Income and consumption smoothing and welfare gains across Pacific Island countries: The role of remittances and foreign aid

We examine the potential welfare gains and channels of income smoothing for Pacific Island Countries (PICs) and nd that, under full risk sharing overall welfare gains across all PICs (particularly, Kiribati, Palau, and Papua New Guinea) are at desirable levels. However, for Australia, the potential welfare gain from risk sharing is almost similar to the gain it obtains if Australia attains full risk sharing with the rest of the OECD countries or with New Zealand alone. We also break down output using the framework of Sorensen and Yosha (1998) to quantify the extent and channels of risk sharing across PICs. For PICs, income-smoothing channels (net factor income and current transfers) play a significant role in buffering the output shock compared to the performance of those channels on smoothing the output shock for OECD countries. Domestic savings also smooth a fair portion of shocks to output, but the extent is much lower compared to that of OECD countries. Further, we analyze the effect of remittances and foreign aid on income smoothing for the PICs exclud- ing Australia and New Zealand. Income smoothing via remittances is highly volatile and significant in recent years, while foreign aid seems to be a stronger and more stable channel for smoothing domestic output shocks for PICs.Foreign Aid, Remittance In ows, International Integration, Income Smoothing, Consumption Smoothing, Pacic Island Countries, Welfare Gains from Risk Sharing

International income risk-sharing and the global financial crisis of 2008-2009

This report examines the impact of the global financial crisis on the degree of international income and consumption risk-sharing among industrial economies using returns on cross-border portfolio holdings (e.g., debt, equity, FDI). It splits the returns from the net foreign holdings as receipts (inflows) and payments (outflows) to investigate which of the two sides exhibited the greater resilience for income risk-sharing during the recent crisis.First, it finds that debt delivered better risk-sharing than equity, mainly reflecting the deficit deterioration in EMU countries during the post-crisis period. FDI, by contrast, did not correspond to noticeable risk diversification. Second, separating output shocks into positive and negative components reveals that debt holding receipts (equity liability payments) performed better under negative (positive) realizations of the shock variable. Third, the unwinding of capital flows resulted in a sharp fall in income dis-smoothing via the debt liability channel in the new EU countries

Spillover Effects on Government Bond Yields in Euro Zone. Does Full Financial Integration Exist in European Government Bond Markets?

This paper examines the time varying nature of European government bond market integration by employing multivariate GARCH models. We state that unlike other bond markets, in euro markets the default(credit) risk factor and other macroeconomic and fiscal indicators are not able to explain the sovereign bond yields after the beginning of monetary union. This fact might be counted as a signal for perfect financial integration. However, we also find that the global shocks affect Germany and the rest of euro bond markets in various levels, creating particular discrepancies in asset prices even we take into account the market specific factors. Different level responses of each euro market to the global shocks reveal that euro bond markets are not fully integrated with each other unlike the recent literature claimed. Besides, we explore that the global factors are effective for the volatility of yield differentials among euro government bonds.Financial Integration, Multivariate GARCH models. Euro Bond Markets, Spillover Effects, Asset Pricing

From Home Bias to Euro Bias: Disentangling the Effects of Monetary Union on the European Financial Markets

Following the launch of the Euro in 1999, integration among Euro area financial markets increased considerably. As a result, portfolio home bias declined across the European financial markets. However, greater market integration has generated a new bias: portfolio Euro bias, a situation where Euro investors tend to hold large proportion of assets issued within the Euro region. The first part of this paper presents an empirical analysis of the economic factors at play behind the switch from home bias to Euro bias. We find that decline in default risk and transaction cost are two key determinants of the rise in portfolio Euro bias. The second part of the paper goes deeper into the effects of Euro bias on Euro area bond and equity markets. We observe that both government and corporate bond markets revealed clear signs of strain during the recent financial turmoil. Our results also reveal that the risk-reduction potential from geographic diversification within the Euro equity market is lower than that of the Euro sector diversification.Financial integration; home bias; Euro bias; transaction costs.

The Role of Institutions, Culture, and Wellbeing in Explaining Bilateral Remittance Flows: Evidence Both Cross-Country and Individual-Level Analysis

This paper explores the determinants of bilateral remittance flows at the country-level; specifically, institutional quality, wellbeing, and culture using a novel dataset published by Ratha and Shaw (2007). Next, we look for support in the German Socio-Economic Panel using individual level regressions which allows us: (i) to control for various individual correlates and fixed effects, and (ii) to analyze remittances sent for different purposes separately. We uncover important relationships with these unique datasets. The country-level results indicate; (i) classical gravity equation variables explain bilateral remittance flows (ii) institutional quality, wellbeing and cultural differences play important role in explaining bilateral remittance flows (iii) financial variables such as exchange rate and interest rate differentials matter as well. Institutional quality matters more for remittance flows between high-income countries and between low-income countries but it does not explain the remittance flows from high-income to low-income countries. Cultural differences become a more dominant factor in explaining the flows between low-income countries. These findings are also supported by the individual level analysis. In addition, German migrants send less money back home when they feel like more German and become home-owners. Countries receive less remittances from Germany when they become happier, their health-care and social-security system improve but receive more with confidence in government, chance of war, and improved political system. These institutional factors only matter for remittances sent for family support. Financial variables such interest rate and exchange rate differentials however, only matter for remittances sent for savings purposes. The results have important policy implications. Institutions matter for remittances but treating whole institutions as one in this framework can be misleading. The role of financial variables, indicators of institutions, and culture depend on the form of remittance and the characteristics of receiving and sending countries.Bilateral cross-country remittance data, individual-level remittance data, institutional quality, wellbeing, gravity equations.

Approximate entropy as an indicator of non-linearity in self paced voluntary finger movement EEG

This study investigates the indications of non-linear dynamic structures in electroencephalogram signals. The iterative amplitude adjusted surrogate data method along with seven non-linear test statistics namely the third order autocorrelation, asymmetry due to time reversal, delay vector variance method, correlation dimension, largest Lyapunov exponent, non-linear prediction error and approximate entropy has been used for analysing the EEG data obtained during self paced voluntary finger-movement. The results have demonstrated that there are clear indications of non-linearity in the EEG signals. However the rejection of the null hypothesis of non-linearity rate varied based on different parameter settings demonstrating significance of embedding dimension and time lag parameters for capturing underlying non-linear dynamics in the signals. Across non-linear test statistics, the highest degree of non-linearity was indicated by approximate entropy (APEN) feature regardless of the parameter settings

Modelling the Currency in Circulation for the State of Qatar.

The main concern of this report is to model the daily and weekly forecasting of the currency in circulation (CIC) for the State of Qatar. The time series of daily observations of the CIC is expected to display marked seasonal and cyclical patterns daily, weekly or even monthly basis. We have compared the forecasting performance of typical linear forecasting models, namely the regression model and the seasonal ARIMA model using daily data. We found that seasonal ARIMA model performs better in forecasting CIC, particularly for short-term horizons.Currency in Circulation, Forecasting, Seasonal ARIMA

Equivalence Scales Declining with Expenditure: Evidence and Implications for Income Distribution

We estimate expenditure dependent equivalence scales for Italian couples with and without children. Following Donaldson and Pendakur (2006) we incorporate the generalized absolute equivalence-scale exactness (GAESE) restrictions into a translated quadratic almost ideal (TQAI) demand system. We obtain declining with expenditure scales, a pattern that tends to strengthen when the number of children increases. This implies that scale economies in current consumption are lower for families with poor expenditure capacities. We also show that families living in the South and the Islands suffer a substantial additional cost to achieve, ceteris paribus, the same well-being of those living in the North. Finally, we find that ignoring the declining with expenditure pattern results in a relevant understatement of measured inequality.Equivalent Expenditure Functions; Equivalence Scales

Risk Sharing among OECD and EU Countries: The Role of Capital Gains, Capital Income, Transfers, and Saving

We estimate the amount of income and consumption smoothing (risk sharing) between OECD countries during the period 1970{2003 with a particular focus on EU and EMU countries. Income smoothing from international factor income has increased in the EU and, in particular, the EMU but not in the non-EU OECD since the introduction of the Euro. Consumption smoothing from pro-cyclical government saving has declined in the EMU, but not in the non-EU OECD, since the signing of the Maastricht treaty. We find that when capital gains and losses on international asset positions are considered part of income, the magnitude of capital gains leads to huge amounts of income smoothing and dis-smoothing although, at the time horizons we examine, the capital gains or losses are only weakly reflected in consumption. Understanding the role of capital gains in risk sharing appears to be of first order importance.Government De¯cits, Income Insurance, International Capital Markets, International Integration, Risk Sharing, External Capital Gains

Proceedings of the Conference on Human and Economic Resources

We estimate the amount of income and consumption smoothing (risk sharing) between countries in the European Monetary Union (EMU) and between other developed countries during the period 1970–2003. In particular, we examine if EMU countries display different patterns of risk sharing than other developed countries in the period leading up to and following the formation of the EMU in 1999. We find that income smoothing from international factor income has increased in the EMU since the introduction of the EMU and that consumption smoothing from procyclical government saving has declined steeply in the EMU since the signing of the Maastricht treaty.EMU, Risk Sharing, economic determinants of risk sharing