use of alternative financial depth and monetary policy shock measures as well as to two different sample periods.

  February 21, 2017   doi: 10.1111/obes.12160   open full text
• Finance Sector Wage Growth and the Role of Human Capital.
  Joanne Lindley, Steven Mcintosh.
  Oxford Bulletin of Economics and Statistics. February 15, 2017
  We reveal the pervasiveness of the finance sector pay premium, across all OECD countries, as well as all sub‐sectors and occupations within the UK financial sector. Moreover, the UK premium has continued to rise despite the financial crisis. We show that earnings increase faster with value added in certain sub‐sectors of finance, compared to the general economy, providing evidence of profit‐sharing in these sub‐sectors. Other possible explanations, such as workers with higher qualifications or better cognitive skills, or technological change and differing job characteristics, can explain some of the finance sector pay premium, but are not sufficient on their own.

  February 15, 2017   doi: 10.1111/obes.12155   open full text
• Partial Structural Break Identification.
  Chulwoo Han, Abderrahim Taamouti.
  Oxford Bulletin of Economics and Statistics. February 10, 2017
  We propose an extension of the existing information criterion‐based structural break identification approaches. The extended approach helps identify both pure structural change (break) and partial structural change (break). A pure structural change refers to the case when breaks occur simultaneously in all parameters of regression equation, whereas a partial structural change happens when breaks occur in some parameters only. Our approach consistently outperforms other well‐known approaches. We also extend the simulation studies of Bai and Perron ( and Hall, Osborn and Sakkas () by including more general cases. This provides more comprehensive results and reveals the cases where the existing identification approaches lose power, which should be kept in mind when applying them.

  February 10, 2017   doi: 10.1111/obes.12153   open full text
• Pricing in the Norwegian Interbank Market – the Effects of Liquidity and Implicit Government Support.
  Q. Farooq Akram, Casper Christophersen.
  Oxford Bulletin of Economics and Statistics. February 08, 2017
  We investigate the effects of central bank liquidity and possible implicit government guarantees against default on Norwegian overnight interbank interest rates. We conduct an econometric study of these interest rates over the period 2006–09, which includes the sharp fall in interbank trading during the financial crisis. Our findings suggest relatively lower funding costs for banks of systemic importance, particularly for banks with many and valuable linkages to other banks. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but on its distribution among banks as well. There is also evidence of stronger effects on interest rates of systemic importance, creditworthiness and liquidity demand and supply factors during the financial crisis.

  February 08, 2017   doi: 10.1111/obes.12147   open full text
• Ethnic Fractionalization, Governance and Loan Defaults in Africa.
  Svetlana Andrianova, Badi H. Baltagi, Panicos Demetriades, David Fielding.
  Oxford Bulletin of Economics and Statistics. February 08, 2017
  We present a theoretical model of an imperfectly competitive loans market that is suitable for emerging economies in Africa. The model allows for variation in both the level of contract enforcement (the quality of governance) and the degree of market segmentation (the level of ethnic fractionalization). The model predicts a specific form of nonlinearity in the effects of these variables on loan default. Empirical analysis using African panel data for 110 individual banks in 28 countries over 2000–08 provides strong evidence for these predictions. Our results have important implications for the conditions under which policy reform will enhance financial development.

  February 08, 2017   doi: 10.1111/obes.12152   open full text
• A Note on US Worker Turnover.
  Sekyu Choi, Javier Fernández‐Blanco.
  Oxford Bulletin of Economics and Statistics. February 08, 2017
  The length of new employment relationships is of first‐order importance for a number of questions in recent macro‐labour research. We investigate it using data from the Survey of Income and Program Participation for the US from 1996 onwards, and document that above two‐fifths of newly employed workers fall into non‐employment within a year. We also find that the transition rate from employment to non‐employment within the first year varies significantly for different groups of the population, increases with the duration of the previous non‐employment spell, exhibits an acyclical or weakly procyclical pattern and a much higher volatility than the unemployment rate.

  February 08, 2017   doi: 10.1111/obes.12154   open full text
• Determinants of Relative Sectoral Prices: The Role of Demographic Change.
  Max Groneck, Christoph Kaufmann.
  Oxford Bulletin of Economics and Statistics. November 30, 2016
  Demographic change raises demand for non‐tradable old‐age related services relative to tradable commodities. This demand shift increases the relative price of non‐tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand affects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries, we estimate a robust increase of relative prices. According to our main estimate, up to one fifth of the average increase in relative prices between 1970 and 2009 can be attributed to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.

  November 30, 2016   doi: 10.1111/obes.12149   open full text
• Consumer Search Ability, Price Dispersion and the Digital Divide.
  Stephen McDonald, Colin Wren.
  Oxford Bulletin of Economics and Statistics. October 19, 2016
  The ‘digital divide’ in online activities is believed to arise from differences in Internet access, but this paper advances an alternative explanation that is related to consumer search ability. It argues that this leads to greater price dispersion, causing some consumers to be discriminated against. It analyses price data for the UK Internet motor insurance market, collecting data on 32,255 prices for 110 sub‐markets, where differences in price dispersion across these by age, occupation and sex of the driver are argued to reflect differences in search ability. Allowing for price dispersion to also depend on the insurance risk, it finds greater price dispersion for consumers with weaker search abilities, i.e. older, unemployed, retired or female consumers. As this is not explained by alternative hypotheses, the paper concludes that improved Internet access alone will not close the ‘digital divide’. The implication is that policymakers should address the online search abilities of individuals as well as Internet access.

  October 19, 2016   doi: 10.1111/obes.12151   open full text
• Moving Towards Estimating Sons' Lifetime Intergenerational Economic Mobility in the UK.
  Paul Gregg, Lindsey Macmillan, Claudia Vittori.
  Oxford Bulletin of Economics and Statistics. August 04, 2016
  Estimates of intergenerational economic mobility that use point in time measures of income and earnings suffer from lifecycle and attenuation bias. They also suffer from sample selection issues and further bias driven by spells out of work. We consider these issues together for UK data, the National Child Development Study and British Cohort Study, for the first time. When all three biases are considered, our best estimate of lifetime intergenerational economic persistence in the UK is 0.43 for children born in 1970. Whilst we argue that this is the best available estimate to date, we discuss why there is good reason to believe that this is still a lower bound, owing to residual attenuation bias.

  August 04, 2016   doi: 10.1111/obes.12146   open full text
• A Note on the Regularized Approach to Biased 2SLS Estimation with Weak Instruments.
  Namhyun Kim, Winfried Pohlmeier.
  Oxford Bulletin of Economics and Statistics. July 23, 2016
  The presence of weak instruments is translated into a nearly singular problem in a control function representation. Therefore, the L2‐norm type of regularization is proposed to implement the 2SLS estimation for addressing the weak instrument problem. The L2‐norm regularization with a regularized parameter O(n) allows us to obtain the Rothenberg (1984) type of higher‐order approximation of the 2SLS estimator in the weak instrument asymptotic framework. The proposed regularized parameter yields the regularized concentration parameter O(n), which is used as a standardized factor in the higher‐order approximation. We also show that the proposed L2‐norm regularization consequently reduces the finite sample bias. A number of existing estimators that address finite sample bias in the presence of weak instruments, especially Fuller's limited information maximum likelihood estimator, are compared with our proposed estimator in a simple Monte Carlo exercise.

  July 23, 2016   doi: 10.1111/obes.12144   open full text
• Size Matters: The Effect of the Size of Ethnic Groups on Development.
  Arcangelo Dimico.
  Oxford Bulletin of Economics and Statistics. July 11, 2016
  The share of ethnic groups is one of the most important features of African politics. It affects civil wars, representation in government positions, distributive and allocative policies. In this paper, we use the partition of ethnic groups as a natural experiment in order to estimate the effect of the share of these ethnic groups on development. We show that larger groups have an advantage in terms of development and that the partition in itself does not matter for development. This result is explained by the fact that the partition matters only when the resulting groups are relatively small, since their lack of political representation may weaken support for institutions, may bias policies and the provision of ethnic/regional public goods.

  July 11, 2016   doi: 10.1111/obes.12145   open full text
• Global Engagement and Returns Volatility.
  Sourafel Girma, Sandra Lancheros, Alejandro Riaño.
  Oxford Bulletin of Economics and Statistics. July 06, 2016
  This paper finds that a greater reliance on foreign market sales increases the volatility of firms’ stock returns, using high‐frequency data for publicly listed Japanese manufacturing firms over the period 2000–10. The two margins of global engagement we consider, namely, exports and sales via foreign affiliates (horizontal foreign direct investment), have both a positive and economically significant effect on firm‐level volatility. We find, however, that increasing the intensity of sales through foreign affiliates has a stronger effect on volatility than a similar change in export intensity. We also uncover evidence consistent with the notion that firms’ need to use external finance to cover the substantial costs involved in reaching foreign consumers can be an important channel through which firms’ participation in international markets increases their exposure to economic uncertainty.

  July 06, 2016   doi: 10.1111/obes.12150   open full text
• The Credibility of Hong Kong's Currency Board System: Looking Through the Prism of MS‐VAR Models with Time‐Varying Transition Probabilities.
  Boris Blagov, Michael Funke.
  Oxford Bulletin of Economics and Statistics. July 06, 2016
  This paper employs a Markov regime‐switching VAR model to describe and analyse the time‐varying credibility of Hong Kong's currency board system. The endogenously estimated discrete regime shifts are made dependent on macroeconomic fundamentals. This enables us to determine which changes in macroeconomic variables can trigger switches between the low and high credibility regimes. We carry out extensive testing to search for the most appropriate specification of the Markov regime‐switching model. We find strong evidence of regime switching behaviour that portrays the time‐varying nature of credibility in the historical data.

  July 06, 2016   doi: 10.1111/obes.12148   open full text
• Labour Costs and the Size of Government.
  François Facchini, Mickael Melki, Andrew Pickering.
  Oxford Bulletin of Economics and Statistics. June 25, 2016
  Given inelastic demand for labour‐intensive public services, the size of government depends positively on labour costs. OECD data exhibit a strong statistical association between government size and the business‐sector labour share of income. When the labour share is instrumented with measures of technological change, institutional variation and predetermined data it continues to positively impact government size. In contrast, transfer spending is unaffected by the labour share. The evidence is consistent with the idea that the recent decline in the labour share has contributed to the slowdown in the growth of government witnessed in much of the post‐war era.

  June 25, 2016   doi: 10.1111/obes.12140   open full text
• Mismatch and the Forecasting Performance of Matching Functions.
  Christian Hutter, Enzo Weber.
  Oxford Bulletin of Economics and Statistics. June 25, 2016
  This paper investigates the role of structural imbalance between job seekers and job openings for the forecasting performance of a labour market matching function. Starting from a Cobb–Douglas matching function with constant returns to scale (CRS) in each frictional micro market shows that on the aggregate level, a measure of mismatch is a crucial ingredient of the matching function and hence should not be ignored for forecasting hiring figures. Consequently, we allow the matching process to depend on the level of regional, qualificatory and occupational mismatch between unemployed and vacancies. In pseudo out‐of‐sample tests that account for the nested model environment, we find that forecasting models enhanced by a measure of mismatch significantly outperform their benchmark counterparts for all forecast horizons ranging between one month and a year. This is especially pronounced during and in the aftermath of the Great Recession where a low level of mismatch improved the possibility of unemployed to find a job again. The results show that imposing CRS helps improve forecast accuracy compared to unrestricted models.

  June 25, 2016   doi: 10.1111/obes.12142   open full text
• Information Frictions in Uncertain Regulatory Environments: Evidence from U.S. Commercial Banks.
  Kristin Wilson, Stan Veuger.
  Oxford Bulletin of Economics and Statistics. June 25, 2016
  Information frictions between firms and regulators are typically seen as a means by which firms evade enforcement. In contrast, we argue that information frictions between firms and regulators can reduce the efficiency of firms’ compliance efforts when the interpretation of regulatory standards is uncertain. We exploit plausibly exogenous variation in distance between firms and their regulators to demonstrate this for a panel of community banks in the US. We find that banks located at greater distance from regulatory field offices face significantly higher administrative costs, at a rate of 20% of administrative costs per hour of travel time. These differences do not come with reduced compliance, are not driven by endogenous regulator choice, and are stable over time. Further, the costs borne by distant firms are negatively related to the scale of the jurisdiction in which they operate, suggesting that information spillovers between firms limit uncertainty about regulatory expectations.

  June 25, 2016   doi: 10.1111/obes.12143   open full text
• An IV Test for a Unit Root in Generally Trending and Correlated Panels.
  Joakim Westerlund.
  Oxford Bulletin of Economics and Statistics. June 21, 2016
  This paper proposes an IV‐based panel unit root test that is general enough to accommodate general error serial and cross‐section dependence, and a potentially nonlinear deterministic trend function. These allowances make the new test one of the most general around. It is also very simple to implement. Indeed, the IV statistic is asymptotically invariant to not only to all nuisance parameters characterizing the dependence of the errors and the true trend function, but also the deterministic specification of the fitted test regression.

  June 21, 2016   doi: 10.1111/obes.12141   open full text
• The Wage Inflation‐Unemployment Curve at the Macroeconomic Level.
  Antonia López‐Villavicencio, Sophie Saglio.
  Oxford Bulletin of Economics and Statistics. May 25, 2016
  Based on the reduced form New Keynesian Wage Phillips Curve, we estimate wage rigidity and indexation at the aggregate level in several advanced countries for the 1985–2014 period. We document that the wage setting process is heterogenous among our sample of countries: nominal wage rigidities are more important in the United States, while wage indexation is dominant in European Countries. We also present evidence that indexation to past inflation has decrease as inflation stabilizes at lower levels. In addition, our results suggest that wage rigidity is not linked to the institutional environment at the macroeconomic level. Finally, we show that there is significant time variation in the estimated coefficients on the implied equation that is usually not taken into account in the theoretical literature.

  May 25, 2016   doi: 10.1111/obes.12139   open full text
• The Effect of Oil Prices on Field Production: Evidence from the Norwegian Continental Shelf.
  Johannes Mauritzen.
  Oxford Bulletin of Economics and Statistics. May 11, 2016
  I use detailed field‐level data on Norwegian offshore oil production and a semi‐parametric additive model to control for the production profile of fields to estimate the effect of oil prices on production. I find no significant evidence of a concurrent reaction of field production to oil prices, though a modest lagged effect is found of the magnitude of approximately 2% to 7% for a $10 per barrel increase in the real price of oil.

  May 11, 2016   doi: 10.1111/obes.12138   open full text
• A Method for Working with Sign Restrictions in Structural Equation Modelling.
  Sam Ouliaris, Adrian Pagan.
  Oxford Bulletin of Economics and Statistics. April 29, 2016
  The paper sets out a method for handling sign restrictions in systems of simultaneous equations which are only partially identified. These sign restrictions might apply to either structural equation parameters or functions of them such as impulse responses. Initially a range of values for the unidentified parameters are generated and then the role of sign restrictions is to narrow the range. It is simple to apply and can be handled in packages such as EViews and Stata. Examples are given of how to implement it in a number of cases where there are both parametric and sign restrictions.

  April 29, 2016   doi: 10.1111/obes.12137   open full text
• Decomposing Beveridge Curve Dynamics By Correlated Unobserved Components.
  Sabine Klinger, Enzo Weber.
  Oxford Bulletin of Economics and Statistics. April 29, 2016
  Our paper provides a consistent framework to study the structural or cyclical nature of Beveridge curve (BC) dynamics: We connect equilibrium unemployment theory to a flexible multivariate unobserved components model. We disentangle permanent and transitory components of all series determining the BC and its position. Cointegration and identification are addressed. The German curve is an ideal illustration as reforms of the institutional setting and the Great Recession were accompanied by a remarkable labour market development. We find an extraordinary increase in trend matching efficiency after the reforms, which testifies to a permanent improvement. Matching efficiency accounts for about half of the BCś inward shift. As tightness also increased, a persistent upward movement masked the inward shift.

  April 29, 2016   doi: 10.1111/obes.12135   open full text
• Do Neighbours Influence Value‐Added‐Tax Introduction? A Spatial Duration Analysis.
  Pavel Čížek, Jinghua Lei, Jenny E. Ligthart.
  Oxford Bulletin of Economics and Statistics. April 29, 2016
  The spatial survival models typically impose frailties, which characterize unobserved heterogeneity, to be spatially correlated. However, the spatial effect may not only exist in the unobserved errors, but it can also be present in the baseline hazards and the dependent variables. A new spatial survival model with these three possible spatial correlation structures is explored and used to investigate the implementation of value‐added tax (VAT) in 99 countries over the period 1970–2009. Estimation is performed by a Bayesian approach through the Markov chain Monte Carlo method. The estimation results suggest the presence of a significant spatial correlation among the VAT introductions of neighbouring countries.

  April 29, 2016   doi: 10.1111/obes.12136   open full text
• Quasi‐Experimental Evidence on the Effects of Health Information on Preventive Behaviour in Europe.
  Vincenzo Carrieri, Ansgar Wuebker.
  Oxford Bulletin of Economics and Statistics. April 29, 2016
  We investigate the effect of information on preventive decisions in a quasi‐experimental setting arising from the implementation of local breast cancer screening programmes in Europe. To identify the causal effect of invitation on preventive uptake, we link administrative public data on regional screening policies to individual data from the Survey of Health Ageing and Retirement in Europe (SHARE) and exploit regional variation in the availability of screening policies and in age eligibility criteria. We find home invitation increases mammography uptakes by around 24%. Significant effects are found when at least 50% of the population is reached by the invitation letter. The stock of health information and the ability to process the information received seem to play a significant role, as the effects of invitation are higher among low educated and lower among cognitively impaired women.

  April 29, 2016   doi: 10.1111/obes.12134   open full text
• Modified CADF and CIPS Panel Unit Root Statistics with Standard Chi‐squared and Normal Limiting Distributions.
  Joakim Westerlund, Mehdi Hosseinkouchack.
  Oxford Bulletin of Economics and Statistics. March 31, 2016
  In an influential paper Pesaran (‘A simple panel unit root test in presence of cross‐section dependence’, Journal of Applied Econometrics, Vol. 22, pp. 265–312, 2007) proposes two unit root tests for panels with a common factor structure. These are the CADF and CIPS test statistics, which are amongst the most popular test statistics in the literature. One feature of these statistics is that their limiting distributions are highly non‐standard, making for relatively complicated implementation. In this paper, we take this feature as our starting point to develop modified CADF and CIPS test statistics that support standard chi‐squared and normal inference.

  March 31, 2016   doi: 10.1111/obes.12127   open full text
• System‐Equation ADL Test for Threshold Cointegration with an Application to the Term Structure of Interest Rates.
  Jing Li.
  Oxford Bulletin of Economics and Statistics. March 21, 2016
  This paper proposes a new system‐equation test for threshold cointegration based on a threshold vector autoregressive distributed lag (ADL) model. The new test can be applied when the cointegrating vector is unknown and when weak exogeneity fails. The asymptotic null distribution of the new test is derived, critical values are tabulated and finite‐sample properties are examined. In particular, the new test is shown to have good size, so the bootstrap is not required. The new test is illustrated using the long‐term and short‐term interest rates. We show that the system‐equation model can shed light on both asymmetric adjustment speeds and asymmetric adjustment roles. The latter is unavailable in the single‐equation testing strategy.

  March 21, 2016   doi: 10.1111/obes.12123   open full text
• Household Shocks and Education Investments in Madagascar.
  Peter J. Glick, David E. Sahn, Thomas F. Walker.
  Oxford Bulletin of Economics and Statistics. March 17, 2016
  This paper investigates the impact of exogenous shocks to household income, assets and labour supply on children's school attendance in Madagascar. The analysis uses a unique data set with 10 years of recall data on school attendance and household shocks. We find that the probability of a child dropping out of school increases significantly when the household experiences an illness, death or asset shock. We propose a test to distinguish whether the impact of shocks on school attendance can be attributed to credit constraints, labour market rigidities, or a combination of the two. The results suggest that credit constraints, rather than labour market rigidities, explain the inability of households in Madagascar to keep their children in school during times of economic stress.

  March 17, 2016   doi: 10.1111/obes.12129   open full text
• Decomposing the Ins and Outs of Cyclical Unemployment.
  Ronald Bachmann, Mathias Sinning.
  Oxford Bulletin of Economics and Statistics. March 09, 2016
  This paper analyses the contribution of the composition of the pool of employed and unemployed individuals to labour market dynamics in different phases of the business cycle. Using individual‐level data from the Current Population Survey (CPS), we decompose differences in employment status transition rates between upswings and downturns into explained and unexplained parts. We find that the duration of unemployment contributes to explaining unemployment outflows to employment and observe that its initially positive contribution turns negative in deep recessions. Composition effects play an important role for unemployment outflows to non‐participation but dampen the cyclicality of unemployment inflows from employment.

  March 09, 2016   doi: 10.1111/obes.12133   open full text
• European Integration and the Feldstein–Horioka Puzzle.
  Margarita Katsimi, Gylfi Zoega.
  Oxford Bulletin of Economics and Statistics. February 26, 2016
  We apply the differences‐in‐differences method to study the effect of the European single market in 1993 and the euro in 1999 on the Feldstein–Horioka equation where countries outside the single market serve as a control group and those within as a treatment group. We find structural breaks that coincide with both events, in addition to the financial crisis in 2008. The results suggest that the correlation between investment and savings depends on institutions, exchange rate risk and credit risk. Furthermore, the pattern of capital flows within the single market leaves a significant part of the flows unexplained by fundamentals.

  February 26, 2016   doi: 10.1111/obes.12130   open full text
• Social Capital and Economic Growth in Europe: Nonlinear Trends and Heterogeneous Regional Effects.
  Jesús Peiró‐Palomino.
  Oxford Bulletin of Economics and Statistics. February 26, 2016
  Most of the literature focused on the social capital‐growth nexus has followed the one‐size‐fits‐all approach, neglecting that regional disparities might modify this relationship. This article analyses the role of two social capital indicators on the growth of 237 European regions in the period 1995–2007 by implementing non‐parametric regression, which relaxes the linearity assumption and allows the data to give the underlying functional form. The results show that social capital effects on growth are nonlinear. Parameter heterogeneity could also be examined, showing heterogenous effects across regions and over time. In particular, social capital is mostly negative in regions from Eastern and Central Europe during the first years of transition from socialism to market economies. However, this pattern has changed in the more recent period.

  February 26, 2016   doi: 10.1111/obes.12131   open full text
• Do Good Institutions Promote Countercyclical Macroeconomic Policies?
  César Calderón, Roberto Duncan, Klaus Schmidt‐Hebbel.
  Oxford Bulletin of Economics and Statistics. February 13, 2016
  The literature has argued that developing countries are unable to adopt countercyclical monetary and fiscal policies due to financial imperfections and unfavourable political‐economy conditions. Using a world sample of up to 112 industrial and developing countries for 1984–2008, we find that the level of institutional quality plays a key role in countries’ ability and willingness to implement countercyclical macroeconomic policies. Countries with strong (weak) institutions adopt countercyclical (procyclical) macroeconomic policies, reflected in extended monetary policy and fiscal policy rules. The threshold levels of institutional quality at which policies are acyclical are found to be similar for monetary and fiscal policy.

  February 13, 2016   doi: 10.1111/obes.12132   open full text
• Macroeconomic Uncertainty and Oil Price Volatility.
  Ine Van Robays.
  Oxford Bulletin of Economics and Statistics. January 29, 2016
  This paper shows that higher macroeconomic uncertainty causes higher oil price volatility. Regimes of low and high uncertainty are identified in a threshold VAR model in which the effects of structural oil demand and supply shocks are estimated. The results show that higher macroeconomic uncertainty, as measured by global industrial production volatility, significantly increases the sensitivity of oil prices to shocks in oil demand and supply. This occurs as uncertainty lowers the price elasticity of oil demand and supply. The difference in the estimated oil price elasticities is economically meaningful as the price impact of a similar change in oil production might double when it hits the economy in uncertain times. As such, varying uncertainty can explain why oil price volatility is typically higher during periods such as financial crises and recessions, and why oil price volatility changes over time more generally.

  January 29, 2016   doi: 10.1111/obes.12124   open full text
• Generalized Forecast Error Variance Decomposition for Linear and Nonlinear Multivariate Models.
  Markku Lanne, Henri Nyberg.
  Oxford Bulletin of Economics and Statistics. January 26, 2016
  We propose a new generalized forecast error variance decomposition with the attractive property that the proportions of the impact accounted for by innovations in each variable sum to unity. Our decomposition is based on the generalized impulse response function, and it can easily be obtained by simulation. The new decomposition is illustrated in an empirical application to US output growth and interest rate spread data.

  January 26, 2016   doi: 10.1111/obes.12125   open full text
• Misspecification and Expectations Correction in New Keynesian DSGE Models.
  Giovanni Angelini, Luca Fanelli.
  Oxford Bulletin of Economics and Statistics. January 26, 2016
  This paper focuses on the dynamic misspecification that characterizes the class of small‐scale New Keynesian models currently used in monetary and business cycle analysis, and provides a remedy for the typical difficulties these models have in accounting for the rich contemporaneous and dynamic correlation structure of the data. We suggest using a statistical model for the data as a device through which it is possible to adapt the econometric specification of the New Keynesian model such that the risk of omitting important propagation mechanisms is kept under control. A pseudo‐structural form is built from the baseline system of Euler equations by forcing the state vector of the system to have the same dimension as the state vector characterizing the statistical model. The pseudo‐structural form gives rise to a set of cross‐equation restrictions that do not penalize the autocorrelation structure and persistence of the data. Standard estimation and evaluation methods can be used. We provide an empirical illustration based on USA quarterly data and a small‐scale monetary New Keynesian model.

  January 26, 2016   doi: 10.1111/obes.12126   open full text
• Does the Composition of Government Expenditure Matter for Long‐Run GDP Levels?
  Norman Gemmell, Richard Kneller, Ismael Sanz.
  Oxford Bulletin of Economics and Statistics. December 15, 2015
  We examine the long‐run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries, obtaining strong evidence that reallocating total spending towards infrastructure and education is positive for long‐run output levels. Reallocating spending towards social welfare (and away from all other expenditure categories pro‐rata) may be associated with modest negative effects on output in the long run.

  December 15, 2015   doi: 10.1111/obes.12121   open full text
• Global and Country‐Specific Output Growth Uncertainty and Macroeconomic Performance.
  Tino Berger, Sibylle Grabert, Bernd Kempa.
  Oxford Bulletin of Economics and Statistics. December 15, 2015
  We identify global and country‐specific measures of output growth uncertainty for a large OECD country sample by means of a dynamic factor model with stochastic volatility. We find evidence for major bouts of global uncertainty in the early 1970s and late 2000s, and a number of periods with elevated levels of either global or national uncertainty, particularly in the early 1980s, 1990s and 2000s. VAR impulse responses of national macroeconomic variables to our estimated measures of uncertainty reveal that global uncertainty is the major driver of macroeconomic performance in most countries, whereas the impact of national uncertainty is small and frequently insignificant. We also find that uncertainty is transmitted primarily through investment and trade flows rather than through consumption demand.

  December 15, 2015   doi: 10.1111/obes.12118   open full text
• Productivity Spillovers Across Countries and Industries: New Evidence From OECD Countries.
  Harald Badinger, Peter Egger.
  Oxford Bulletin of Economics and Statistics. December 10, 2015
  This paper uses a translog approach to estimate intra‐ and inter‐industry productivity spillovers transmitted through input–output linkages, distinguishing R&D and other (remainder) spillovers. For a panel of 12 OECD countries and 15 manufacturing industries from 1995–2005, first, we find that the estimated elasticity with respect to ‘own’ R&D amounts to 0.25 on average (which would be estimated to be lower if R&D were assumed to be additively separable from other inputs). Second, there are sizeable intra‐industry and relatively small inter‐industry R&D spillovers. Third, there are significant remainder spillovers, which are mainly of the intra‐industry type and substantially amplify idiosyncratic technology shocks.

  December 10, 2015   doi: 10.1111/obes.12122   open full text
• Graduates, Dropouts and Slow Finishers: The Effects of Credit Constraints on University Outcomes.
  Buly A. Cardak, Joe Vecci.
  Oxford Bulletin of Economics and Statistics. November 18, 2015
  The effect of credit constraints on university outcomes is studied. Credit constraints have a negative relationship with dropout, especially on lower achieving high school graduates. Credit constrained students with strong high school achievement are 13–15% more (less) likely to graduate (be slow finishers) relative to otherwise similar students who are potentially or unlikely constrained. Using competing risk analysis, we find dropout is most likely in the first year of study and falls over time for all students. After 3 years of study, the risk of dropout increases for students who are constrained suggesting constraints may eventually bind on these students.

  November 18, 2015   doi: 10.1111/obes.12119   open full text
• To What Extent Does the Interest Burden Affect Firm Survival? Evidence from a Panel of UK Firms during the Recent Financial Crisis.
  Alessandra Guariglia, Marina‐Eliza Spaliara, Serafeim Tsoukas.
  Oxford Bulletin of Economics and Statistics. November 18, 2015
  Using a panel of mainly unquoted UK firms over the period 2000–09, we document a significant effect of changes in the interest burden from debt‐servicing on firm survival. The effect is found to be stronger during the recent financial crisis compared with more tranquil periods. Furthermore, the survival chances of bank‐dependent, younger, and non‐exporting firms are most affected by changes in the interest burden, especially during the crisis. Our results are robust to using different estimation methods and different interest burden measures They suggest that one way for policymakers to mitigate the effects of financial crises by limiting firm failures would be to prevent financing costs from rising, especially for those firms more likely to face liquidity constraints.

  November 18, 2015   doi: 10.1111/obes.12120   open full text
• Is There Catch‐Up Growth? Evidence from Three Continents.
  Sudhanshu Handa, Amber Peterman.
  Oxford Bulletin of Economics and Statistics. November 06, 2015
  The ability to correct deficiencies in early childhood malnutrition, what is known as catch‐up growth, has widespread consequences for economic and social development. While clinical evidence of catch‐up has been observed, less clear is the ability to correct for chronic malnutrition found in impoverished environments in the absence of extensive and focused interventions. This paper investigates whether nutritional status at early age affects nutritional status a few years later among children, using panel data from China, South Africa and Nicaragua. The key research question is the extent to which state dependence in linear growth exists among young children, and what family and community level factors mediate state dependency. The answer to this question is crucial for public policy due to the long‐term economic consequences of poor childhood nutrition. Results show strong but not perfect persistence in nutritional status across all countries, indicating that catch‐up growth is possible though unobserved household behaviours tend to worsen the possibility of catch‐up growth. Public policy that can influence these behaviours, especially when children are under 24 months old, can significantly alter nutrition outcomes in South Africa and Nicaragua.

  November 06, 2015   doi: 10.1111/obes.12117   open full text
• Tests for Multiple Breaks in the Trend with Stationary or Integrated Shocks.
  Nuno Sobreira, Luis C. Nunes.
  Oxford Bulletin of Economics and Statistics. November 03, 2015
  In this paper, we propose new tests of the presence of multiple breaks in the trend of a univariate time‐series where the number and dates of the breaks are unknown and that are valid in the presence of stationary or unit root shocks. These tests can also be used to sequentially estimate the number of breaks. The behaviour of the proposed tests is studied through Monte Carlo experiments.

  November 03, 2015   doi: 10.1111/obes.12116   open full text
• A Note on the Identification of Dynamic Economic Models with Generalized Shock Processes.
  Claire A. Reicher.
  Oxford Bulletin of Economics and Statistics. September 08, 2015
  Dynamic stochastic general equilibrium (DSGE) models with generalized shock processes, such as shock processes which follow a vector autoregression (VAR), have been an active area of research in recent years. Unfortunately, the structural parameters governing DSGE models are not identified when the driving process behind the model follows an unrestricted VAR. This finding implies that parameter estimates derived from recent attempts to estimate DSGE models with generalized driving processes should be treated with caution, and that there always exists a tradeoff between identification and the risk of model misspecification. However, these results also make it easier to address the issue of model misspecification by making it computationally easier to check the validity of cross‐equation restrictions.

  September 08, 2015   doi: 10.1111/obes.12115   open full text
• Envy and Habits: Panel Data Estimates of Interdependent Preferences.
  Francisco Alvarez‐Cuadrado, Jose Maria Casado, Jose Maria Labeaga.
  Oxford Bulletin of Economics and Statistics. August 20, 2015
  We estimate the importance of preference interdependence from consumption choices. Our strategy follows the literature that tests the constraints imposed by optimality on the evolution of individual consumption. The introduction of habits and envy places additional restrictions on the evolution of the optimal consumption path. We use a unique data set to test these restrictions. Our estimates suggest that, if one defines utility over consumption services, a large fraction of these services is relative, with one third of the weight placed in the consumption of the reference group and another third placed in the agent's past consumption.

  August 20, 2015   doi: 10.1111/obes.12111   open full text
• Regression‐Kink Approach for Wage Effect on Male Work Hours.
  Young‐sook Kim, Myoung‐jae Lee.
  Oxford Bulletin of Economics and Statistics. August 10, 2015
  In finding the effect of after‐tax wage rate on work hours, the main difficulty is the endogeneity of after‐tax wage rate that equals ‘one minus average tax rate’ times wage rate. To overcome this endogeneity problem, we take advantage of jumps in the marginal income tax rate, which is a regression discontinuity (RD) idea. This RD, in turn, makes the average income tax rate ‘kink‐continuous’, which is a regression kink (RK) idea. We provide a simple economic model resulting in the RD and RK features, explain how to implement RK in practice, and then apply our methods to Korean male data. Our main RK‐based labour supply elasticity estimate 7.16% turned out to be insignificant with t‐value 1.52, but it is much larger than most estimates in the literature. This may be attributed to, among other things, the facts that the RK instrument is unique, that RK identifies only the local elasticity at the kink point and that RK requires large data as regression derivatives are estimated.

  August 10, 2015   doi: 10.1111/obes.12112   open full text
• A Simple Panel Unit‐Root Test with Smooth Breaks in the Presence of a Multifactor Error Structure.
  Chingnun Lee, Jyh‐Lin Wu, Lixiong Yang.
  Oxford Bulletin of Economics and Statistics. August 10, 2015
  This paper extends the cross‐sectionally augmented panel unit‐root test (CIPS) developed by Pesaran et al. (2013, Journal of Econometrics, Vol. 175, pp. 94–115) to allow for smoothing structural changes in deterministic terms modelled by a Fourier function. The proposed statistic is called the break augmented CIPS (BCIPS) statistic. We show that the non‐standard limiting distribution of the (truncated) BCIPS statistic exists and tabulate its critical values. Monte‐Carlo experiments point out that the sizes and powers of the BCIPS statistic are generally satisfactory as long as the number of time periods, T, is not less than fifty. The BCIPS test is then applied to examine the validity of long‐run purchasing power parity.

  August 10, 2015   doi: 10.1111/obes.12109   open full text
• Accounting for Changes in Income Inequality: Decomposition Analyses for the UK, 1978–2008.
  Mike Brewer, Liam Wren‐Lewis.
  Oxford Bulletin of Economics and Statistics. August 10, 2015
  We analyse income inequality in the UK from 1978 to 2009 in order to understand why income inequality rose very rapidly from 1978 to 1991 but then remained broadly unchanged. We find that inequality in earnings among employees has risen fairly steadily since 1978, but other factors that caused income inequality to rise before 1991 have since gone into reverse. Inequality in investment and pension income has fallen since 1991, as has inequality between those with and without employment. Furthermore, certain household types – notably the elderly and those with young children – which had relatively low incomes in the period to 1991 have seen their incomes converge with others.

  August 10, 2015   doi: 10.1111/obes.12113   open full text
• Peer Effects: Evidence from Secondary School Transition in England.
  Stephen Gibbons, Shqiponja Telhaj.
  Oxford Bulletin of Economics and Statistics. February 16, 2015
  We estimate the effect of peers' prior achievement on student progress in secondary school, using administrative data on four cohorts of students in England. Students leaving primary for secondary school experience a big change in their peer group and these changes vary randomly from cohort to cohort. We exploit this variation to identify the effect of new peers on student achievement. We show that peer quality on entry to secondary school has a significant effect on students' subsequent achievement at age 14. The effect sizes are relatively small and are linked to peers' family background and early age achievements.

  February 16, 2015   doi: 10.1111/obes.12095   open full text
• Asymmetric Quantile Persistence and Predictability: the Case of US Inflation.
  Sebastiano Manzan, Dawit Zerom.
  Oxford Bulletin of Economics and Statistics. April 29, 2014
  This article investigates the evidence of time‐variation and asymmetry in the persistence of US inflation. We compare the out‐of‐sample performance of different forecasting models and find that quantile forecasts from an Auto‐Regressive (AR) model with level‐dependent volatility are at least as accurate as the forecasts of the Quantile Auto‐Regressive model, in particular for the core inflation measures. Our results indicate that the persistence of core inflation has been relatively constant and high, but it declined for the headline inflation measures. We also find that the asymmetric persistence of inflation shocks can be mostly attributed to the positive relation between inflation level and its volatility.

  April 29, 2014   doi: 10.1111/obes.12065   open full text
• Investment Frictions and the Aggregate Output Loss in China.
  Guiying Laura Wu.
  Oxford Bulletin of Economics and Statistics. April 28, 2014
  Investment frictions reduce, delay or protract investment expenditure that is necessary for firms to capture growth opportunities. Using a capital adjustment costs framework, this article estimates the gap between China's actual and frictionless aggregate output. It applies the method of simulated moments to a fully structural investment model on a panel of Chinese firms and takes into account potential unobserved heterogeneities and measurement error in the data. The estimated capital adjustment costs imply that if Chinese firms had faced a lower level of adjustment costs such as in the US, China's aggregate output would be 25% higher.

  April 28, 2014   doi: 10.1111/obes.12064   open full text
• What does Variation in Survey Design Reveal about the Nature of Measurement Errors in Household Consumption?
  John Gibson, Kathleen Beegle, Joachim De Weerdt, Jed Friedman.
  Oxford Bulletin of Economics and Statistics. April 28, 2014
  We randomly assigned eight different consumption surveys to obtain evidence on the nature of measurement errors in estimates of household consumption. Regressions using data from more error‐prone designs are compared with results from a ‘gold standard’ survey. Measurement errors appear to have a mean‐reverting negative correlation with true consumption, especially for food and especially for rural households.

  April 28, 2014   doi: 10.1111/obes.12066   open full text
• A Partially Heterogeneous Framework for Analyzing Panel Data.
  Vasilis Sarafidis, Neville Weber.
  Oxford Bulletin of Economics and Statistics. April 08, 2014
  This article proposes a partially heterogeneous framework for the analysis of panel data with fixed T. In particular, the population of cross‐sectional units is grouped into clusters, such that slope parameter homogeneity is maintained only within clusters. Our method assumes no a priori information about the number of clusters and cluster membership and relies on the data instead. The unknown number of clusters and the corresponding partition are determined based on the concept of ‘partitional clustering’, using an information‐based criterion. It is shown that this is strongly consistent, that is, it selects the true number of clusters with probability one as N→∞. Simulation experiments show that the proposed criterion performs well even with moderate N and the resulting parameter estimates are close to the true values. We apply the method in a panel data set of commercial banks in the US and we find five clusters, with significant differences in the slope parameters across clusters.

  April 08, 2014   doi: 10.1111/obes.12062   open full text
• Equilibrium Unemployment Dynamics in a Panel of OECD Countries.
  Ragnar Nymoen, Victoria Sparrman.
  Oxford Bulletin of Economics and Statistics. March 20, 2014
  We focus on the equilibrium unemployment rate as a parameter implied by a dynamic aggregate model of wage and price setting. The equilibrium unemployment rate depends on institutional labour market institutions through mark‐up coefficients. Compared with existing studies, the resulting final equation for unemployment has a richer dynamic structure. The empirical investigation is conducted in a panel data framework and uses OECD data up to 2012. We propose to extend the standard estimation method with time dummies to control and capture the effects of common and national shocks by using impulse indicator saturation (WG‐IIS), which has not been previously used on panel data. WG‐IIS robustifies the estimators of the regression coefficients in the dynamic model, and it affects the estimated equilibrium unemployment rates. We find that wage co‐ordination stands out as the most important institutional variable in our data set, but there is also evidence pointing to the tax wedge and the degree of compensation in the unemployment insurance system as drivers of equilibrium unemployment.

  March 20, 2014   doi: 10.1111/obes.12061   open full text
• A Comparison of Sequential and Information‐based Methods for Determining the Co‐integration Rank in Heteroskedastic VAR Models.
  Giuseppe Cavaliere, Luca De Angelis, Anders Rahbek, A. M. Robert Taylor.
  Oxford Bulletin of Economics and Statistics. February 15, 2014
  In this article, we investigate the behaviour of a number of methods for estimating the co‐integration rank in VAR systems characterized by heteroskedastic innovation processes. In particular, we compare the efficacy of the most widely used information criteria, such as Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC) , with the commonly used sequential approach of Johansen [Likelihood‐based Inference in Cointegrated Vector Autoregressive Models (1996)] based around the use of either asymptotic or wild bootstrap‐based likelihood ratio type tests. Complementing recent work done for the latter in Cavaliere, Rahbek and Taylor [Econometric Reviews (2014) forthcoming], we establish the asymptotic properties of the procedures based on information criteria in the presence of heteroskedasticity (conditional or unconditional) of a quite general and unknown form. The relative finite‐sample properties of the different methods are investigated by means of a Monte Carlo simulation study. For the simulation DGPs considered in the analysis, we find that the BIC‐based procedure and the bootstrap sequential test procedure deliver the best overall performance in terms of their frequency of selecting the correct co‐integration rank across different values of the co‐integration rank, sample size, stationary dynamics and models of heteroskedasticity. Of these, the wild bootstrap procedure is perhaps the more reliable overall as it avoids a significant tendency seen in the BIC‐based method to over‐estimate the co‐integration rank in relatively small sample sizes.

  February 15, 2014   doi: 10.1111/j.1468-0084.2014.12051.x   open full text
• Equity–Efficiency Optimizing Resource Allocation: The Role of Time Preferences in a Repeated Irrigation Game.
  Bjorn Van Campenhout, Ben D'Exelle, Els Lecoutere.
  Oxford Bulletin of Economics and Statistics. February 12, 2014
  We study repeated water allocation decisions among small scale irrigation users in Tanzania. In a treatment replicating water scarcity conditions, convexities in production make that substantial efficiency gains can be obtained by deviating from equal sharing, leading to an equity–efficiency trade‐off. In a repeated game setting, it becomes possible to reconcile efficiency with equity by rotating the person who receives the largest share, but such a strategy requires a longer run perspective. Correlating experimental data from an irrigation game with individual time preference data, we find that less patient irrigators are less likely to use a rotation strategy.

  February 12, 2014   doi: 10.1111/obes.12058   open full text
• Partial Identification and Bound Estimation of the Average Treatment Effect of Education on Earnings for South Africa.
  Martine Mariotti, Juergen Meinecke.
  Oxford Bulletin of Economics and Statistics. February 05, 2014
  We partially identify the average treatment effect of education on earnings and non‐parametrically estimate its upper bound for African, Coloured (mixed race) and White males in South Africa. We address endogenous selection into education, cohort effects and endogenous selection into work. Using the September 2007 South African Labour Force Survey, the upper bound estimates are considerably lower than existing parametric point estimates of the return to education. As a lesson, policy makers should focus less on increasing the amount of education obtained by Africans and Coloureds, but rather on measures that can grow the return to existing levels of education.

  February 05, 2014   doi: 10.1111/obes.12059   open full text
• Trend and Initial Condition in Stationarity Tests: The Asymptotic Analysis.
  Anton Skrobotov.
  Oxford Bulletin of Economics and Statistics. January 03, 2014
  In this article, we investigate the behaviour of stationarity tests proposed by Müller [Journal of Econometrics (2005) Vol. 128, pp. 195–213] and Harris et al. [Econometric Theory (2007) Vol. 23, pp. 355–363] with uncertainty over the trend and/or initial condition. As different tests are efficient for different magnitudes of local trend and initial condition, following Harvey et al. [Journal of Econometrics (2012) Vol. 169, pp. 188–195], we propose decision rule based on the rejection of null hypothesis for multiple tests. Additionally, we propose a modification of this decision rule, relying on additional information about the magnitudes of the local trend and/or the initial condition that is obtained through pre‐testing. The resulting modification has satisfactory size properties under both uncertainty types.

  January 03, 2014   doi: 10.1111/obes.12057   open full text
• Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically.
  J. M. C. Santos Silva, Silvana Tenreyro.
  Oxford Bulletin of Economics and Statistics. December 30, 2013
  Helpman, Melitz and Rubinstein [Quarterly Journal of Economics (2008) Vol. 123, pp. 441–487] (HMR) present a rich theoretical model to study the determinants of bilateral trade flows across countries. The model is then empirically implemented through a two‐stage estimation procedure. We argue that this estimation procedure is only valid under the strong distributional assumptions maintained in the article. Statistical tests using the HMR sample, however, clearly reject such assumptions. Moreover, we perform numerical experiments which show that the HMR two‐stage estimator is very sensitive to departures from the assumption of homoskedasticity. These findings cast doubts on any inference drawn from the empirical implementation of the HMR model.

  December 30, 2013   doi: 10.1111/obes.12055   open full text
• Sharp Bounds on Causal Effects under Sample Selection.
  Martin Huber, Giovanni Mellace.
  Oxford Bulletin of Economics and Statistics. December 30, 2013
  In many empirical problems, the evaluation of treatment effects is complicated by sample selection so that the outcome is only observed for a non‐random subpopulation. In the absence of instruments and/or tight parametric assumptions, treatment effects are not point identified, but can be bounded under mild restrictions. Previous work on partial identification has primarily focused on the ‘always observed’ (irrespective of the treatment). This article complements those studies by considering further populations, namely the ‘compliers’ (observed only if treated) and the observed population. We derive sharp bounds under various assumptions and provide an empirical application to a school voucher experiment.

  December 30, 2013   doi: 10.1111/obes.12056   open full text
• Do Elections Matter for Economic Performance?
  Paul Collier, Anke Hoeffler.
  Oxford Bulletin of Economics and Statistics. December 23, 2013
  In mature democracies, elections discipline leaders to deliver good economic performance. Since the fall of the Soviet Union, most developing countries also hold elections, but these are often marred by illicit tactics. Using a new global data set, this article investigates whether these illicit tactics are merely blemishes or substantially undermine the economic efficacy of elections. We show that illicit tactics are widespread, and that they reduce the incentive for governments to deliver good economic performance. Our analysis also suggests that in societies with regular free and fair elections, leaders do not matter for economic growth.

  December 23, 2013   doi: 10.1111/obes.12054   open full text
• Real‐Time Nowcasting of GDP: A Factor Model vs. Professional Forecasters.
  Joelle Liebermann.
  Oxford Bulletin of Economics and Statistics. December 03, 2013
  We perform a fully real‐time nowcasting (forecasting) exercise of US GDP growth using Giannone et al.'s (2008) factor model framework. To this end, we have constructed a real‐time database of vintages from 1997 to 2010 for a panel of variables, enabling us to reproduce, for any given day in that range, the exact information that was available to a real‐time forecaster. We track the daily evolution of the model performance along the real‐time data flow and find that the precision of the nowcasts increases with information releases and the model fares well relative to the Survey of Professional Forecasters (SPF).

  December 03, 2013   doi: 10.1111/obes.12047   open full text
• Fitting and Forecasting Sovereign Defaults using Multiple Risk Signals.
  Roberto Savona, Marika Vezzoli.
  Oxford Bulletin of Economics and Statistics. November 27, 2013
  In this article, we try to realize the best compromise between in‐sample goodness of fit and out‐of‐sample predictability of sovereign defaults. To do this, we use a new regression‐tree based approach that signals impending sovereign debt crises whenever pre‐selected indicators exceed specific thresholds. Using data from emerging markets and Greece, Ireland, Portugal and Spain (GIPS) over the period 1975–2010, we show that our model significantly outperforms existing competing approaches (logit, stepwise logit, noise‐to‐signal ratio and regression trees), while balancing in‐ and out‐of‐sample performance. Our results indicate that illiquidity (high short‐term debt to reserves) and default history, together with real GDP growth and US interest rates, are the main determinants of both emerging market country defaults and the recent European sovereign debt crisis.

  November 27, 2013   doi: 10.1111/obes.12052   open full text
• Forecasting Euro‐Area Macroeconomic Variables Using a Factor Model Approach for Backdating.
  Ralf Brüggemann, Jing Zeng.
  Oxford Bulletin of Economics and Statistics. November 19, 2013
  We suggest to use a factor model based backdating procedure to construct historical Euro‐area macroeconomic time series data for the pre‐Euro period. We argue that this is a useful alternative to standard contemporaneous aggregation methods. The article investigates for a number of Euro‐area variables whether forecasts based on the factor‐backdated data are more precise than those obtained with standard area‐wide data. A recursive pseudo‐out‐of‐sample forecasting experiment using quarterly data is conducted. Our results suggest that some key variables (e.g. real GDP, inflation and long‐term interest rate) can indeed be forecasted more precisely with the factor‐backdated data.

  November 19, 2013   doi: 10.1111/obes.12053   open full text
• On the Importance of the First Observation in GLS Detrending in Unit Root Testing.
  Joakim Westerlund.
  Oxford Bulletin of Economics and Statistics. November 07, 2013
  First‐differencing is generally taken to imply the loss of one observation, the first, or at least that the effect of ignoring this observation is asymptotically negligible. However, this is not always true, as in the case of generalized least squares (GLS) detrending. In order to illustrate this, the current article considers as an example the use of GLS detrended data when testing for a unit root. The results show that the treatment of the first observation is absolutely crucial for test performance, and that ignorance causes test break‐down.

  November 07, 2013   doi: 10.1111/obes.12050   open full text
• Constructing Multi‐Country Rational Expectations Models.
  Stephane Dees, M. Hashem Pesaran, L. Vanessa Smith, Ron P. Smith.
  Oxford Bulletin of Economics and Statistics. October 12, 2013
  This article considers some of the technical issues involved in using the global vector autoregression (GVAR) approach to construct a multi‐country rational expectations (RE) model and illustrates them with a new Keynesian model for 33 countries estimated with quarterly data over the period 1980–2011. The issues considered are: the measurement of steady states; the determination of exchange rates and the specification of the short‐run country‐specific models; the identification and estimation of the model subject to the theoretical constraints required for a determinate rational expectations solution; the solution of a large RE model; the structure and estimation of the covariance matrix and the simulation of shocks. The model used as an illustration shows that global demand and supply shocks are the most important drivers of output, inflation and interest rates in the long run. By contrast, monetary or exchange rate shocks have only a short‐run impact in the evolution of the world economy. The article also shows the importance of international connections, directly as well as indirectly through spillover effects. Overall, ignoring global inter‐connections as country‐specific models do, could give rise to misleading conclusions.

  October 12, 2013   doi: 10.1111/obes.12046   open full text
• Variable Selection in Cross‐Section Regressions: Comparisons and Extensions.
  Thomas Deckers, Christoph Hanck.
  Oxford Bulletin of Economics and Statistics. October 11, 2013
  Cross‐section regressions often examine many candidate regressors. We use multiple testing procedures (MTPs) controlling the false discovery rate (FDR) — the expected ratio of false to all rejections — so as not to erroneously select variables because many tests were performed, yielding a simple model selection procedure. Simulations comparing the MTPs with other common model selection criteria demonstrate that, for conventional tuning parameters of the selection procedures, only MTPs consistently control the FDR, but have slightly lower power. In an empirical application to growth, MTPs and PcGets/Autometrics identify similar growth determinants, which differ somewhat from those obtained by Bayesian Model Averaging.

  October 11, 2013   doi: 10.1111/obes.12048   open full text
• Production Technology Estimates and Balanced Growth.
  Miguel A. León‐Ledesma, Peter McAdam, Alpo Willman.
  Oxford Bulletin of Economics and Statistics. October 11, 2013
  Capital‐labour substitution and total factor productivity (TFP) estimates are essential features of many economic models. Such models typically embody a balanced growth path. This often leads researchers to estimate models imposing stringent prior choices on technical change. We demonstrate that estimation of the substitution elasticity and TFP growth can be substantially biased if technical progress is thereby mis‐specified. We obtain analytical and simulation results in the context of a model consistent with balanced and near‐balanced growth (i.e. departures from balanced growth but broadly stable factor shares). Given this evidence, a constant elasticity of substitution production function system is then estimated for the US economy. Results show that the estimated substitution elasticity tends to be significantly lower using a factor‐augmenting specification (well below one). We are also able to reject conventional neutrality forms in favour of general factor augmentation with a non‐negligible capital‐augmenting component. Our work thus provides insights into production and supply‐side estimation in balanced‐growth frameworks.

  October 11, 2013   doi: 10.1111/obes.12049   open full text
• Area Disparities in Britain: Understanding the Contribution of People vs. Place Through Variance Decompositions.
  Stephen Gibbons, Henry G. Overman, Panu Pelkonen.
  Oxford Bulletin of Economics and Statistics. October 05, 2013
  This article considers methods for decomposing wage variation into individual and group specific components. We discuss the merits of these methods, which are applicable to variance decomposition problems generally. The relative magnitudes of the measures depend on the underlying variances and covariances, and we discuss how to interpret them, and how they might relate to structural parameters of interest. We show that a clear‐cut division of variation into area and individual components is impossible. An empirical application to the British labour market demonstrates that labour market area effects contribute very little to the overall variation of wages in Britain.

  October 05, 2013   doi: 10.1111/obes.12043   open full text
• The Impact of Thin‐Capitalization Rules on External Debt Usage – A Propensity Score Matching Approach.
  Georg Wamser.
  Oxford Bulletin of Economics and Statistics. July 19, 2013
  Thin‐capitalization rules (TCRs) aim at limiting the tax advantage of internal debt financing by restricting the tax deductibility of the corresponding interest expenses. This article examines how subsidiaries of multinational firms respond to a change in the German thin‐capitalization legislation. The empirical analysis not only demonstrates that the TCR effectively restricts internal debt financing, it also suggests that firms are able to avoid taxation of interest by substituting external for internal debt. The empirical approach applies propensity score matching techniques and exploits the German tax reform 2001 to solve endogeneity problems.

  July 19, 2013   doi: 10.1111/obes.12040   open full text
• Fiscal Foresight, Limited Information and the Effects of Government Spending Shocks.
  Matteo Fragetta, Emanuel Gasteiger.
  Oxford Bulletin of Economics and Statistics. June 24, 2013
  We quantify the impact of government spending shocks in the US. Thereby, we control for fiscal foresight, a specific limited information problem (LIP) by utilizing the narrative approach. Moreover, we surmount the generic LIP inherent in vector autoregressions (VARs) by a factor‐augmented VAR (FAVAR) approach. We find that a positive deficit‐financed defence shock raises output by more than in a VAR (e.g. 2.61 vs. 2.04 for peak multipliers). Furthermore, our evidence suggests that consumption is crowded in. These results are robust to variants of controlling for fiscal foresight and reveal the crucial role of the LIP in fiscal VARs.

  June 24, 2013   doi: 10.1111/obes.12036   open full text
• Does Output Gap, Labour's Share or Unemployment Rate Drive Inflation?
  Markku Lanne, Jani Luoto.
  Oxford Bulletin of Economics and Statistics. June 23, 2013
  We propose a new methodology for ranking in probability the commonly proposed drivers of inflation in the new Keynesian model. The approach is based on Bayesian model selection among restricted vector autoregressive (VAR) models, each of which embodies only one or none of the candidate variables as the driver. Simulation experiments suggest that our procedure is superior to the previously used conventional pairwise Granger causality tests in detecting the true driver. Empirical results lend little support to labour share, output gap or unemployment rate as the driver of US inflation.

  June 23, 2013   doi: 10.1111/obes.12041   open full text
• Do Euro Area Countries Respond Asymmetrically to the Common Monetary Policy?
  Matteo Barigozzi, Antonio M. Conti, Matteo Luciani.
  Oxford Bulletin of Economics and Statistics. June 23, 2013
  We investigate the possible existence of asymmetries among Euro Area countries reactions to the European Central Bank monetary policy. Our analysis is based on a Structural Dynamic Factor model estimated on a large panel of Euro Area quarterly variables. Although the introduction of the euro has changed the monetary transmission mechanism in the individual countries towards a more homogeneous response, we find that differences still remain between North and South Europe in terms of prices and unemployment. These results are the consequence of country‐specific structures, rather than of European Central Bank policies.

  June 23, 2013   doi: 10.1111/obes.12038   open full text
• Break Date Estimation for Models with Deterministic Structural Change.
  David I. Harvey, Stephen J. Leybourne.
  Oxford Bulletin of Economics and Statistics. June 18, 2013
  In this article, we consider estimating the timing of a break in level and/or trend when the order of integration and autocorrelation properties of the data are unknown. For stationary innovations, break point estimation is commonly performed by minimizing the sum of squared residuals across all candidate break points, using a regression of the levels of the series on the assumed deterministic components. For unit root processes, the obvious modification is to use a first differenced version of the regression, while a further alternative in a stationary autoregressive setting is to consider a GLS‐type quasi‐differenced regression. Given uncertainty over which of these approaches to adopt in practice, we develop a hybrid break fraction estimator that selects from the levels‐based estimator, the first‐difference‐based estimator, and a range of quasi‐difference‐based estimators, according to which achieves the global minimum sum of squared residuals. We establish the asymptotic properties of the estimators considered, and compare their performance in practically relevant sample sizes using simulation. We find that the new hybrid estimator has desirable asymptotic properties and performs very well in finite samples, providing a reliable approach to break date estimation without requiring decisions to be made regarding the autocorrelation properties of the data.

  June 18, 2013   doi: 10.1111/obes.12037   open full text
• Do Danes and Italians Rate Life Satisfaction in the Same Way? Using Vignettes to Correct for Individual‐Specific Scale Biases.
  Viola Angelini, Danilo Cavapozzi, Luca Corazzini, Omar Paccagnella.
  Oxford Bulletin of Economics and Statistics. June 18, 2013
  Self‐reported life satisfaction is highly heterogeneous across similar countries, a phenomenon that may be explained by the different scales and benchmarks that people use to evaluate themselves. This study uses cross‐sectional data gathered from older populations in ten European countries to compare estimates from a model that assumes reporting styles are constant across respondents against estimates from a model in which anchoring vignettes help correct for individual‐specific scale biases. Variations in response scales explain much of the difference in the raw data. Moreover, the cross‐country ranking in life satisfaction depends significantly on scale biases.

  June 18, 2013   doi: 10.1111/obes.12039   open full text
• Mismeasured Household Size and Its Implications for the Identification of Economies of Scale: Correction.
  Timothy J. Halliday.
  Oxford Bulletin of Economics and Statistics. June 17, 2013
  We correct an error from Halliday () in which we explored the degree to which household size is measured with errors.

  June 17, 2013   doi: 10.1111/obes.12034   open full text
• Does the Macroeconomy Predict UK Asset Returns in a Nonlinear Fashion? Comprehensive Out‐of‐Sample Evidence.
  Massimo Guidolin, Stuart Hyde, David McMillan, Sadayuki Ono.
  Oxford Bulletin of Economics and Statistics. June 09, 2013
  We perform a comprehensive examination of the recursive, comparative predictive performance of linear and nonlinear models for UK stock and bond returns. We estimate Markov switching, threshold autoregressive (TAR) and smooth transition autoregressive (STR) regime switching models and a range of linear specifications including models with GARCH type specifications. Results demonstrate UK asset returns require nonlinear dynamics to be modelled with strong evidence in favour of Markov switching frameworks. Our results appear robust to the choice of sample period, changes in loss functions and to the methodology employed to test for equal predictive accuracy. The key findings extend to a similar sample of US data.

  June 09, 2013   doi: 10.1111/obes.12035   open full text
• Product Market Competition, Monetary Policy Regimes and Inflation Dynamics: Evidence from a Panel of OECD Countries.
  Mónica Correa‐López, Agustín García‐Serrador, Cristina Mingorance‐Arnáiz.
  Oxford Bulletin of Economics and Statistics. May 19, 2013
  We empirically analyze the impact of product market competition on the responsiveness of inflation to macroeconomic imbalances. If competition is high the response of inflation to lagged inflation, unemployment and import prices is reduced, while inflation is more responsive to changes in productivity growth in countries in which competition is above the OECD average. Given the (‘good luck’) macroeconomic trajectories of the 1990s–2000s, the structural reforms that made goods markets more competitive improved the ability of OECD economies to smooth (dis)inflationary shocks, while changes in the monetary policy framework had a modest role in taming inflation during the Great Moderation.

  May 19, 2013   doi: 10.1111/obes.12031   open full text
• Peer Effects in UK Adolescent Substance Use: Never Mind the Classmates?
  Duncan McVicar, Arnold Polanski.
  Oxford Bulletin of Economics and Statistics. May 19, 2013
  This article estimates peer influences on the alcohol, tobacco and cannabis use of UK adolescents. We present evidence of large, positive and statistically significant peer effects in all three behaviours when classmates are taken as the reference group. We also find large, positive and statistically significant associations between own substance use and friends' substance use. When both reference groups are considered simultaneously, the influence of classmates either disappears or is much reduced, whereas the association between own and friends' behaviours does not change. The suggestion is that classmate behaviour is primarily relevant only inasmuch as it proxies for friends' behaviour.

  May 19, 2013   doi: 10.1111/obes.12030   open full text
• The Dynamics of Humanitarian Aid Decisions.
  David Fielding.
  Oxford Bulletin of Economics and Statistics. May 16, 2013
  Humanitarian aid can be seen as a political investment motivated by altruism or by economic benefits for the donor. Uncertainty in the returns to this investment may generate hysteresis effects and inertia in aid allocations. I model the allocation decisions of the three largest humanitarian aid donors: the US government, the UK government and the European Commission, finding evidence that allocations depend on both recipient need and donor economic interest. Some donors exhibit more inertia than others, and some are more influenced by the decisions of other donors. Despite being a relatively small donor, the UK is particularly influential.

  May 16, 2013   doi: 10.1111/obes.12033   open full text
• Extremal Dependence in International Output Growth: Tales from the Tails.
  Miguel Carvalho, António Rua.
  Oxford Bulletin of Economics and Statistics. April 28, 2013
  This article explores the comovement of the economic activity of several OECD countries during periods of large negative and positive growth. Extremal dependence measures are here applied to assess the degree of cross‐country tail dependence of output growth rates. Our main empirical findings are: (i) cross‐country tail dependence is much stronger during periods of large negative growth, than during the ones of large positive growth; (ii) cross‐country growth is asymptotically independent; (iii) cross‐country tail dependence is considerably stronger than the one arising from a Gaussian dependence model. In addition, our results suggest that, among the typical determinants for explaining international output growth synchronization, only economic specialization similarity seems to play a role during such extreme periods.

  April 28, 2013   doi: 10.1111/obes.12032   open full text
• A Distributional Analysis of Earnings Losses of Displaced Workers in an Economic Depression and Recovery.
  Ossi korkeamäki, Tomi kyyrä.
  Oxford Bulletin of Economics and Statistics. April 12, 2013
  We study the earnings losses of Finnish private sector workers who lost their jobs at two very different points in the business cycle. The first group wdisplad in 1992 (depression period) and the second one in 1997 (recovery period). The focal point of the analysis is the quantile displacement effect, the change in the earnings distribution due to involuntary job separation. We use mass layoffs and plant closures to identify groups of workers who were displaced from exogenous causes. The effect of displacement is strongest at the lower end of the earnings distribution and small or negligible at the upper end. Workers displaced during the depression period are subject to much larger earnings losses.

  April 12, 2013   doi: 10.1111/obes.12028   open full text
• How does Monetary Policy Respond to Exchange Rate Movements? New International Evidence*.
  Hilde C. Bjørnland, Jørn I. Halvorsen.
  Oxford Bulletin of Economics and Statistics. April 12, 2013
  This article analyzes how monetary policy has responded to exchange rate movements in six open economies, paying particular attention to the two‐way interaction between monetary policy and the exchange rate. We address this issue using a structural VAR model that is identified using a combination of sign and short‐term (zero) restrictions. Doing so we find that, while there is a instantaneous reaction in the exchange rate following a monetary policy shock in all countries, monetary policy responds significantly on impact to an exchange rate shock in only four of the six countries.

  April 12, 2013   doi: 10.1111/obes.12014   open full text
• Employed and Unemployed Job Seekers and the Business Cycle.
  Simonetta Longhi, Mark Taylor.
  Oxford Bulletin of Economics and Statistics. April 10, 2013
  The job search literature suggests that on‐the‐job search reduces the probability of un employed people finding jobs. However, there is little evidence that employed and unemployed job seekers are similar or apply for the same jobs. We compare employed and unemployed job seekers in their individual characteristics, preferences over working hours, job‐search strategies and employment histories, and identify how differences vary over the business cycle. We find systematic differences which persist over the business cycle. Our results are consistent with a segmented labour market in which employed and unemployed job seekers are unlikely to directly compete with each other for jobs.

  April 10, 2013   doi: 10.1111/obes.12029   open full text
• Density Nowcasts and Model Combination: Nowcasting Euro‐Area GDP Growth over the 2008–09 Recession*.
  Gian Luigi Mazzi, James Mitchell, Gaetana Montana.
  Oxford Bulletin of Economics and Statistics. March 31, 2013
  Combined density nowcasts for quarterly Euro‐area GDP growth are produced based on the real‐time performance of component models. Components are distinguished by their use of ‘hard’ and ‘soft’, aggregate and disaggregate, indicators. We consider the accuracy of the density nowcasts as within‐quarter indicator data accumulate. We find that the relative utility of ‘soft’ indicators surged during the recession. But as this instability was hard to detect in real‐time it helps, when producing density nowcasts unknowing any within‐quarter ‘hard’ data, to weight the different indicators equally. On receipt of ‘hard’ data for the second month in the quarter better calibrated densities are obtained by giving a higher weight in the combination to ‘hard’ indicators.

  March 31, 2013   doi: 10.1111/obes.12015   open full text
• Industry Dynamics and Competition from Low‐Wage Countries: Evidence on Italy.
  Stefano Federico.
  Oxford Bulletin of Economics and Statistics. March 31, 2013
  This article analyses the effect of competition from low‐wage countries on domestic activity, using data on 230 Italian manufacturing sectors between 1995 and 2007. It finds that low‐wage import penetration is negatively related to employment and other measures of activity. The effect is significantly smaller in more skill, capital and R&D‐intensive sectors and in more vertically differentiated sectors. There is also evidence of significant effects of low‐wage competition through inter‐industry linkages: employment is negatively related to low‐wage import penetration in downstream sectors but positively related to low‐wage import penetration in upstream sectors.

  March 31, 2013   doi: 10.1111/obes.12023   open full text
• Does Education Matter for Economic Growth?
  Michael S. Delgado, Daniel J. Henderson, Christopher F. Parmeter.
  Oxford Bulletin of Economics and Statistics. March 31, 2013
  Empirical growth regressions typically include mean years of schooling as a proxy for human capital. However, empirical research often finds that the sign and significance of schooling depends on the sample of observations or the specification of the model. We use a non‐parametric local‐linear regression estimator and a non‐parametric variable relevance test to conduct a rigorous and systematic search for significance of mean years of schooling by examining five of the most comprehensive schooling databases. Contrary to a few recent articles that have identified significant nonlinearities between education and growth, our results suggest that mean years of schooling is not a statistically relevant variable in growth regressions. However, we do find evidence (within a cross‐sectional framework), that educational achievement, measured by mean test scores, may provide a more reliable measure of human capital than mean years of schooling.

  March 31, 2013   doi: 10.1111/obes.12025   open full text
• Firm Recruitment Behaviour: Sequential or Non‐sequential Search?
  Jos van Ommeren, Giovanni Russo.
  Oxford Bulletin of Economics and Statistics. March 17, 2013
  In the extensive job search literature, studies assume either sequential or non‐sequential search. This article introduces a novel method to test the hypothesis that firms search sequentially based on the relationship between the number of rejected job applicants and the number of filled vacancies. We distinguish between ten different search methods. For most search methods, including methods that rely on social networks and temporary help agencies, we find that sequential search cannot be rejected. However, when firms use advertising or public/private employment agencies, sequential search is rejected. Hence, we find that both forms of search are relevant for our understanding of the labour market. Further, the form of search is closely related to the search method used.

  March 17, 2013   doi: 10.1111/obes.12027   open full text
• Taxes and Benefits: Two Options to Cheat on the State.
  Martin Halla, Friedrich G. Schneider.
  Oxford Bulletin of Economics and Statistics. February 14, 2013
  In this article we study the social norms to abstain from cheating on the state via benefit fraud and tax evasion. We interpret these norms (called benefit morale and tax morale) as moral goods, and derive testable hypotheses on whether their demand is determined by prices. Employing a large survey data set from OECD‐member countries we provide robust evidence that the demand responds to price proxy variables as predicted by theory. The main general conclusion of this article is that social norms (which are widely accepted as determinants of individual economic behaviour) are themselves influenced by economic factors.

  February 14, 2013   doi: 10.1111/obes.12024   open full text
• Specification Sensitivity in Right‐Tailed Unit Root Testing for Explosive Behaviour.
  Peter C. B. Phillips, Shuping Shi, Jun Yu.
  Oxford Bulletin of Economics and Statistics. February 06, 2013
  This article aims to provide some empirical guidelines for the practical implementation of right‐tailed unit root tests, focusing on the recursive right‐tailed ADF test of Phillips et al. (2011b). We analyze and compare the limit theory of the recursive test under different hypotheses and model specifications. The size and power properties of the test under various scenarios are examined and some recommendations for empirical practice are given. Some new results on the consistent estimation of localizing drift exponents are obtained, which are useful in assessing model specification. Empirical applications to stock markets illustrate these specification issues and reveal their practical importance in testing.

  February 06, 2013   doi: 10.1111/obes.12026   open full text
• Do Low‐Wage Workers React Less to Longer Unemployment Benefits? Quasi‐Experimental Evidence*.
  Mário Centeno, Álvaro A. Novo.
  Oxford Bulletin of Economics and Statistics. January 25, 2013
  The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi‐experimental setting generated by an increase in the benefits entitlement period. The results suggest a hump‐shape response of unemployment duration over the one‐year pre‐unemployment wage distribution; individuals at the bottom and top of the wage distribution reacted less than those in the interquartile range. This behaviour of job searchers is consistent with labour supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low‐wage workers.

  January 25, 2013   doi: 10.1111/obes.12019   open full text
• How Do Alphas and Betas Move? Uncertainty, Learning and Time Variation in Risk Loadings*.
  Carmine Trecroci.
  Oxford Bulletin of Economics and Statistics. January 21, 2013
  I employ a parsimonious model with learning, but without conditioning information, to extract time‐varying measures of market‐risk sensitivities, pricing errors and pricing uncertainty. The evolution of these quantities has interesting implications for macroeconomic dynamics. Parameters estimated for US equity portfolios display significant low‐frequency fluctuations, along patterns that change across size and book‐to‐market stocks. Time‐varying betas display superior predictive accuracy for returns against constant and rolling‐window OLS estimates. As to the relationship of betas with business‐cycle variables, value stocks’ betas move pro‐cyclically, unlike those of growth stocks. Investment growth, rather than consumption, predicts the betas of value and small‐firm portfolios.

  January 21, 2013   doi: 10.1111/obes.12018   open full text
• Identifying Changes in Mean, Seasonality, Persistence and Volatility for G7 and Euro Area Inflation*.
  Erdenebat Bataa, Denise R. Osborn, Marianne Sensier, Dick van Dijk.
  Oxford Bulletin of Economics and Statistics. January 21, 2013
  We propose an iterative decomposition that tests and accounts for multiple structural breaks in the mean, seasonality, dynamics and conditional volatility, while also accounting for outliers. Considering each component separately within each iteration leads to greater flexibility compared with joint procedures. Monte Carlo analysis shows the procedure performs well. Applied to monthly CPI inflation in G7 countries and the Euro area, we uncover mean and seasonality breaks for all countries and, allowing for these, changes in persistence are generally also indicated. Further, volatility reductions are widespread in the early to mid 1980s, with some countries exhibiting increases from 1999 onwards.

  January 21, 2013   doi: 10.1111/obes.12021   open full text
• On the Applicability of the Sieve Bootstrap in Time Series Panels*.
  Stephan Smeekes, Jean‐Pierre Urbain.
  Oxford Bulletin of Economics and Statistics. January 09, 2013
  In this article, we investigate the validity of the univariate autoregressive sieve bootstrap applied to time series panels characterized by general forms of cross‐sectional dependence, including but not restricted to cointegration. Using the final equations approach we show that while it is possible to write such a panel as a collection of infinite order autoregressive equations, the innovations of these equations are not vector white noise. This causes the univariate autoregressive sieve bootstrap to be invalid in such panels. We illustrate this result with a small numerical example using a simple DGP for which the sieve bootstrap is invalid, and show that the extent of the invalidity depends on the value of specific parameters. We also show that Monte Carlo simulations in small samples can be misleading about the validity of the univariate autoregressive sieve bootstrap. The results in this article serve as a warning about the practical use of the autoregressive sieve bootstrap in panels where cross‐sectional dependence of general form may be present.

  January 09, 2013   doi: 10.1111/obes.12005   open full text
• Estimating and Forecasting with a Dynamic Spatial Panel Data Model*.
  Badi H. Baltagi, Bernard Fingleton, Alain Pirotte.
  Oxford Bulletin of Economics and Statistics. January 09, 2013
  This study focuses on the estimation and predictive performance of several estimators for the dynamic and autoregressive spatial lag panel data model with spatially correlated disturbances. In the spirit of Arellano and Bond (1991) and Mutl (2006), a dynamic spatial generalized method of moments (GMM) estimator is proposed based on Kapoor, Kelejian and Prucha (2007) for the spatial autoregressive (SAR) error model. The main idea is to mix non‐spatial and spatial instruments to obtain consistent estimates of the parameters. Then, a linear predictor of this spatial dynamic model is derived. Using Monte Carlo simulations, we compare the performance of the GMM spatial estimator to that of spatial and non‐spatial estimators and illustrate our approach with an application to new economic geography.

  January 09, 2013   doi: 10.1111/obes.12011   open full text
• The Long‐Run Impact of Foreign Aid in 36 African Countries: Insights from Multivariate Time Series Analysis*.
  Katarina Juselius, Niels Framroze Møller, Finn Tarp.
  Oxford Bulletin of Economics and Statistics. January 07, 2013
  We comprehensively analyse the long‐run effect of foreign aid (ODA) on key macroeconomic variables in 36 sub‐Saharan African countries from the mid‐1960s to 2007, using a well‐specified cointegrated VAR model as statistical benchmark. Results provide broad support for a positive long‐run impact of ODA flows on the macroeconomy. In contrast, we find little evidence supporting the thesis that aid has been harmful. From a methodological point of view we highlight the importance of transparency in reporting results, especially when the hypothesis being tested differs from theoretical expectations, and we identify reasons for econometrically inadequate results in the literature.

  January 07, 2013   doi: 10.1111/obes.12012   open full text
• Unit Root Testing under a Local Break in Trend using Partial Information on the Break Date*.
  David I. Harvey, Stephen J. Leybourne, A.M. Robert Taylor.
  Oxford Bulletin of Economics and Statistics. January 07, 2013
  We consider unit root testing allowing for a break in trend when partial information is available regarding the location of the break date. This takes the form of knowledge of a relatively narrow window of data within which the break takes place, should it occur at all. For such circumstances, we suggest employing a union of rejections strategy, which combines a unit root test that allows for a trend break somewhere within the window with a unit root test that makes no allowance for a trend break. Asymptotic and finite sample evidence shows that our suggested strategy works well, provided that, when a break does occur, the partial information is correct. An empirical application to UK interest rate data containing the 1973 ‘oil shock’ is also considered.

  January 07, 2013   doi: 10.1111/obes.12013   open full text
• GMM Estimation with Non‐causal Instruments under Rational Expectations*.
  Matthijs Lof.
  Oxford Bulletin of Economics and Statistics. January 07, 2013
  Lanne and Saikkonen [Oxford Bulletin of Economics and Statistics (2011a) Vol. 73, pp. 581–592], show that the generalized method of moments (GMM) estimator is inconsistent, when the instruments are lags of variables that admit a non‐causal autoregressive representation. This article argues that this inconsistency depends on distributional assumptions, that do not always hold. In particular under rational expectations, the GMM estimator is found to be consistent. This result is derived in a linear context and illustrated by simulation of a nonlinear asset pricing model.

  January 07, 2013   doi: 10.1111/obes.12017   open full text
• Local Asymptotic Power of Breitung's Test*.
  Mehdi Hosseinkouchack.
  Oxford Bulletin of Economics and Statistics. January 07, 2013
  In this article, we derive the local asymptotic power function of the unit root test proposed by Breitung [Journal of Econometrics (2002) Vol. 108, pp. 343–363]. Breitung's test is a non‐parametric test and is free of nuisance parameters. We compare the local power curve of the Breitungs’ test with that of the Dickey–Fuller test. This comparison is in fact a quantification of the loss of power that one has to accept when applying a non‐parametric test.

  January 07, 2013   doi: 10.1111/obes.12020   open full text
• The Relative Price of Non‐traded Goods under Imperfect Competition*.
  Javier Coto‐Martinez, Juan C. Reboredo.
  Oxford Bulletin of Economics and Statistics. November 23, 2012
  We consider the role of imperfect competition in explaining the relative price of non‐traded to traded goods within the Balassa–Samuelson framework. Under imperfect competition in these two sectors, relative prices depend on both productivity and mark‐up differentials. We test this hypothesis using a panel of sectors for 12 OECD countries. The empirical evidence suggests that relative price movements are well explained by productivity and mark‐up differentials.

  November 23, 2012   doi: 10.1111/obes.12009   open full text
• A No‐Arbitrage Structural Vector Autoregressive Model of the UK Yield Curve*.
  Iryna Kaminska.
  Oxford Bulletin of Economics and Statistics. November 06, 2012
  This article combines a Structural Vector Autoregression with a no‐arbitrage approach to build a multifactor Affine Term Structure Model (ATSM). The resulting No‐Arbitrage Structural Vector Autoregressive (NASVAR) model implies that expected excess returns are driven by structural macroeconomic shocks. This is in contrast with a standard ATSM, in which agents are concerned with non‐structural risks. As a simple application, we study the effects of supply, demand and monetary policy shocks on the UK yield curve. We show that all structural shocks affect the slope of the yield curve, with demand and supply shocks accounting for a large part of the time variation in bond yields.

  November 06, 2012   doi: 10.1111/obes.12001   open full text
• Institutions and Bank Performance: A Stochastic Frontier Analysis*.
  Robert Lensink, Aljar Meesters.
  Oxford Bulletin of Economics and Statistics. November 04, 2012
  This article investigates the impact of institutions on bank efficiency and technology, using a stochastic frontier analysis of a data set of 7,959 banks across 136 countries over 10 years. The results confirm the importance of well‐developed institutions for the efficient operation of commercial banks. Furthermore, the insights reveal the impact of institutional reforms in improving bank efficiency. The results are robust to adjustments in country‐specific effects, achieved by including country dummies, as well as across different risk profiles. Moreover, they provide empirical evidence in support of the public view of the banking sector.

  November 04, 2012   doi: 10.1111/obes.12002   open full text
• Productivity, R&D Spillovers and Educational Attainment*.
  Vania Sena, Dolores Anon Higon.
  Oxford Bulletin of Economics and Statistics. October 11, 2012
  Economists have long agreed that the local availability of a more qualified workforce generates significant spillovers. This study suggests that these externalities may arise because plants by having access to a more qualified workforce at a regional level, can benefit more from R&D spillovers than those located in areas with less qualified workforce. This hypothesis is tested on a sample of British establishments drawn from the Annual Business Inquiry over the period 1997–2002. The main results are consistent with our expectations that the regional differences in the industry‐level educational attainment of the workforce available to a plant will condition its capability of absorbing R&D spillovers.

  October 11, 2012   doi: 10.1111/j.1468-0084.2012.00724.x   open full text
• Indirect Estimation of Semiparametric Binary Choice Models*.
  Joakim Westerlund, Per Hjertstrand.
  Oxford Bulletin of Economics and Statistics. October 03, 2012
  One of the most cited studies within the field of binary choice models is that of Klein and Spady (1993), in which the authors propose a semiparametric estimator for use when the distribution of the error term is unknown. However, although theoretically appealing, the estimator has been found to be difficult to implement, and therefore not very attractive from an applied point of view. The current study offers an indirect inference‐based solution to this problem. The new estimator is not only simple with good small‐sample properties, but also consistent and asymptotically normal.

  October 03, 2012   doi: 10.1111/obes.12000   open full text
• New Methods for Forecasting Inflation, Applied to the US*.
  Janine Aron, John Muellbauer.
  Oxford Bulletin of Economics and Statistics. October 03, 2012
  Models for the 12‐month‐ahead US rate of inflation, measured by the chain‐weighted consumer expenditure deflator, are estimated for 1974–98 and subsequent pseudo out‐of‐sample forecasting performance is examined. Alternative forecasting approaches for different information sets are compared with benchmark univariate autoregressive models, and substantial out‐performance is demonstrated including against Stock and Watson's unobserved components‐stochastic volatility model. Three key ingredients to the out‐performance are: including equilibrium correction component terms in relative prices; introducing nonlinearities to proxy state‐dependence in the inflation process and replacing the information criterion, commonly used in VARs to select lag length, with a ‘parsimonious longer lags’ parameterization. Forecast pooling or averaging also improves forecast performance.

  October 03, 2012   doi: 10.1111/j.1468-0084.2012.00728.x   open full text
• Network Effects and Infrastructure Productivity in Developing Countries*.
  Bertrand Candelon, Gilbert Colletaz, Christophe Hurlin.
  Oxford Bulletin of Economics and Statistics. September 26, 2012
  This study proposes to investigate the threshold effects in the productivity of infrastructure investment in developing countries. It concludes to their presence in the relationship between output and private and public inputs as well as network effects in the productivity of infrastructure. When the available stock of infrastructure is low, investment has the same productivity as non‐infrastructure investment. On the contrary, when a minimum network is available, the marginal productivity of infrastructure investment is greater than the productivity of other investments. Finally, when the main network is achieved, its marginal productivity becomes similar to the productivity of other investment.

  September 26, 2012   doi: 10.1111/j.1468-0084.2012.00722.x   open full text
• Incorporating Asymmetric Preferences into Fan Charts and Path Forecasts*.
  Matei Demetrescu, Mu‐Chun Wang.
  Oxford Bulletin of Economics and Statistics. September 17, 2012
  Ordinary fan charts consist of symmetric marginal forecast intervals, and do not take into consideration the concrete loss function of the user of the forecast. The note shows how to build fan charts that have exact joint coverage even under asymmetric loss, and maintain at the same time the intuition conveyed by ordinary fan charts. The proposed method is computationally simple, and easily implemented with any loss function. The differences between the information conveyed by fan charts with or without asymmetries, and with or without exact joint coverage, are illustrated with a Bayesian forecast exercise of US GDP growth rates.

  September 17, 2012   doi: 10.1111/j.1468-0084.2012.00723.x   open full text
• Multinational Exposure and the Quality of New Chinese Exports.
  Deborah L. Swenson, Huiya Chen.
  Oxford Bulletin of Economics and Statistics. September 09, 2012
  We exploit information on the geographic, product and trader characteristics of China's 1997–2009 exports to examine how the evolving city‐industry presence of multinational firms influenced the quality, frequency and survival of new export transactions by private Chinese firms. Our results show that own‐industry multinational firm contact was associated with more frequent, higher‐valued, and longer‐lasting new trade transactions. These effects appear to arise from beneficial multinational spillovers, rather than selection effects due to increased multinational competition, as increases in own‐industry or other multinational presence were also associated with an increase in the number of trade transactions introduced by private Chinese firms.

  September 09, 2012   doi: 10.1111/j.1468-0084.2012.00726.x   open full text
• No Mangoes in the Tundra: Spatial Heterogeneity in Agricultural Productivity Analysis*.
  Markus Eberhardt, Francis Teal.
  Oxford Bulletin of Economics and Statistics. September 07, 2012
  In line with the wider macro productivity literature existing studies of agricultural production largely neglect technology heterogeneity, variable time‐series properties and the potential for heterogeneous but correlated total factor productivity (TFP) across countries. Our empirical approach accommodates these difficulties and seeks to model the nature of the cross‐section dependence in a sample of 128 countries (1961–2002). Our results suggest that agro‐climatic environment drives similarity in TFP evolution across countries with heterogeneous production technology. This provides a possible explanation for the failure of technology transfer from advanced countries of the temperate ‘North’ to arid and/or equatorial developing countries of the ‘South’.

  September 07, 2012   doi: 10.1111/j.1468-0084.2012.00720.x   open full text
• Testing the Political Replacement Effect: A Panel Data Analysis*.
  Leone Leonida, Dario Maimone Ansaldo Patti, Pietro Navarra.
  Oxford Bulletin of Economics and Statistics. August 18, 2012
  This article tests for the existence of the political replacement effect, as suggested by Acemoglu and Robinson: [American Political Science Review, Vol. 100, pp. 115–131]. They argue that the implementation of market‐oriented reform is crucially driven by the political calculus of incumbent governments: they implement economic policy change if such a choice is not expected to reduce their chances to retain power. This implies a non‐monotonic relationship between the level of political competition and the extent of economic reform. We test this hypothesis using data for 102 countries over the period 1980 to 2005. Our results strongly support the theory.

  August 18, 2012   doi: 10.1111/j.1468-0084.2012.00716.x   open full text
• The Reservation Wage Unemployment Duration Nexus*.
  John T. Addison, José A. F. Machado, Pedro Portugal.
  Oxford Bulletin of Economics and Statistics. August 18, 2012
  A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent.

  August 18, 2012   doi: 10.1111/j.1468-0084.2012.00717.x   open full text
• State‐Dependent Threshold Smooth Transition Autoregressive Models*.
  Michael J. Dueker, Zacharias Psaradakis, Martin Sola, Fabio Spagnolo.
  Oxford Bulletin of Economics and Statistics. August 18, 2012
  In this article, we consider extensions of smooth transition autoregressive (STAR) models to situations where the threshold is a function of variables that affect the separation of regimes of the time series under consideration. Our specification is motivated by the observation that unusually high/low values for an economic variable may sometimes be best thought of in relative terms. State‐dependent contemporaneous‐threshold STAR and logistic STAR models are introduced and discussed. These models are also used to investigate the dynamics of US short‐term interest rates, where the threshold is allowed to be a function of past output growth and inflation.

  August 18, 2012   doi: 10.1111/j.1468-0084.2012.00719.x   open full text
• Exports and International Logistics*.
  Alberto Behar, Philip Manners, Benjamin D. Nelson.
  Oxford Bulletin of Economics and Statistics. August 07, 2012
  Better international logistics raise a developing country's exports, but the magnitude of the effect depends on the country's size. We apply a gravity model that accounts for firm heterogeneity and multilateral resistance to an international logistics index. A one standard deviation improvement in logistics is equivalent to a 14% reduction in distance. An average‐sized developing country would raise exports by approximately 36%. Most of the countries are much smaller than average, so the typical effect is 8%. This difference is chiefly due to the dampening effect of multilateral resistance, which is more important for small countries.

  August 07, 2012   doi: 10.1111/j.1468-0084.2012.00715.x   open full text
• Productivity and Growth in UK Industries: An Intangible Investment Approach*.
  Mariela Dal Borgo, Peter Goodridge, Jonathan Haskel, Annarosa Pesole.
  Oxford Bulletin of Economics and Statistics. August 07, 2012
  This article calculates some facts for the ‘knowledge economy’. Using new data, first we document UK intangible investment and find that (i) this is greater than tangible investment by £37bn in 2008; (ii) R&D is 11% of total intangible investment, software 15%, and training and organizational capital 22% each; (iii) the most intangible‐intensive industries are manufacturing and financial services. Next, we measure the contribution of intangible capital to growth for 2000–08. We find that intangible capital accounts for 23% of labour productivity growth and treating intangibles as investment lowers total factor productivity growth in the 2000s by 24% (R&D lowers it by 3%).

  August 07, 2012   doi: 10.1111/j.1468-0084.2012.00718.x   open full text
• Causal Inference by Independent Component Analysis: Theory and Applications*.
  Alessio Moneta, Doris Entner, Patrik O. Hoyer, Alex Coad.
  Oxford Bulletin of Economics and Statistics. July 20, 2012
  Structural vector‐autoregressive models are potentially very useful tools for guiding both macro‐ and microeconomic policy. In this study, we present a recently developed method for estimating such models, which uses non‐normality to recover the causal structure underlying the observations. We show how the method can be applied to both microeconomic data (to study the processes of firm growth and firm performance) and macroeconomic data (to analyse the effects of monetary policy).

  July 20, 2012   doi: 10.1111/j.1468-0084.2012.00710.x   open full text
• Efficiency Wages and the Economic Effects of the Minimum Wage: Evidence from a Low‐Wage Labour Market*.
  Andreas Georgiadis.
  Oxford Bulletin of Economics and Statistics. July 05, 2012
  This article exploits a natural experiment provided by the 1999 introduction of the UK National Minimum Wage (NMW) to test for efficiency wage considerations in a low‐wage sector, the UK residential care homes industry. The empirical results provide support to the wage‐supervision trade‐off prediction of the shirking model and suggest that the NMW may have operated as an efficiency wage in the care homes sector, leading to a reduction in supervision costs. These findings can explain earlier evidence suggesting that although the NMW introduction increased wages dramatically in the care homes sector, it generated only moderate negative employment effects.

  July 05, 2012   doi: 10.1111/j.1468-0084.2012.00713.x   open full text
• Time Horizons and Smoothing in the Bank of England's Reaction Function: The Contrast Between the Standard GMM and Ex Ante Forecast Approaches*.
  David Cobham, Yue Kang.
  Oxford Bulletin of Economics and Statistics. July 04, 2012
  The monetary policy reaction function of the Bank of England is estimated by the standard GMM approach and the ex ante forecast method developed by Goodhart (2005), with particular attention to the horizons for inflation and output at which each approach gives the best fit. The horizons for the ex ante approach are much closer to what is implied by the Bank's view of the transmission mechanism, while the GMM approach produces an implausibly slow adjustment of the interest rate, and suffers from a weak instruments problem. These findings suggest a strong preference for the ex ante approach.

  July 04, 2012   doi: 10.1111/j.1468-0084.2012.00709.x   open full text
• Profit Sharing and Training*.
  Kornelius Kraft, Julia Lang.
  Oxford Bulletin of Economics and Statistics. July 03, 2012
  We analyze the impact of profit sharing on training intensity. Profit sharing may affect training because it is a credible commitment by firms to reward firm‐specific skills, may reduce turnover and leads to peer group pressure to participate in training courses. To eliminate possible selectivity effects, we combine matching with difference‐in‐differences. We identify the proportion of employees participating in profits and differentiate profit sharing according to the percentage of the workers covered. Using German establishment data we find that profit sharing only has a significant effect on training intensity if the majority of the workforce benefits from it.

  July 03, 2012   doi: 10.1111/j.1468-0084.2012.00714.x   open full text
• Exchange Rate Pass‐through to Trade Prices: The Role of Nonlinearities and Asymmetries*.
  Matthieu Bussiere.
  Oxford Bulletin of Economics and Statistics. July 03, 2012
  A standard assumption in the empirical literature is that exchange rate pass‐through is both linear and symmetric. This study tests these assumptions for export and import prices in the G7 economies. It focuses on non‐linearities in the reaction of profit margins to exchange rate movements, which may arise from the presence of price rigidities and switching costs. Nonlinearities are characterized by augmenting a standard linear model with polynomial functions of the exchange rate and with interactive dummy variables. The results suggest that nonlinearities and especially asymmetries cannot be ignored, although their magnitude varies noticeably across countries.

  July 03, 2012   doi: 10.1111/j.1468-0084.2012.00711.x   open full text
• What does a Monetary Policy Shock Do? An International Analysis with Multiple Filters*.
  Efrem Castelnuovo.
  Oxford Bulletin of Economics and Statistics. July 03, 2012
  What does a monetary policy shock do? We answer this question by estimating a new‐Keynesian monetary policy dynamic stochastic general equilibrium model for a number of economies with a variety of empirical proxies of the business cycle. The effects of two different policy shocks, an unexpected interest rate hike conditional on a constant inflation target and an unpredicted drift in the inflation target, are scrutinized. Filter‐specific Bayesian impulse responses are contrasted with those obtained by combining multiple business cycle indicators. Our results document the substantial uncertainty surrounding the estimated effects of these two policy shocks across a number of countries.

  July 03, 2012   doi: 10.1111/j.1468-0084.2012.00712.x   open full text
• The Causal Effect of Education on Wages Revisited*.
  Matt Dickson.
  Oxford Bulletin of Economics and Statistics. June 21, 2012
  This study estimates the return to education in Britain using two instrumental variable (IV) estimators: one exploits variation in schooling associated with early smoking, the other uses the raising of the school leaving age; both affect a sizeable proportion of the sample. Early smoking is found to be a strong and valid IV and unlike previous IV strategies uses variations in education at numerous points across the distributions of (i) education, and (ii) ability. Thus whilst still a ‘local average treatment effect’ the estimate is closer to the average effect of additional education, akin to least squares but corrected for endogeneity.

  June 21, 2012   doi: 10.1111/j.1468-0084.2012.00708.x   open full text
• The Impact of a Large Parental Leave Benefit Reform on the Timing of Birth around the Day of Implementation*.
  Marcus Tamm.
  Oxford Bulletin of Economics and Statistics. June 06, 2012
  The introduction of the German parental leave benefit (Elterngeld) applied to all children born on 1 January, 2007 or later. The Elterngeld considerably changed the amount of transfers to families during the first two years postpartum. We show that the incentives created by using a cut‐off date led more than 1,000 parents to postpone the delivery of their children from December 2006 to January 2007. Concerning potential adverse impacts on health outcomes of children we find a slight increase in average birth weight and the rate of children with high birth weight (>4,000 g).

  June 06, 2012   doi: 10.1111/j.1468-0084.2012.00707.x   open full text
• Truncated Product Methods for Panel Unit Root Tests*.
  Xuguang Sheng, Jingyun Yang.
  Oxford Bulletin of Economics and Statistics. May 14, 2012
  This paper proposes two new panel unit root tests based on Zaykin et al. (2002)’s truncated product method. The first one assumes constant correlation between P‐values and the second one uses sieve bootstrap to allow for general forms of cross‐section dependence in the panel units. Monte Carlo simulation shows that both tests have reasonably good size and are powerful in cases of some very large P‐values. The proposed tests are applied to a panel of real GDP and inflation density forecasts, resulting in evidence that professional forecasters may not update their forecast precision in an optimal Bayesian way.

  May 14, 2012   doi: 10.1111/j.1468-0084.2012.00705.x   open full text
• Measuring Inflation Expectations Using Interval‐Coded Data*.
  Yasutomo Murasawa.
  Oxford Bulletin of Economics and Statistics. May 10, 2012
  To quantify qualitative survey data, the Carlson–Parkin method assumes normality, a time‐invariant symmetric indifference interval, and long‐run unbiased expectations. These assumptions are unnecessary for interval‐coded data. In April 2004, the Monthly Consumer Confidence Survey in Japan started to ask households about their price expectations a year ahead in seven categories with partially known boundaries. Thus one can identify up to six parameters including an indifference interval each month. This paper compares normal, skew normal (SN), skew exponential power (SEP), and skew t (St) distributions, and finds that an St distribution fits the data well. The results help us to better understand the dynamics of heterogeneous expectations.

  May 10, 2012   doi: 10.1111/j.1468-0084.2012.00704.x   open full text
• Hierarchical Modelling of Disparities in Preferences for Redistribution*.
  Maria Grazia Pittau, Riccardo Massari, Roberto Zelli.
  Oxford Bulletin of Economics and Statistics. May 10, 2012
  We evaluate the magnitude of the disparities in the demand for redistribution across European countries and American states during the 2000s. Modelling the demand for redistribution in a multilevel framework, we identify the determinants that contribute the most in predicting support for redistribution. We observe that individual characteristics and contextual variables are associated with demand for redistribution in the same way in Europe and in the US, whereas others exert different influences on the probability of supporting redistribution. We find important differences from some well‐established evidence obtained from data collected for the 1980s and the 1990s.

  May 10, 2012   doi: 10.1111/j.1468-0084.2012.00703.x   open full text
• Precautionary and Entrepreneurial Savings: New Evidence from German Households*.
  Frank M. Fossen, Davud Rostam‐Afschar.
  Oxford Bulletin of Economics and Statistics. May 01, 2012
  Various studies interpret the positive correlation between income risk and wealth as evidence of significant precautionary savings. However, these high estimates emerge from pooling non‐entrepreneurs and entrepreneurs, without controlling for heterogeneity. This article provides evidence for Germany based on representative panel data that includes private wealth balance sheets. Entrepreneurs, who face high income risk, hold more wealth than employees, but this tendency is not because of precautionary motives. Instead, they appear to save more for their old age, because they are usually not covered by statutory pension insurance. The analysis accounts for endogeneity in entrepreneurial choice and heterogeneous risk attitudes.

  May 01, 2012   doi: 10.1111/j.1468-0084.2012.00702.x   open full text
• Retirement Choices in Italy: What an Option Value Model Tells Us*.
  Michele Belloni, Rob Alessie.
  Oxford Bulletin of Economics and Statistics. April 11, 2012
  Using Italian data, we estimate an option value model to quantify the effect of financial incentives on retirement choices. As far as we know, this is the first empirical study to estimate the conditional multiple‐years model put forward by Stock and Wise (1990). This implies that we account for dynamic self‐selection bias. We also present an extended version of this model in which the marginal value of leisure is random. For the female sample, the model is able to predict almost perfectly the age‐specific hazard rates. For the male sample, we obtain a good fit. Dynamic self‐selection results in a downward bias in the estimate of the marginal utility of leisure. We perform a simulation study to gauge the effects of a dramatic pension reform. Underestimation of the value of leisure translates into sizeable over‐prediction of the impact of reform. Due to lack of data, results for males should be interpreted with caution since we are not able to fully correct for dynamic self‐selection bias.

  April 11, 2012   doi: 10.1111/j.1468-0084.2012.00701.x   open full text