Estimation of semiparametric stochastic frontiers under shape constraints with application to pollution generating technologies

A number of studies have explored the semi- and nonparametric estimation of stochastic frontier models by using kernel regression or other nonparametric smoothing techniques. In contrast to popular deterministic nonparametric estimators, these approaches do not allow one to impose any shape constraints (or regularity conditions) on the frontier function. On the other hand, as many of the previous techniques are based on the nonparametric estimation of the frontier function, the convergence rate of frontier estimators can be sensitive to the number of inputs, which is generally known as “the curse of dimensionality” problem. This paper proposes a new semiparametric approach for stochastic frontier estimation that avoids the curse of dimensionality and allows one to impose shape constraints on the frontier function. Our approach is based on the singleindex model and applies both single-index estimation techniques and shape-constrained nonparametric least squares. In addition to production frontier and technical efficiency estimation, we show how the technique can be used to estimate pollution generating technologies. The new approach is illustrated by an empirical application to the environmental adjusted performance evaluation of U.S. coal-fired electric power plants.stochastic frontier analysis (SFA), nonparametric least squares, single-index model, sliced inverse regression, monotone rank correlation estimator, environmental efficiency

Adjustment of the US current account deficit

We present a two country DGE model and estimate it using Bayesian techniques and euro area and US quarterly data for 1977–2004. In analysing the current accounts we find that a lower US rate of time preference or a higher dollar risk premium could render the deficit sustainable, but that these could push the interest rate to the zero bound. Secondly, we find that fiscal policy is not sufficiently effective to improve the current account although the zero bound is not hit.current account; zero bound; policy coordination

Eco-Efficiency Analysis of Consumer Durables Using Absolute Shadow Prices

We develop a method for eco-efficiency analysis of consumer durables by utilizing Data Envelopment Analysis (DEA). In contrast to previous product efficiency studies, we consider the measurement problem from the perspective of a policy maker. The novel innovation of the paper is to measure efficiency in terms of absolute shadow prices that are optimized endogenously within the model to maximize efficiency of the good. Thus, the efficiency measure has a direct economic interpretation as a monetary loss due to inefficiency, expressed in some currency unit. The advantages as well as technical differences between the proposed approach and the traditional production-side methods are discussed in detail. We illustrate the approach by an application to eco-efficiency evaluation of Sport Utility Vehicles.Activity Analysis, Data Envelopment Analysis (DEA), Environmental efficiency, Product evaluation, Sport Utility Vehicles (SUVs)

The Pass-Through of Exchange Rate Changes to Import Prices

In this paper we analyze the empirical relevance of exchange rate pass-through for Finland, Sweden and Denmark during the period 1980–1994. Further, we attempt to determine if there has been a structural change in the pass-through relationship in the1990s. We find that about half the changes in exchange rates and world prices are passed through to import prices within one year, and three-quarters of such changes are passed through to import prices in two years. Moreover, there are no major differences among countries. Parameter constancy tests indicate the possibility of a structural change where the pass-through has slowed in recent years. Possible explanations of this are that the exchange rate regime has changed and competition has increased.exchange rate pass-through; import prices; structural change

International economic spillovers and the liquidity trap

We study the effect of the zero bound constraint of interest rates on international transmission of eco-nomic policy and supply shocks. After some preliminary analysis with a simple theoretical model, we ap-ply a rich two-country simulation model to the problem. The model framework consists of EDGE, Bank of Finland’s dynamic equilibrium model for the euro area, linked to a similar model calibrated to resem-ble the US economy. The models have new Keynesian properties because of price rigidities and forward-looking pricing, consumption and investment behaviour. We assume freely floating exchange rates. Monetary policies are modelled with Taylor type policy rules, taking into account the zero bound con-straint for interest rates. We find that effects of policy and supply side shocks differ significantly from the ‘normal’ situation if one of the countries is in the ‘liquidity trap’, ie if the interest rate is constrained by the zero bound. Being in the liquidity trap amplifies the domestic effects of fiscal policy, but mitigates its spillover to abroad. Changing the long run inflation target, which does not have international spillovers in the normal case, does have effects abroad if the country where the target is changed is in a temporary li-quidity trap. The effects of supply shocks are also very different in the liquidity trap case compared to the normal case.zero bound; liquidity trap; international spillovers; edge

Measuring Eco-efficiency of Production: A Frontier Approach

Eco-efficiency of production is an important concept both from the viewpoint of society and business community; but as yet, there is no unambiguous way to its measurement. The purpose of this paper is to present a general measurement framework based on production theory and the activity analysis approach. Although we exploit the existing methods and techniques, our approach diverges essentially from the usual treatments of the environmental performance of firms in the productive efficiency analysis. The main difference between our approach and the earlier studies is that we build on the definition of eco-efficiency as the ratio of economic value added to the environmental damage index. Related to this orientation, we also approach eco-efficiency from a more aggregate perspective. Our general framework is illustrated by an empirical application to the evaluation of eco-efficiency of road transportation in Finland.Eco-efficiency, Environmental Pressures, Aggregation, Benefit of the Doubt Weighting, Distance Function, Activity Analysis, Data Envelopment Analysis, Road transportation