An econometric analysis of the twin deficits hypothesis.

In the end I also extend similar analysis to five OECD countries and show that, in all five selected OECD countries, there is a fairly tenuous connection between the current account balance and the government budget balance in both the long run and short run.Since my estimation methods depart greatly from the usual methods employed in the literature, I then compare the preferred model to a homosekdastic demeaned VAR, a differenced VAR and a level VAR to explain how I get these results. It turns out that previous findings are less reliable due to their failure to take account of the presence of both break stationarity and conditional heteroskedasticity.Given the short-run twin relationship between the US government budget deficits and current account deficits, I further examine whether their relation is causal. While the causality-in-mean tests uncover a unidirectional causality from the government budget balance to the current account balance, the causality-in-variance tests indicate no causal relation between their volatilities at all.This study empirically revisits the twin deficits debate in the United States over the period from 1948:1 to 2005:1. New econometric techniques are employed in this study to formally address the problems of break stationarity and conditional heteroskedasticity in the series under study.Using the multiple structural break analysis recently developed by Bai and Perron, I show, for the first time, that the US current account balance and government budget balance series are actually stationary around an infrequently shifting mean. A further comparison between the breakpoints in these two series reveals that there is no long-run relationship between the US current account balance and government budget balance at all.To investigate the short-run relationship between these two series, I remove the shifting means from the series and use the demeaned series to estimate a multivariate VAR-GARCH model which can capture the conditional heteroskedasticity presented in the data. The generalized impulse response functions and variance decompositions on the basis of the multivariate VAR-GARCH model suggest that shocks to the US government budget balance do have strong positive effects on current account balance in the short run. This finding is quite robust to different model specifications

A Monte Carlo Evaluation of Some Common Panel Data Estimators when Serial Correlation and Cross-sectional Dependence are Both Present

This study employs Monte Carlo experiments to evaluate the performances of a number of common panel data estimators when serial correlation and cross-sectional dependence are both present. It focuses on fixed effects models with less than 100 cross-sectional units and between 10 and 25 time periods (such as are commonly employed in empirical growth studies). Estimator performance is compared on two dimensions: (i) root mean square error and (ii) accuracy of estimated confidence intervals. An innovation of our study is that our simulated panel data sets are designed to look like “real-world” panel data. We find large differences in the performances of the respective estimators. Further, estimators that perform well on efficiency grounds may perform poorly when estimating confidence intervals, and vice versa. Our experimental results form the basis for a set of estimator recommendations. These are applied to “out of sample” simulated panel data sets and found to perform well.Panel Data estimation; Monte Carlo analysis; FGLS; PCSE; Groupwise Heteroscedasticity; Serial Correlation; Cross-sectional Dependence; Stata; EViews

The mid-Miocene Zhangpu biota reveals an outstandingly rich rainforest biome in East Asia

During the Mid-Miocene Climatic Optimum [MMCO, ~14 to 17 million years (Ma) ago], global temperatures were similar to predicted temperatures for the coming century. Limited megathermal paleoclimatic and fossil data are known from this period, despite its potential as an analog for future climate conditions. Here, we report a rich middle Miocene rainforest biome, the Zhangpu biota (~14.7 Ma ago), based on material preserved in amber and associated sedimentary rocks from southeastern China. The record shows that the mid-Miocene rainforest reached at least 24.2°N and was more widespread than previously estimated. Our results not only highlight the role of tropical rainforests acting as evolutionary museums for biodiversity at the generic level but also suggest that the MMCO probably strongly shaped the East Asian biota via the northern expansion of the megathermal rainforest biome. The Zhangpu biota provides an ideal snapshot for biodiversity redistribution during global warming

Credit constraint and firm’s export mode choice

How do firms’ credit constraint affect their export mode choices between direct exporting and indirect exporting through intermediaries? This study explores this issue in a heterogeneous firm model where firms differ not only in productivity but also in credit levels. Our model predicts that more productive and financially less constrained firms tend to choose the more advanced export mode and that for the cutoff firms, there is an overall inverse relation between credit and productivity with diminishing marginal rate of substitution. These theoretical predictions are borne out in a large cross-country firm-level dataset over the period 2002–2012