Asymmetric cycles in unobserved components models

A class of structural time series models with an asymmetric cyclical component is presented and used in order to test for asymmetry in economic time series. The asymmetric cycle is defined as a sine-cosine wave where the frequency of the cycle depends on past observations of the stochastic process being modelled. Due to the conditional Gaussianity of the model, Kalman filtering techniques can be used in the estimation of the parameters, and a standard test for equality of cyclical frequency can be used as a symmetry test. Applying the test to US economic time series reveals strong cyclical asymmetries in unemployment and industrial production, and no significant deviation from symmetry in GDP. The test is also applied to industrial production data in EU countries, with mixed results.asymmetry

Natural disasters and human capital accumulation

The author assesses empirically the relationship between natural disaster risk and investment in education. Although the results in the empirical literature tend to be inconclusive, using model averaging methods in the framework of cross-country and panel regressions, this paper finds an extremely robust negative partial correlation between secondary school enrollment and natural disaster risk. This result is exclusively driven by geological disasters. Natural disaster risk exposure is a robust determinant of differences in secondary school enrollment between countries, but not within countries, which implies that the effect can be interpreted as a long-run phenomenon.Natural Disasters,Hazard Risk Management,Disaster Management,Population Policies,Access to Finance

We just estimated twenty million fiscal multipliers

We analyse the role played by data and specification choices as determinants of the size ofthe fiscal multipliers obtained using structural vector autoregressive models. The results, based on over twenty million fiscal multipliers estimated for European countries, indicate that many seemingly harmless modelling choices have a significant effect on the size and precision of fiscal multiplier estimates. In addition to the structural shock identification strategy, these modelling choices include the definition of spending and taxes, the national accounts system employed, the use of particular interest rates or inflation measures, or whether data are smoothed prior to estimation. The cumulative effects of such arguably innocuous methodological choices can lead to a change in the spending multipliers of as much as 0.4 points

Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach

We propose a Bayesian Averaging of Thresholds (BAT) approach for assessing the existence and quantifying the effect of threshold effects in cross-country growth regressions in the presence of model uncertainty. The BAT method extends the Bayesian Averaging of Classical Estimates (BACE) approach proposed by Sala-i-Martin, Doppelhofer, and Miller (2004) by allowing for uncertainty over nonlinear threshold effects. We apply our method to a set of determinants of long-term economic growth in the cross section of 88 countries. Our results suggest that when model uncertainty is taken into account there is no evidence for robust threshold effects caused by the Initial Income, measured by GDP capita in 1960, but that the Number of Years an Economy has Been Open is an important source of nonlinear effects on growth

Explaining the persistence of profits: A time-varying approach

The present paper analyzes the determinants of profit persistence using a newly developed methodology that allows for the persistence parameter to vary with time. It therefore addresses a significant limitation of previous persistence models, which have assumed unrealistically that persistence is fixed over relatively long period of 20 years upwards. The concentration and the size of the industry are found to have a significant positive impact on profit persistence. However, at firm level, market share and risk have surprisingly a negative impact on profit persistence.

Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach

We propose a framework for assessing the existence and quantifying the effect of threshold effects in cross-country growth regressions in the presence of model uncertainty. The method is based on Bayesian model averaging tech- niques and generalizes the Bayesian Averaging of Classical Estimates (BACE) method put forward by Sala-i-Martin, Doppelhofer, and Miller (2004). We ap- ply the method presented in this paper to a set of 21 variables that have been found to be robustly related to economic growth in a cross-section of 88 coun- tries. We find no evidence of robust threshold effects generated by the initial level of GDP per capita. However, we find that the proportion of years a country has been open to trade is an important source of nonlinear effects on economic growth.

An "almost-too-late" warning mechanism for currency crises

We propose exploiting the term structure of relative interest rates to obtain estimates of changes in the timing of a currency crisis as perceived by market participants. Our indicator can be used to evaluate the relative probability of a crisis occurring in one week as compared to a crisis happening after one week but in less than a month. We give empirical evidence that the indicator performs well for two important currency crises in Eastern Europe: the crisis in the Czech Republic in 1997 and the Russian crisis in 1998.currency crisis; term structure of interest rates; transition economies

Ricardian Equivalence Revisited: Evidence from OECD countries

Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian Equivalence Proposition (REP) for 26 OECD countries. The empirical specification allows us to obtain estimates of the structural parameters of the theoretical model and to test directly the hypothesis implied by the REP. We find that the REP cannot be rejected for 10 out of 26 countries, where 9 of these 10 countries are European.

Tracing the dynamics of competition: Evidence from company profits

This paper proposes a simple approach to analyzing pro¯t dynam- ics which allows for time-varying persistence of pro¯ts. The time se- ries model is a simple autoregressive process where the dynamics of the persistence parameter follow an autoregressive or random walk pro- cess. Using the longest time series available on pro¯ts for six US ¯rms (Archer-Daniels-Midland , Avon, Coca Cola, Johnson & Johnson, WHX Corporation andWrigley), we analyze the dynamics of pro¯t persistence for the second half of the twentieth century.