Estimation of Markov regime-switching regression models with endogenous switching

Following Hamilton (1989), estimation of Markov regime-switching regressions nearly always relies on the assumption that the latent state variable controlling the regime change is exogenous. We incorporate endogenous switching into a Markov-switching regression and develop strategies for identification and estimation. Identification requires instruments, which can be found in observed exogenous variables that influence the transition probabilities of the regime-switching process, as in the so-called time-varying transition probability case. However, even with fixed transition probabilities, the lagged state variable can serve as an instrument provided it is exogenous and the state process is serially dependent. This is true even though the lagged state is unobserved. A straightforward test for endogeneity is also presented. Monte Carlo experiments confirm that the estimation procedures perform quite well in practice. We apply the endogenous switching model to the volatility feedback model of equity returns given in Turner, Startz and Nelson (1989).Econometric models

Fiscal Policy Under Imperfect Competition: A Survey

This paper surveys the link between imperfect competition and the effects of fiscal policy on output, employment and welfare. We examine static and dynamic models, with and without entry under a variety of assumptions using a common analytical framework. We find that in general there is a robust relationship between the fiscal multiplier and welfare, the tantalizing possibility of Pareto improving fiscal policy is much more elusive. In general, the mechanisms are supply side, and so welfare improving policy, whilst possible, is not a general result

The effect of molluscan glue proteins on gel mechanics

Several molluscs have been shown to alternate between a non-adhesive trail mucus and a similar gel that forms a strong glue. The major structural difference between the two secretions is the presence of specific proteins in the adhesive mucus. The present study identifies similar proteins from the glue of the slug Arion subfuscus and the land snail Helix aspersa. To investigate the role played by these proteins in adhesion, the proteins were isolated from the adhesive mucus of different molluscs and added to commercial polymer solutions. The effect was observed qualitatively, and quantified using a dynamic rheometer. The isolated proteins triggered gelling or visible stiffening of agar, pectin and polygalacturonic acid. The effect was stronger on more negatively charged polymers. The effect of the proteins was concentration dependent with an optimal concentration of 1-1.5 mg ml , and was weakened when their structure changed. Other proteins and carbohydrates found in the adhesive mucus had no clear mechanical effect on gels. These findings show that the addition of these proteins to large, anionic polymers plays a central role in the formation of a glue from a mucus-like secretion. Such a mechanism may be common among invertebrates, and it may guide biomimetic approaches in the development of glues and gels. -