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  • ItemOpen Access
    Compilation, Revision and Updating of the Global VAR (GVAR) Database, 1979Q2-2016Q4
    (2018-02-03) Mohaddes, Kamiar; Raissi, Mehdi; Mohaddes, Kamiar [0000-0002-2501-2062]
    This is the latest version of the Global VAR (GVAR) dataset. The GVAR is a global modelling framework for analyzing the international macroeconomic transmission of shocks, taking into account drivers of economic activity, interlinkages and spillovers between different countries, and the effects of unobserved or observed common factors. This dataset includes quarterly macroeconomic variables for 33 economies (log real GDP, y, the rate of inflation, dp, short-term interest rate, r, long-term interest rate, lr, the log deflated exchange rate, ep, and log real equity prices, eq), as well as quarterly data on commodity prices (oil prices, poil, agricultural raw material, pmat, and metals prices, pmetal), over the 1979Q2 to 2016Q4 period. These 33 countries cover more than 90% of world GDP. It would be appreciated if use of the updated dataset could be acknowledged as: “Mohaddes, K. and M. Raissi (2018). Compilation, Revision and Updating of the Global VAR (GVAR) Database, 1979Q2-2016Q4. University of Cambridge: Faculty of Economics (mimeo)”.
  • ItemAccepted versionOpen Access
    R2 Bounds for Predictive Models: What Univariate Properties Tell us About Multivariate Predictability
    (Taylor & Francis, 2019) Robertson, D; Mitchell, James; Wright, Stephen; Robertson, Donald [0000-0002-4624-6140]
    A long-standing puzzle in macroeconomic forecasting has been that a wide variety of multivariate models have struggled to out-predict univariate models consistently. We seek an explanation for this puzzle in terms of population properties. We derive bounds for the predictive R2 of the true, but unknown, multivariate model from univariate ARMA parameters alone. These bounds can be quite tight, implying little forecasting gain even if we knew the true multivariate model. We illustrate using CPI inflation data.
  • ItemAccepted versionOpen Access
    IV estimation of panels with factor residuals
    (Elsevier BV, 2015-04) Robertson, D; Sarafidis, V; Robertson, Donald [0000-0002-4624-6140]
  • ItemAccepted versionOpen Access
    Corporate lobbying for environmental protection
    (Elsevier, 2018-07) Grey, F; Grey, Felix [0000-0003-2070-7970]
    Much of the time, polluting firms lobby against environmental protection, but there are major exceptions to this rule, for example in the regulation of both ozone and greenhouse gases. Political support from firms can be pivotal for governments trying to protect the environment. I offer an explanation for this phenomenon, suggesting firms behave as they do in order to steal market share from their rivals. I develop a model in which a polluting firm makes a clean technology investment and then lobbies successfully for strong environmental protection, since this will shift market share away from its rival who has not made the clean investment. The key result concerns the impact of lobbying on the equilibrium outcome: for a region of the parameter space, it is only because of firms' lobbying that environmental protection is achieved. This is because lobbying increases a firm's returns to going green, by increasing the market share it can steel. The net effect of this distortion is an increase in welfare.
  • ItemAccepted versionOpen Access
    Semiparametric Ultra-High Dimensional Model Averaging of Nonlinear Dynamic Time Series
    (Informa UK Limited, 2018) Chen, J; Li, D; Linton, O; Lu, Z; Linton, Oliver [0000-0003-2313-0564]
    We propose two semiparametric model averaging schemes for nonlinear dynamic time series regression models with a very large number of covariates including exogenous regressors and autoregressive lags. Our objective is to obtain more accurate estimates and forecasts of time series by using a large number of conditioning variables in a nonparametric way. In the first scheme, we introduce a Kernel Sure Independence Screening (KSIS) technique to screen out the regressors whose marginal regression (or auto-regression) functions do not make a significant contribution to estimating the joint multivariate regression function; we then propose a semiparametric penalized method of Model Averaging MArginal Regression (MAMAR) for the regressors and auto-regressors that survive the screening procedure, to further select the regressors that have significant effects on estimating the multivariate regression function and predicting the future values of the response variable. In the second scheme, we impose an approximate factor modelling structure on the ultra-high dimensional exogenous regressors and use the principal component analysis to estimate the latent common factors; we then apply the penalized MAMAR method to select the estimated common factors and the lags of the response variable that are significant. In each of the two schemes, we construct the optimal combination of the significant marginal regression and auto-regression functions. Asymptotic properties for these two schemes are derived under some regularity conditions. Numerical studies including both simulation and an empirical application to forecasting inflation are given to illustrate the proposed methodology
  • ItemAccepted versionOpen Access
    Shades of red and blue: Government ideology and sustainable development
    (Springer, 2018) Aidt, TS; Castro, Vitor; Martins, Rodrigo; Aidt, Toke [0000-0002-8319-6568]
    We study the effect of government ideology on sustainable development, measured as investment in genuine wealth, in a dynamic panel of 79 countries between 1981 and 2013. We find robust and statistically significant evidence that genuine investment grows faster under right-wing governments than under left-wing or center governments. In contrast, we find no indication of opportunistic cycles.
  • ItemAccepted versionOpen Access
    The golden hello and political transitions
    (Elsevier BV, 2018) Aidt, TS; Albornoz, F; Gassebner, M; Aidt, Toke [0000-0002-8319-6568]
    © 2017. We analyze the influence of IMF and World Bank programs on political regime transitions. We develop an extended version of Acemoglu and Robinson's [American Economic Review 91, 2001] model of political transitions to show how the anticipation of new loans from international financial institutions can trigger political transitions which would not otherwise have taken place. We test this unexplored implication of the theory empirically. We find that the anticipation of receiving new loan programs immediately af ter a political regime transition increases the probability of a transition from autocracy to democracy and reduces the probability of democratic survival.
  • ItemAccepted versionOpen Access
    Alternative Asymptotics for Cointegration Tests in Large VARs
    (The Econometric Society, 2018-07) Onatski, A; Wang, C; Onatskiy, Alexei [0000-0002-8299-1113]
    Johansen's (1988, 1991) likelihood ratio test for cointegration rank of a Gaussian VAR depends only on the squared sample canonical correlations between current changes and past levels of a simple transformation of the data. We study the asymptotic behavior of the empirical distribution of those squared canonical correlations when the number of observations and the dimensionality of the VAR diverge to infinity simultaneously and proportionally. We find that the distribution almost surely weakly converges to the so-called Wachter distribution. This finding provides a theoretical explanation for the observed tendency of Johansen's test to find "spurious cointegration". It also sheds light on the workings and limitations of the Bartlett correction approach to the over-rejection problem. We propose a simple graphical device, similar to the scree plot, for a preliminary assessment of cointegration in high-dimensional VARs.
  • ItemAccepted versionOpen Access
    Firm-specific training
    (Elsevier BV, 2018) Felli, L; Harris, C; Felli, L [0000-0001-6113-6014]
    © 2018 Elsevier Inc. This paper investigates the market provision of firm-specific training, and identifies the inefficiencies associated with it. Within a general stochastic learning-by-doing model, there is a potential inefficiency in the market provision of firm-specific training. In order to determine whether this inefficiency is in fact present, we analyze two special cases of the model: the accelerated productivity-enhancement model and the accelerated learning model. In both models, the inefficiency is indeed present. However, the nature of the inefficiency depends on the balance between the two key components of training, namely productivity enhancement and employee evaluation. In the accelerated productivity-enhancement model, training results in an increase in productivity enhancement but no change in employee evaluation, and training is overprovided by the market. In the accelerated learning model, training results in a proportionate increase in both productivity enhancement and employee evaluation, and training is underprovided by the market. In both cases, turnover is inefficiently low.
  • ItemAccepted versionRestricted
    Implications of High-Frequency Trading for Security Markets
    (Annual Reviews, 2018) Linton, OB; Linton, Oliver [0000-0003-2313-0564]
    High frequency trading (HFT) has grown substantially in recent years, due to fast-paced technological developments and their rapid uptake, particularly in equity markets. This paper investigates how HFT could evolve and, by developing a robust understanding of its effects, to identify potential risks and opportunities that it could present in terms of financial stability and other market outcomes such as volatility, liquidity, price efficiency and price discovery. Despite commonly held negative perceptions, the available evidence indicates that HFT and algorithmic trading (AT) may have several beneficial effects on markets. However, they may cause instabilities in financial markets in specific circumstances. Carefully chosen regulatory measures are needed to address concerns in the shorter term. However, further work is needed to inform policies in the longer term, particularly in view of likely uncertainties and lack of data. This will be vital to support evidence-based regulation in this controversial and rapidly evolving field.
  • ItemAccepted versionOpen Access
    Decentralized bargaining in matching markets: efficient stationary equilibria and the core
    (Econometric Society, 2019-01) Elliott, ML; Nava, F; Elliott, Matthew [0000-0003-0243-5414]
    This paper studies market clearing in matching markets. The model is non-cooperative, fully decentralized, and in Markov strategies. Workers and firms bargain with each other to determine who will be matched with whom and at what terms of trade. Once a worker-firm pair reach agreement, they exit the market. Alternative possible matches affect agents' bargaining positions. We ask under which conditions such markets clear efficiently and find that inefficiencies -- mismatch and delay -- feature frequently. Mismatch occurs whenever an agent's bargaining position is at risk of deteriorating. Delay occurs whenever agents expect their bargaining position to improve. Delay can be extensive and structured with vertically differentiated markets endogenously clearing from the top down.
  • ItemAccepted versionOpen Access
    A Network Approach to Public Goods
    (University of Chicago Press, 2019-04) Elliott, Matthew; Golub, Benjamin; Elliott, Matthew [0000-0003-0243-5414]
    Suppose agents can exert costly effort that creates nonrival, heterogeneous benefits for each other. At each possible outcome, a weighted, directed network describing marginal externalities is defined. We show that Pareto efficient outcomes are those at which the largest eigenvalue of the network is 1. An important set of efficient solutions---Lindahl outcomes---are characterized by contributions being proportional to agents' eigenvector centralities in the network. The outcomes we focus on are motivated by negotiations. We apply the results to identify who is essential for Pareto improvements, how to efficiently subdivide negotiations, and whom to optimally add to a team.
  • ItemAccepted versionOpen Access
    Religion and Depression in Adolescence.
    (University of Chicago Press, 2019-06) Fruehwirth, Jane Cooley; Iyer, Sriya; Zhang, Anwen; Iyer, Sriya [0000-0002-1297-1539]
    Depression is the leading cause of illness and disability in adolescence. Many studies show a correlation between religiosity and mental health, yet the question remains whether the relationship is causal. We exploit within-school variation in adolescents' peers to deal with selection into religiosity. We find robust effects of religiosity on depression that are stronger for the most depressed. These effects are not driven by the school social context; depression spreads among close friends rather than through broader peer groups that affect religiosity. Exploration of mechanisms suggests that religiosity buffers against stressors in ways that school activities and friendships do not.
  • ItemAccepted versionOpen Access
    Slamming the Door on Trade Policy Discretion? the WTO Appellate Body's Ruling on Market Distortions and Production Costs in EU-Biodiesel (Argentina)
    (Cambridge University Press (CUP), 2018) Crowley, MA; Hillman, JA; Crowley, Meredith [0000-0003-2864-4580]
    AbstractThis paper presents a legal–economic analysis of the Appellate Body's decision in EU–Biodiesel (Argentina) that the WTO's Anti-Dumping Agreement (ADA) does not permit countries to take into account government-created price distortions of major inputs when calculating anti-dumping duties. In this case, the EU made adjustments to the price of biodiesel's principal input – soybeans – in determining the cost of production of biodiesel in Argentina. The adjustment was made based on the uncontested finding that the price of soybeans in Argentina was distorted by the existence of an export tax scheme that resulted in artificially low soybean prices. The Appellate Body found that the EU was not permitted to take tax policy-induced price distortions into account in calculating dumping margins. We analyze the economic rationale for Argentina's export tax system, distortions in biodiesel markets in Argentina and the EU, and the remaining trade policy options for addressing distorted international prices. We also assess whether existing subsidies disciplines would be more effective in addressing this problem and conclude that they would not.
  • ItemAccepted versionOpen Access
    Tuna-dolphin II: A legal and economic analysis of the appellate body report
    (Cambridge University Press (CUP), 2014) Crowley, MA; Howse, R; Crowley, Meredith [0000-0003-2864-4580]
  • ItemAccepted versionOpen Access
    The dynamics and determinants of Kuwait's long-run economic growth
    (Elsevier, 2018-04) Burney, NA; Mohaddes, K; Alawadhi, A; Al-Musallam, M; Mohaddes, Kamiar [0000-0002-2501-2062]
    This paper develops a quarterly macro-econometric model for the Kuwaiti economy estimated over the period 1979Q2-2013Q1, allowing us to investigate the long-run role of oil income in the development of Kuwait as well as the direct effects of oil revenue, foreign output, and equity price shocks on real output. More specifically, we examine to what extent Kuwaiti real output in the long run is shaped by oil revenue through their impact on capital accumulation, and technological transfers through foreign output. Using the same modelling strategy we also explore the role of oil income in terms of long-run private and public sector output growth (separately). The estimates suggest that real domestic output in the long run is influenced by oil revenues and foreign output (a proxy for technological progress), and technological growth in Kuwait is on a par with the rest of the world. Furthermore, while we show that both oil revenues and foreign output drive growth in the public sector, it seems that technological progress is the main (and only) driver for private sector real growth. Finally, our results show that oil revenue and global equity market shocks have a large and significant long-run impact on Kuwait's real output and public sector GDP. In comparison, the effects of the foreign output shock is muted.
  • ItemAccepted versionOpen Access
    Religious riots and electoral politics in India
    (Elsevier BV, 2018) Iyer, Sriya; Shrivastava, Anand; Iyer, Sriya [0000-0002-1297-1539]
    We study the effect of Hindu-Muslim riots on election results in India. We combine data on geo-coded riots with data on state elections and on demographics and public goods provision to construct a unique panel data set for 16 large states in India from 1981-2001. A new instrument is used that draws upon the random variation in the day of the week that Hindu festivals fall on, as set by a lunar calendar. The probability of a riot increases if a Hindu festival falls on a Friday, the holy day for Muslims. This allows us to isolate the causal effect of riots on electoral results.The results are also corrected for under-reporting of riots and their effect on nearby districts. We find that riots occurring in the year preceding an election increase the vote share of the Hindu nationalist Bharatiya Janata Party by at least 5 percentage points.
  • ItemAccepted versionOpen Access
    Wage Risk and the Value of Job Mobility in Early Employment Careers
    (University of Chicago Press, 2019-01-02) Liu, Kai; Liu, Kai [0000-0003-1176-5570]
    This paper shows that job mobility is a valuable channel that employed workers use to mitigate bad labor market shocks. I estimate a model of wage dynamics jointly with a dynamic model of employment and job mobility. The key feature of the model is the speci cation of wage shocks at the worker- rm match level, for workers can respond to these shocks by changing jobs. I find that, relative to the variance of individual-level shocks, the variance of match-level shocks is large and the consequent value of job mobility in reducing the welfare cost of these shocks is substantial, particularly for workers whose match-specific wages are low. In counterfactual analysis, I show how the value of job mobility may be affected by search costs and unemployment income.
  • ItemAccepted versionOpen Access
    Semiparametric identification of the bid–ask spread in extended Roll models
    (Elsevier BV, 2017) Chen, X; Linton, O; Yi, Y; Linton, Oliver [0000-0003-2313-0564]
    © 2017 Elsevier B.V. This paper provides new identification results for the bid–ask spread and the nonparametric distribution of the latent fundamental price increments (ε t ) from the observed transaction prices alone. The results are established via the characteristic function approach, and hence allow for discrete or continuous ε t and the observed price increments do not need to have any finite moments. Constructive identification (and overidentification) results are established first in the basic Roll (1984) model, and then in various extended Roll models, including general unbalanced order flow, serially dependent latent trade direction indicators, adverse selection, random spread and a multivariate Roll model.
  • ItemAccepted versionOpen Access
    Tests of additional conditional moment restrictions
    (Elsevier BV, 2017) Parente, PMDC; Smith, RJ
    © 2017 Elsevier B.V. The primary focus of this article is the provision of tests for the validity of a set of conditional moment constraints additional to those defining the maintained hypothesis that are relevant for independent cross-sectional data contexts. The point of departure and principal contribution of the paper is the explicit and full incorporation of the conditional moment information defining the maintained hypothesis in the design of the test statistics. Thus, the approach mirrors that of the classical parametric likelihood setting by defining restricted tests in contradistinction to unrestricted tests that partially or completely fail to incorporate the maintained information in their formulation. The framework is quite general allowing the parameters defining the additional and maintained conditional moment restrictions to differ and permitting the conditioning variates to differ likewise. GMM and generalised empirical likelihood test statistics are suggested. The asymptotic properties of the statistics are described under both null hypothesis and a suitable sequence of local alternatives. An extensive set of simulation experiments explores the practical efficacy of the various test statistics in terms of empirical size and size-adjusted power confirming the superiority of restricted over unrestricted tests. A number of restricted tests possess both sufficiently satisfactory empirical size and power characteristics to allow their recommendation for econometric practice.