Template-Type: ReDIF-Paper 1.0 Author-Name: James Morley Author-Workplace-Name: Washington University in St. Louis Author-Name: Charles Nelson Author-Workplace-Name: University of Washington Author-Name: Eric Zivot Author-Workplace-Name: University of Washington Title: Why Are Beveridge-Nelson and Unobserved-Component Decompositions of GDP So Different? Abstract: This paper reconciles two widely-used decompositions of GDP into trend and cycle that yield starkly different results. Beveridge-Nelson (BN) implies that a stochastic trend accounts for most of the variation in output, while Unobserved-Components (UC) implies cyclical variation is dominant. Which is correct has broad implications for the relative importance of real versus nominal shocks. We show the difference arises from the restriction imposed in UC that trend and cycle innovations are uncorrelated. When this restriction is relaxed, the UC decomposition is identical to the BN decomposition. Furthermore, the zero correlation restriction can be rejected for U.S. quarterly GDP, with the estimated correlation being –0.9. Creation-Date: 2002-01 Publication-Status: Published in Review of Economics and Statistics, Volume LXXXV, No. 2. May, 2003 File-URL: http://www.econ.washington.edu/user/cnelson/MNZ.pdf File-Format: Application/PDF Number: UWEC-2002-01 Handle: RePEc:udb:wpaper:UWEC-2002-01 Template-Type: ReDIF-Paper 1.0 Author-Name: Arabinda Basistha Author-Workplace-Name: University of Washington Author-Name: Richard Startz Author-Workplace-Name: University of Washington Title: Why Were Changes in the Federal Funds Rate Smaller in the 1990s? Abstract: In this paper, we identify two major changes in the dynamics of the federal funds rate in the 1990s. We model the desired rate in a two-regime setting, one when the Fed makes no change and the other when the Fed is moving the desired rate to a new level. We find that the 1990s saw longer duration in the no-change regime as well as smaller changes in the other regime. We show the smaller changes were neither due to a less aggressive Fed nor due to lower volatility of the fundamentals. In fact, the Fed responded more aggressively to changes in fundamentals in the 1990s. The results also suggest that the Fed became more forward-looking in the last decade. Creation-Date: 2002-01 Publication-Status: Forthcoming in Journal of Applied Econometrics File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/FederalFunds.pdf File-Format: Application/PDF Number: UWEC-2002-02 Handle: RePEc:udb:wpaper:UWEC-2002-02 Template-Type: ReDIF-Paper 1.0 Author-Name: Bryan Jones Author-Name: Chang-Jin Kim Author-Name: Richard Startz Title: A Markov Switching Model of Congressional Partisan Regimes Abstract: Studies of development and change in partisan fortunes in the US emphasize epochs of partisan stability, separated by critical events or turning points. A major empirical issue that has plagued the study of American political development is the estimation of the critical moments and durations of these partisan regimes. In this paper we introduce a fresh approach to the study of partisan regimes. Our method is based in the method of Markov switching, introduced by James Hamilton. We apply Hamilton’s approach to the size of party coalitions in the US House of Representatives from 1854 to the present. Our model assumes that the political system is either in a state of domination by one party or it is not (in which case the other party dominates). The Markov switching approach also yields estimated state probabilities that allow us to make inferences about periods of empirical party balance. Roughly speaking, when the Republicans constitute the dominant partisan coalition, they can expect to capture 60 percent of House seats in any given election. The Democrats can expect 59 percent when dominant. Our method also allows the estimation of critical transition points between Republican and Democratic partisan coalitions. The periods we identify as governed by a being Republican coalition are roughly 1860 through 1872, 1894 through 1906, and 1918 through 1928. Creation-Date: 2003-06 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/JonesKimStartz.PDF File-Format: Application/PDF Number: UWEC-2002-03 Handle: RePEc:udb:wpaper:UWEC-2002-03 Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Hartman Author-Name: Michael Hendrickson Title: Optimal Partially Reversible Investment Publication-Status: Published in Journal of Economic Dynamics and Control, Volume Vol. 26, No. 3, pp. 483-508 Number: UWEC-2002-05 Handle: RePEc:udb:wpaper:UWEC-2002-05 Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Hartman Title: Relative Price Variability and Inflation Publication-Status: Published in Journal of Money, Credit, and Banking, Volume Vol. 23, No. 2, pp. 185-205 Number: UWEC-2002-06 Handle: RePEc:udb:wpaper:UWEC-2002-06 Template-Type: ReDIF-Paper 1.0 Author-Name: Cecilia Garcia-Penalosa Author-Name: Stephen Turnovsky Title: Production Risk and the Functional Distribution of Income in a Developing Economy: Tradeoffs and Policy Responses Creation-Date: 2003-10 Revision-Date: 2003-10 Publication-Status: Published in Journal of Development Economics, Volume 76, 2005, ,175-208 File-URL: http://www.econ.washington.edu/user/sturn/Garcia-Turnovsky-final.pdf File-Format: Application/PDF Number: UWEC-2002-07-P Handle: RePEc:udb:wpaper:UWEC-2002-07-P Template-Type: ReDIF-Paper 1.0 Author-Name: Santanu Chatterjee Author-Name: Stephen Turnovsky Title: Substitutability of Capital, Investment Costs, and Foreign Aid Creation-Date: 2002-11 Revision-Date: 2002-11 Publication-Status: Published in Econ.Growth. and Macro Dyn. Dowrick et al. eds, CUP, Volume File-URL: http://www.econ.washington.edu/user/sturn/pitchford-FINAL.pdf File-Format: Application/PDF Number: UWEC-2002-08-P Handle: RePEc:udb:wpaper:UWEC-2002-08-P Template-Type: ReDIF-Paper 1.0 Author-Name: Wen-Fang Liu Title: Savings and Portfolio Decisions: Observable implications with Knightian Uncertainty Creation-Date: 2002-09 File-URL: http://www.econ.washington.edu/user/liuwf/WorkingPaper/sav_port.pdf File-Format: Application/PDF Number: UWEC-2002-09 Handle: RePEc:udb:wpaper:UWEC-2002-09 Template-Type: ReDIF-Paper 1.0 Author-Name: Cyrus Chu Author-Name: Wen-Fang Liu Title: Knightian Uncertainty and the Voting Paradox Creation-Date: 2002-09 File-URL: http://www.econ.washington.edu/user/liuwf/WorkingPaper/voting6.pdf File-Format: Application/PDF Number: UWEC-2002-10 Handle: RePEc:udb:wpaper:UWEC-2002-10 Template-Type: ReDIF-Paper 1.0 Author-Name: Wen-Fang Liu Title: Heterogeneous Agent Economies with Knightian Uncertainty Creation-Date: 2002-09 File-URL: http://www.econ.washington.edu/user/liuwf/WorkingPaper/new4.pdf File-Format: Application/PDF Number: UWEC-2002-11 Handle: RePEc:udb:wpaper:UWEC-2002-11 Template-Type: ReDIF-Paper 1.0 Author-Name: Wen-Fang Liu Author-Name: Stephen Turnovsky Title: Consumption Externalities, Production Externalities, and the Accumulation of Capital Abstract: We analyze the effects of consumption and production externalities on the long-run rate of capital accumulation. We show that the importance of consumption externalities depends upon whether or not labor supply is fixed. In the case that it is fixed, they have no long-run effects. Whether they have any distortionary effect on the transitional path depends upon the form of utility function. The effects of production externalities are more pervasive; they exert long-run distortionary effects irrespective of labor supply. The optimal taxation to correct for the distortions created by the externalities is characterized. We analyze both stationary and endogenously growing economies, and while there are many parallels in how externalities impact, there are also important differences. Creation-Date: 2003-11 Revision-Date: 2003-11 Publication-Status: Published in Journal of Public Economics, Volume 89, 2005, 1097-1129 File-URL: http://www.econ.washington.edu/user/sturn/Liu-Turnovsky-rev2.pdf File-Format: Application/PDF Number: UWEC-2002-13-P Handle: RePEc:udb:wpaper:UWEC-2002-13-P Template-Type: ReDIF-Paper 1.0 Author-Name: Ludvik Eliasson Author-Name: Stephen Turnovsky Title: Renewable Resources in an Endogenously Growing Economy Creation-Date: 2003-11 Revision-Date: 2003-11 Publication-Status: Published in Journal of Environmental Economics and Management, Volume 48, 2004, 1018-1049 File-URL: http://www.econ.washington.edu/user/sturn/Eliasson-Turnovsky.final.pdf File-Format: Application/PDF Number: UWEC-2002-14-P Handle: RePEc:udb:wpaper:UWEC-2002-14-P Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Title: Transaction Costs and Contract Choice Creation-Date: 2007-01 File-URL: http://www.econ.washington.edu/user/yoramb/TRANCOSTS&CoCho1,22,06.doc File-Format: Application/DOC Number: UWEC-2002-16 Handle: RePEc:udb:wpaper:UWEC-2002-16 Template-Type: ReDIF-Paper 1.0 Author-Name: A.K.M. Mahbub Morshed Author-Name: Stephen Turnovsky Title: Sectoral Adjustment Costs and Real Exchange Rate Dynamics in a Two-Sector Dependent Economy Creation-Date: 2003-01 Revision-Date: 2003-01 Publication-Status: Published in Journal of International Economics , Volume 62, 2004, 147-177 File-URL: http://www.econ.washington.edu/user/sturn/Morshed-Turnovsky.final.pdf File-Format: Application/PDF Number: UWEC-2002-17-P Handle: RePEc:udb:wpaper:UWEC-2002-17-P Template-Type: ReDIF-Paper 1.0 Author-Name: James Morley Author-Name: Charles Nelson Author-Name: Eric Zivot Title: Why are Beveridge-Nelson and Unobserved-component decompositions of GDP so Different? Abstract: This paper reconciles two widely-used decompositions of GDP into trend and cycle that yield starkly different results. Beveridge-Nelson (BN) implies that a stochastic trend accounts for most of the variation in output, while Unobserved-Components (UC) implies cyclical variation is dominant. Which is correct has broad implications for the relative importance of real versus nominal shocks. We show the difference arises from the restriction imposed in UC that trend and cycle innovations are uncorrelated. When this restriction is relaxed, the UC decomposition is identical to the BN decompositions. Furthermore, the zero correlation restriction can be rejected for U.S. quarterly GDP, with the estimated correlation being -0.9. Creation-Date: 2003-05 Publication-Status: Published in Review of Economics and Statistics, Volume Number: UWEC-2002-18-P Handle: RePEc:udb:wpaper:UWEC-2002-18-P Template-Type: ReDIF-Paper 1.0 Author-Name: Stephen Turnovsky Author-Name: Santanu Chatterjee Title: To Spend the US Government Surplus or to Increase the Deficit? A Numerical Analysis of the Policy Options Creation-Date: 2002-04 Publication-Status: Published in Journal of the Japanese and International Economies, Volume Vol 16, 405-435 File-URL: http://www.econ.washington.edu/user/sturn/Tokyo_text_e-draft.pdf File-Format: Application/PDF Number: UWEC-2002-19-P Handle: RePEc:udb:wpaper:UWEC-2002-19-P Template-Type: ReDIF-Paper 1.0 Author-Name: Paola Giuliano Author-Name: Stephen Turnovsky Title: Intertemporal Substitution, Risk Aversion, and Economic Performance in a Stochastically Growing Open Economy Creation-Date: 2002-04 Publication-Status: Published in Journal of International Money and Finance, Volume 22, 2003, 529-556 File-URL: http://www.econ.washington.edu/user/sturn/G-T_final.pdf File-Format: Application/PDF Number: UWEC-2002-20-P Handle: RePEc:udb:wpaper:UWEC-2002-20-P Template-Type: ReDIF-Paper 1.0 Author-Name: Frank Kleibergen Author-Name: Eric Zivot Title: Bayesian and Classical Approaches to Instrumental Variable Regression Abstract: We establish the relationships between certain Bayesian and classical approaches to instrumental variables regression. We determine the form of priors that lead to posteriors for structural parameters that have similar properties as classical 2SLS and LIML and in doing so provide some new insight to the small sample behavior of Bayesian and classical procedures in the limited information simultaneous equations model. Our approach is motivated by the relationship between Bayesian and classical procedures in linear regression models; i.e., Bayesian analysis with a diffuse prior leads to posteriors that are idnetical in form to the finite sample density of classical least squares estimators. We use the fact that the instrumental variables regression model can be obtained from a reduced rank restriction on a multivariate linear model to determine the priors that give rise to posteriors that have properties similar to classical 2SLS and LIML. As a by-product of this approach we provide a novel way to determine the exact finite sample density of the LIML estimator and the prior that corresponds with classical LIML. We show that the traditional Dreze approach and a new Bayesian Two Stage approach are similar to 2SLS wheresas the approach based on Jeffreys' prior corresponds to LIML. Creation-Date: 2003-05 Publication-Status: Published in Journal of Econometrics, Volume Number: UWEC-2002-21-P Handle: RePEc:udb:wpaper:UWEC-2002-21-P Template-Type: ReDIF-Paper 1.0 Author-Name: Stephen Turnovsky Title: The Transitional Dynamics of Fiscal Policy: Long-run Capital Accumulation and Growth Creation-Date: 2002-12 Publication-Status: Published in Journal of Money, Credit, and Banking, Volume 36, 2004, 883-910 File-URL: http://www.econ.washington.edu/user/sturn/JMCB.pdf File-Format: Application/PDF Number: UWEC-2002-22-P Handle: RePEc:udb:wpaper:UWEC-2002-22-P Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Doyoung Kim Author-Name: Dongsoo Shin Title: Optimal Task Design: to integrate or separate planning and implementation? Creation-Date: 2006-03 Publication-Status: Published in Journal of Economics and Management Strategy, Volume 14/2, 269-291, 2006 File-URL: http://www.econ.washington.edu/user/khalil/kksfinal.pdf File-Format: Application/PDF Number: UWEC-2003-01-P Handle: RePEc:udb:wpaper:UWEC-2003-01-P Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Jacques Lawarree Title: Incentives for Corruptible Auditors in the Absence of Commitment Creation-Date: 2004-10 Publication-Status: Forthcoming in Journal of Industrial Economics Number: UWEC-2003-02-FC Handle: RePEc:udb:wpaper:UWEC-2003-02-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Bruno Parigi Author-Name: David Martimort Title: Monitoring a Common Agent: implications for financial contracting Creation-Date: 2007-11 Publication-Status: Published in Journal of Economic Theory, Volume 135/1, 35-67, 2007 File-URL: http://www.econ.washington.edu/user/khalil/kmpsep2005.pdf File-Format: Application/PDF Number: UWEC-2003-04-P Handle: RePEc:udb:wpaper:UWEC-2003-04-P Template-Type: ReDIF-Paper 1.0 Author-Name: Judith Thornton Title: The Prospects for Expansion of Trade in Oil and Gas in Northeast Asia Creation-Date: 2002-09 File-URL: http://faculty.washington.edu/karyiu/confer/sea02/papers/thornton.pdf File-Format: Application/PDF Number: UWEC-2003-11 Handle: RePEc:udb:wpaper:UWEC-2003-11 Template-Type: ReDIF-Paper 1.0 Author-Name: Keith Leffler Title: Patent Litigation Settlements Publication-Status: Forthcoming in Research in Law and Economics File-URL: http://faculty.washington.edu/kleffler/RLE%203-17.doc File-Format: Application/DOC Number: UWEC-2003-12 Handle: RePEc:udb:wpaper:UWEC-2003-12 Template-Type: ReDIF-Paper 1.0 Author-Name: Keith Leffler Title: Appendix to Patent Litigation Settlements Publication-Status: Forthcoming in Research in Law and Economics File-URL: http://faculty.washington.edu/kleffler/Appendix%20%20A3.doc File-Format: Application/DOC Number: UWEC-2003-13 Handle: RePEc:udb:wpaper:UWEC-2003-13 Template-Type: ReDIF-Paper 1.0 Author-Name: Keith Leffler Title: Probabilistic Patent Rights Publication-Status: Forthcoming in Antitrust Magazine File-URL: http://faculty.washington.edu/kleffler/Probabilistic%20Patent%20Rights%204-21-03.doc File-Format: Application/DOC Number: UWEC-2003-14 Handle: RePEc:udb:wpaper:UWEC-2003-14 Template-Type: ReDIF-Paper 1.0 Author-Name: Elaina Rose Author-Name: Shelly Lundberg Author-Name: Sara McLanahan Title: Child Gender and Father Involvement in Fragile Families File-URL: http://www.econ.washington.edu/user/erose/frag_uw.pdf File-Format: Application/PDF Number: UWEC-2003-17-R Handle: RePEc:udb:wpaper:UWEC-2003-17-R Template-Type: ReDIF-Paper 1.0 Author-Name: Elaina Rose Title: Investments in Sons and Daughters: Evidence from the Consumer Expenditures Survey Publication-Status: Forthcoming in In Family Investments in Children: Resources and Behaviors that Promote Success, Number: UWEC-2003-18 Handle: RePEc:udb:wpaper:UWEC-2003-18 Template-Type: ReDIF-Paper 1.0 Author-Name: Abdul Basher Title: "Decomposition of Distributional Impacts of Sectoral Growth and Some Policy Imperatives: A SAM-Based Investigation” Publication-Status: Published in The Bangladesh Development Studies”, September -December 1997; Nos. 3&4., Volume File-URL: http://students.washington.edu/mabasher/PUB2.pdf File-Format: Application/PDF Number: UWEC-2003-19 Handle: RePEc:udb:wpaper:UWEC-2003-19 Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Startz Title: Partial Adjustment As Optimal Response in a Dynamic Brainard Model Abstract: Uncertainty about the precise quantitative effect of policy is endemic in economics. In a classic paper, Brainard showed that in the face of multiplier uncertainty in a static model that optimal policy is relatively conservative. I extend this work to a dynamic model and show in general that gradual adjustment is optimal and in the most simple case derive the classic partial adjustment model as the optimal response to shocks. Creation-Date: 2003-10 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/PartialAdjustment.pdf File-Format: Application/PDF Number: UWEC-2003-20 Handle: RePEc:udb:wpaper:UWEC-2003-20 Template-Type: ReDIF-Paper 1.0 Author-Name: Philip Brock Author-Name: Helmut Franken Title: Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001 Abstract: The study of bank interest rate spreads is central to our understanding of the process of financial intermediation. Data limitations generally restrict empirical analyses to interest rate spreads that are constructed from bank income statements and balance sheets. In this paper we make use of a data set that allows us directly to compute interest rate spreads based on individual bank loan and deposit rates reported on a monthly basis to the Central Bank of Chile. The information is disaggregated by unit of account (peso, inflation-indexed, and dollar) over the period 1994-2001. We find that the estimated impacts of industry concentration, business cycle variables, and monetary policy variables differ markedly between interest rate spreads based on balance sheet data and interest rate spreads based on disaggregated loan and deposit data. Since empirical work on interest spreads is used for guiding policy recommendations, these findings have important implications for the interpretation of interest spreads regressions. Our analysis calls for some caution in the interpretation of estimated empirical determinants of bank spreads that are constructed from income statements and balance sheet data. At the same time, our analysis shows how information from the two types of interest rate spreads can be combined to create a more complete portrait of bank behavior than either type alone is capable of creating. The results for Chile suggest the potential importance of gathering such disaggregated data in other countries. Creation-Date: 2003-09 File-URL: http://www.econ.washington.edu/user/plbrock/ChileSpreads091603.pdf File-Format: Application/PDF Number: UWEC-2003-25 Handle: RePEc:udb:wpaper:UWEC-2003-25 Template-Type: ReDIF-Paper 1.0 Author-Name: Judith Thornton Title: Sakhalin Energy: Committing to an Energy Project, Is There a Successful Strategy? Number: UWEC-2003-27 Handle: RePEc:udb:wpaper:UWEC-2003-27 Template-Type: ReDIF-Paper 1.0 Author-Name: Judith Thornton Title: Incentives and Performance of Russian Regional Government Officials Number: UWEC-2003-28 Handle: RePEc:udb:wpaper:UWEC-2003-28 Template-Type: ReDIF-Paper 1.0 Author-Name: Sibel Sirakaya Title: See my webpage Abstract: Number: UWEC-2003-30 Handle: RePEc:udb:wpaper:UWEC-2003-30 Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Martin Chalkley Title: Third Party Purchasing of Health Services: Patient Choice and Agency Creation-Date: 2005-11 Publication-Status: Published in Journal of Health Economics, Volume 24-6, 1132-1153, 2005 File-URL: http://www.econ.washington.edu/user/khalil/Outcomes13april05.pdf File-Format: Application/PDF Number: UWEC-2003-35-P Handle: RePEc:udb:wpaper:UWEC-2003-35-P Template-Type: ReDIF-Paper 1.0 Author-Name: Chang-Jin Kim Author-Workplace-Name: Korea University Author-Name: Jeremy Piger Author-Workplace-Name: Board of Governors Author-Name: Richard Startz Author-Workplace-Name: UW Title: The Dynamic Relationship Between Permanent and Transitory Components of U.S. Business Cycle Abstract: This paper investigates the relationship between permanent and transitory components of U.S. recessions in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GDP and consumption, we divide real GDP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. We find evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. We also allow for the timing of switches from boom to recession for the permanent component to be correlated with switches from boom to recession in the transitory component. The parameter estimates suggest a specific pattern of recessions: switches in the permanent component lead switches in the transitory component both when entering and leaving recessions. Creation-Date: 2003-11 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/RelationPermanentandTransitoryWP.PDF File-Format: Application/PDF Number: UWEC-2003-36 Handle: RePEc:udb:wpaper:UWEC-2003-36 Template-Type: ReDIF-Paper 1.0 Author-Name: Gardner Brown Author-Name: B. Berger Author-Name: M. Ikiara Title: Different Property Rights Regimes in the Lake Victoria Multiple Species Fishery Creation-Date: 2004-01 File-URL: http://www.econ.washington.edu/user/BrownConference/LakeVictoriaPropRights.pdf File-Format: Application/PDF Number: UWEC-2004-01 Handle: RePEc:udb:wpaper:UWEC-2004-01 Template-Type: ReDIF-Paper 1.0 Author-Name: Charles Nelson Author-Name: Richard Startz Title: The Zero-Information-Limit Condition and Spurious Inference in Weakly Identified Models Abstract: The fact that weak instruments lead to spurious inference is now widely recognized. In this paper we ask whether spurious inference occurs more generally in weakly identified models. To distinguish between models where spurious inference will occur from those where it does not, we introduce the Zero-Information-Limit-Condition (ZILC). When ZILC holds, the information or precision of parameter estimates is overestimated. We discuss how ZILC applies to models encountered in practice and show that spurious inference does occur when ZILC holds. Creation-Date: 2004-02 Publication-Status: Forthcoming in Journal of Econometrics File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/ZILCH.pdf File-Format: Application/PDF Number: UWEC-2004-03-FC Handle: RePEc:udb:wpaper:UWEC-2004-03-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Cecilia Garcia-Penalosa Author-Name: Stephen Turnovsky Title: Second-Best Optimal Taxation of Capital and Labor in a Developing Economy Creation-Date: 2004-04 Revision-Date: 2004-04 Publication-Status: Published in Journal of Public Economics, Volume 89,205,1045-1074 File-URL: http://www.econ.washington.edu/user/sturn/Garcia-Pen-Turn-JPubE.pdf File-Format: Application/PDF Number: UWEC-2004-05-P Handle: RePEc:udb:wpaper:UWEC-2004-05-P Template-Type: ReDIF-Paper 1.0 Author-Name: Cecilia Garcia-Penalosa Author-Name: Stephen Turnovsky Title: Macroeconomic Volatility and Income Inequality in a Stochastically Growing Economy Creation-Date: 2003-07 Publication-Status: Published in N. Salvadori (ed.) Economic Growth and Income Distribution, Edward Elgar, Cheltenham, UK, Volume 2006, 179-221 File-URL: http://www.econ.washington.edu/user/sturn/Garcia-Turnovsky-NERI.pdf File-Format: Application/PDF Number: UWEC-2004-06-P Handle: RePEc:udb:wpaper:UWEC-2004-06-P Template-Type: ReDIF-Paper 1.0 Author-Name: Santanu Chatterjee Author-Name: Stephen Turnovsky Title: Foreign Aid and Economic Growth: The Role of flexible Labor Supply Creation-Date: 2005-11 Revision-Date: 2005-11 Publication-Status: Forthcoming in Journal of Development Economics File-URL: http://www.econ.washington.edu/user/sturn/Chatterjee-Turnovsky-rev.pdf File-Format: Application/PDF Number: UWEC-2004-07-FC Handle: RePEc:udb:wpaper:UWEC-2004-07-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Stephen Turnovsky Author-Name: Marcelo Bianconi Title: The Welfare Gains from Stabilization in a Stochastically Growing Economy with Idiosyncratic Shocks and Flexible Labor Supply Publication-Status: Published in Macroeconomic Dynamics, Volume 9, 2005, 321-357 File-URL: http://www.econ.washington.edu/user/sturn/Turn-Bianconi.pdf File-Format: Application/PDF Number: UWEC-2004-08-P Handle: RePEc:udb:wpaper:UWEC-2004-08-P Template-Type: ReDIF-Paper 1.0 Author-Name: Francisco Alvarez-Cuadrado Author-Name: Goncalo Monteiro Author-Name: Stephen Turnovsky Title: Habit Formation, Catching Up with the Joneses, and Economic Growth Creation-Date: 2004-01 Revision-Date: 2004-01 Publication-Status: Published in Journal of Economic Growth, Volume 9, 2004, 47-80 File-URL: http://www.econ.washington.edu/user/sturn/Alvarez-Monteiro-Turnovsky-rev.pdf File-Format: Application/PDF Number: UWEC-2004-09-P Handle: RePEc:udb:wpaper:UWEC-2004-09-P Template-Type: ReDIF-Paper 1.0 Author-Name: Allen Bellas Author-Name: Ian Lange Title: The Secondary Benefits of Market-Based Environmental Regulation: The Case of Scrubbers Abstract: Title IV of the 1990 Clean Air Act Amendments (CAAA) introduced market-based incentives for controlling sulfur dioxide (SO2) emissions from coal burning power plants. Previous regulation under the 1977 CAAA had effectively required the use of scrubbers, but only by new power plants. The 1990 CAAA forced scrubbers to compete with other SO2 abatement options but also implemented emissions regulations for all power plants, thereby increasing the number of possible customers. While market-based incentives are widely believed to have lowered control costs, a secondary benefit would exist if this increased competition and potential demand reduced scrubbing costs by generating advancements in scrubber technology. To investigate this, we separate scrubbers by the regulatory regime in place when they were installed. A hedonic model is used to estimate the effect of changing regulatory regimes on the real capital (the purchase price) and operating costs of scrubbers. We find that while scrubbers installed under the 1990 CAAA are cheaper to purchase and operate than those installed under any other regulatory regime, these cost reductions seem to be a one-time drop rather than a continual decline. Creation-Date: 2004-04 File-URL: http://students.washington.edu/ilange1/adobes/scrubbing.pdf File-Format: Application/PDF Number: UWEC-2004-11 Handle: RePEc:udb:wpaper:UWEC-2004-11 Template-Type: ReDIF-Paper 1.0 Author-Name: Title: Number: UWEC-2004-12 Handle: RePEc:udb:wpaper:UWEC-2004-12 Template-Type: ReDIF-Paper 1.0 Author-Name: Francisco Alvarez-Cuadrado Title: Growth and Transitional Dynamics:The Post-war European Experience File-URL: http://students.washington.edu/fac/Growth and transitional dynamics.pdf File-Format: Application/PDF Number: UWEC-2004-14 Handle: RePEc:udb:wpaper:UWEC-2004-14 Template-Type: ReDIF-Paper 1.0 Author-Name: Francisco Alvarez-Cuadrado Title: A Quantitative Exploration of the Golden Age of European Growth: Structural Change, Public Investment, the Marshall Plan and Intra-European Trade. File-URL: http://students.washington.edu/fac/A quantitative exploration.pdf File-Format: Application/PDF Number: UWEC-2004-15 Handle: RePEc:udb:wpaper:UWEC-2004-15 Template-Type: ReDIF-Paper 1.0 Author-Name: Lan Shi Title: Respondable Risk and Incentives: Evidence From Executive Compensation Abstract: Traditional agency theory treats risk as pure measurement error, yielding the standard prediction of risk-incentive tradeoff. This paper proposes a model in which the agent can respond to risk: he can exert effort to collect information about the underlying state in order to make correct decisions. Such effort is thus more valuable in a riskier environment, and the implication is that incentives can increase with the risk that the agent can respond to. Moreover, since the agent makes investment decisions based on the collected information about the state, the variability of investments increases with “respondable” risk. I test the model using data on CEOs. Market-wide risk is used to capture more risk for which CEOs’ effort is not particularly valuable, and industry- and firm-specific risk are used to represent more “respondable” risk. I find that incentives for CEOs decrease with the former and increase with the latter. As the definition of the industry is broadened, the positive relation between incentives and industry-specific risk diminishes. I also find empirical support for the prediction that the variability of firms’ investments increases with “respondable” risk. Creation-Date: 2003-11 File-URL: http://faculty.washington.edu/lanshi/cv_lan_shi.htm File-Format: Application/HTM Number: UWEC-2004-19 Handle: RePEc:udb:wpaper:UWEC-2004-19 Template-Type: ReDIF-Paper 1.0 Author-Name: Arif Mamun Title: Is There a Cohabitation Premium in Men’s Earnings? Abstract: This paper provides new evidence on wage premiums for men in relation to marriage and cohabitation. Using data from the National Longitudinal Survey of Youth 1979, the paper shows that even after accounting for selection there is a cohabitation wage premium, albeit smaller than the marriage premium, for White and Black men but not for Hispanic men. The wage premiums appear to result from a steepening of the wage profile over the length of the relationship. We put forward a joint human capital hypothesis where intra-household spillover effects of partner’s education can explain the existence of the wage premiums. Our findings provide some empirical support for the joint human capital hypothesis. Creation-Date: 2004-07 File-URL: http://students.washington.edu/aalmamun/Mamun_2004_cohab_premium.pdf File-Format: Application/PDF Number: UWEC-2004-21 Handle: RePEc:udb:wpaper:UWEC-2004-21 Template-Type: ReDIF-Paper 1.0 Author-Name: Arabinda Basistha Author-Name: Richard Startz Title: Measuring the NAIRU with Reduced Uncertainty: A Multiple Indicator-Common Component Approach Abstract: Standard estimates of the NAIRU or natural rate of unemployment are subject to considerable uncertainty. We show in this paper that using multiple indicators to extract an estimated NAIRU cuts in half uncertainty as measured by variance. The inclusion of an Okun’s Law relation is particularly valuable. We estimate the NAIRU as an unobserved component in a state-space model and show that using multiple indicators reduces both parametric uncertainty and filtering uncertainty. Additionally, our multivariate approach overcomes the “pile-up” problem observed by other investigators. Creation-Date: 2004-09 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/nru.pdf File-Format: Application/PDF Number: UWEC-2004-22 Handle: RePEc:udb:wpaper:UWEC-2004-22 Template-Type: ReDIF-Paper 1.0 Author-Name: Elaina Rose Title: A Joint Econometric Model of Marriage and Partner Choice Abstract: OLS estimates of partner choice equations are biased when the unobservables determining partner choice are correlated with the unobservables determining the likelihood of marriage. This paper presents an example. A theoretical model generates a two-equation empirical model in which unobserverables are correlated a priori. Estimates of the model using data from the PSID indicate that men and women select positively into marriage. OLS estimates of the effects of education and race (black relative to white) on partner's education are biased downward. Creation-Date: 2006-02 File-URL: http://www.econ.washington.edu/user/erose/Rose_JointModel.pdf File-Format: Application/PDF Number: UWEC-2004-23 Handle: RePEc:udb:wpaper:UWEC-2004-23 Template-Type: ReDIF-Paper 1.0 Author-Name: Clarisse Messemer Author-Name: Richard Parks Title: Bootstrap Methods for Inference in a SUR model with Autocorrelated Disturbances Abstract: Although the Parks (1967) estimator for a SUR model with AR disturbances is efficient both asymptotically and in small samples, Kmenta and Gilbert (1970) and more recently Beck and Katz (1995) note that estimated standard errors tend to be biased downward as compared with the true variability of the estimates. This bias leads to tests that show over-rejection and to confidence intervals that are too small. We suggest bootstrapping the tests to correct this inference problem. After illustrating the over rejection associated with the estimated asymptotic standard errors, we develop a bootstrap approach to inference for this model, illustrate its use, and show using Monte Carlo methods that the bootstrap gives rejection probabilities close to the nominal level chosen by the researcher. Creation-Date: 2004-10 File-URL: http://www.econ.washington.edu/user/rwparks/MessemerParks1018.pdf File-Format: Application/PDF Number: UWEC-2004-24 Handle: RePEc:udb:wpaper:UWEC-2004-24 Template-Type: ReDIF-Paper 1.0 Author-Name: Bingcheng Yan Author-Name: Eric Zivot Title: The Dynamics of Price Discovery Abstract: In this paper we propose a new approach for the econometric analysis of the dynamics of price discovery using a structural cointegration model for the price changes in arbitrage linked markets. Our methodology characterizes the dynamics of price discovery based on the impulse response functions from an identified structural cointegration model, and we measure the efficiency of a market’s price discovery by the absolute magnitude of cumulative pricing errors in the price discovery process. We apply our methodology to investigate the extent to which the US dollar contributes to the price discovery of the yen/euro exchange rate. Our results show that substantial price discovery of JPY/EUR occurs through the dollar, and that the efficiency of the dollar’s price discovery is positively related to the relative liquidity of the dollar markets versus the cross rate market. Creation-Date: 2007-03 Revision-Date: 2007-03 File-URL: http://faculty.washington.edu/ezivot/research/structuralanalysispricediscovery20041018.pdf File-Format: Application/PDF Number: UWEC-2005-01-R Handle: RePEc:udb:wpaper:UWEC-2005-01-R Template-Type: ReDIF-Paper 1.0 Author-Name: Kyongwook Choi Author-Name: Eric Zivot Title: Long Memory and Structural Breaks in the Forward Discount: An Empirical Investigation Creation-Date: 2005-02 Revision-Date: 2005-02 Publication-Status: Forthcoming in Journal of International Money and Finance File-URL: http://faculty.washington.edu/ezivot/research/lm0201-05-JIMF.pdf File-Format: Application/PDF Number: UWEC-2005-02-FC Handle: RePEc:udb:wpaper:UWEC-2005-02-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Bingcheng Yan Author-Name: Eric Zivot Title: Analysis of High-Frequency Financial Data with S-PLUS Creation-Date: 2003-11 File-URL: http://faculty.washington.edu/ezivot/research/hfanalysis.pdf File-Format: Application/PDF Number: UWEC-2005-03 Handle: RePEc:udb:wpaper:UWEC-2005-03 Template-Type: ReDIF-Paper 1.0 Author-Name: Chris Murray Author-Name: Eric Zivot Title: Inference on Unit Roots and Trend Breaks in Macroeconomic Time Series Creation-Date: 1998-10 File-URL: http://faculty.washington.edu/ezivot/research/Murray_Zivot%2009-03-98.pdf File-Format: Application/PDF Number: UWEC-2005-04 Handle: RePEc:udb:wpaper:UWEC-2005-04 Template-Type: ReDIF-Paper 1.0 Author-Name: Prabirendra Chatterjee Author-Name: Sudipta, Sarangi Title: Social Identity and Group Lending Abstract: The success of joint liability programs depends on nature and composition of borrowing groups. Group formation is a costly process and in our model these costs vary with the social identity of group partners. We show that risk heterogeneity in a borrowing group may arise due to the social identity of the agents. The presence of caste and gender bias may not resolve the adverse selection and moral hazard problems created by information asymmetry between the borrowers and the lender. We also find that with costly group formation and state verification, individual liability lending may be better than joint liability lending. Thus ignoring social identity and group formation costs can lead to the failure of a joint liability program. Finally, the paper also suggests that targeting different social groups requires the use of a menu of joint liability costs. File-URL: http://students.washington.edu/prabir16/lending.pdf File-Format: Application/PDF Number: UWEC-2005-06-R Handle: RePEc:udb:wpaper:UWEC-2005-06-R Template-Type: ReDIF-Paper 1.0 Author-Name: Shelly Lundberg Author-Name: Elaina Rose Title: The Determinants of Specialization within Marriage Abstract: For recent cohorts of American couples, the traditional division of labor between husbands and wives is strongly associated with the presence of children in the household. We define measures of specialization and market intensity in household house worked and earnings to describe the joint allocation of time and effort by married men and women. Using longitudinal data from the Panel Study of Income Dynamics, we estimate the changes in the outcomes that follow the birth of a couple’s first child, and the association of these changes with parental education, factors related to divorce risk, and birth cohort. On average, specialization increases and market intensity falls, but we find evidence of considerable heterogeneity in the effects of children o household behavior, including the responses of fathers. Married couples from later birth cohorts specialize less in response to the birth of their first child, as do couples who eventually divorce. The gender of the first child has, surprisingly, a significant impact on the market intensity of the parents’ response. Creation-Date: 1999-06 File-URL: http://www.econ.washington.edu/user/erose/spec.pdf File-Format: Application/PDF Number: UWEC-2005-07 Handle: RePEc:udb:wpaper:UWEC-2005-07 Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Jacques Lawarree Title: Incentives for corruptible auditors in the absence of commitment Creation-Date: 2006-11 Publication-Status: Published in Journal of Industrial Economics, Volume 15/2, 457-478, 2006 File-URL: http://www.econ.washington.edu/user/khalil/cc-final.pdf File-Format: Application/PDF Number: UWEC-2005-09-P Handle: RePEc:udb:wpaper:UWEC-2005-09-P Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Title: Replacing the Law of One Price with the Price Convergence Law Creation-Date: 2005-03 Revision-Date: 2005-03 File-URL: http://www.econ.washington.edu/user/yoramb/LawofOnePriceMarch2805.doc File-Format: Application/DOC Number: UWEC-2005-10 Handle: RePEc:udb:wpaper:UWEC-2005-10 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Title: The State Dilemma in Guaranteeing Commodities and Services by Reputation Creation-Date: 2005-03 Revision-Date: 2005-03 File-URL: http://www.econ.washington.edu/user/yoramb/State dilemma March18 05.doc File-Format: Application/DOC Number: UWEC-2005-11-R Handle: RePEc:udb:wpaper:UWEC-2005-11-R Template-Type: ReDIF-Paper 1.0 Author-Name: Neil Bruce Author-Name: Stephen Turnovsky Title: Variable Retirement and the Effects of Social Insurance on Savings, Wealth and Welfare Abstract: We construct a Blanchard-style overlapping generations model consisting of long-lived individuals who have uninsurable idiosyncratic risk resulting from uncertain retirement periods and medical costs in retirement. Without social insurance, such individuals must save for these eventualities. We examine the impact of pay-as-you-go social insurance policies (public pensions and medicare coverage) on individual and aggregate consumption, saving, and wealth levels as well as wealth distribution. We also derive expressions for optimal (Pareto improving) social insurance policies Creation-Date: 2005-07 File-URL: http://www.econ.washington.edu/user/brucen/wp\Variable Retirement and the Effects of Social Insurance(3).pdf File-Format: Application/PDF Number: UWEC-2005-12 Handle: RePEc:udb:wpaper:UWEC-2005-12 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Author-Name: Wing Suen Title: Equity as a Guarantee Creation-Date: 1997-08 File-URL: http://www.econ.washington.edu/user/yoramb/EquityAsGuarantee.pdf File-Format: Application/PDF Number: UWEC-2005-17 Handle: RePEc:udb:wpaper:UWEC-2005-17 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Author-Name: Wing Suen Title: Moral hazard, Monitoring Cost, and the Choice of Contract Creation-Date: 1992-06 File-URL: http://www.econ.washington.edu/user/yoramb/MoralHazard.pdf File-Format: Application/PDF Number: UWEC-2005-18 Handle: RePEc:udb:wpaper:UWEC-2005-18 Template-Type: ReDIF-Paper 1.0 Author-Name: Niels-Hugo Blunch Author-Name: Claus C Pörtner Title: Literacy, Skills and Welfare: Effects of Participation in an Adult Literacy Program Abstract: This paper examines the effects of adult literacy program participation on household consumption in Ghana. We use community fixed effects combined with instrumental variables to account for possible endogenous program placement and self-selection into program participation. For households where none of the adults have completed any formal education we find a substantial, positive and statistically significant effect on household consumption. Our preferred estimate of the effect of participation for households without education is equivalent to a ten percent increase in consumption per adult equivalent. There is, however, little evidence that other households benefit from participation in terms of welfare. The improvements in literacy and numeracy rates are also mainly concentrated among participants with little or no formal schooling, although most participants appear to gain in skills to some extent. Taking account of both direct cost and opportunity cost we argue that the social returns to adult literacy programs are substantial. Creation-Date: 2005-09 Revision-Date: 2008-06 File-URL: http://faculty.washington.edu/cportner/papers/litprog_08_06_03.pdf File-Format: Application/PDF Number: UWEC-2005-23-R Handle: RePEc:udb:wpaper:UWEC-2005-23-R Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Jacques Lawarree Title: Incentives for corruptible auditors in the absence of commitment," in the "Journal of Industrial Economics" (2006) Number: UWEC-2005-24 Handle: RePEc:udb:wpaper:UWEC-2005-24 Template-Type: ReDIF-Paper 1.0 Author-Name: Erika Gulyas Author-Name: Richard Startz Title: The Tradeoff between Inflation and the Real Economy: Forward-Looking Behavior and the Inflation Premium Abstract: We use the inflation premium—the difference between nominal and real interest rates—as a proxy for expected inflation in the context of the New Keynesian Phillips Curve. Using data from inflation-indexed and nominal bonds we estimate a forward-looking Phillips curve for the United Kingdom over the period 1985-2004. The proposed model describes UK inflation dynamics considerably better than does the standard hybrid New Keynesian Phillips Curve under the assumption of rational expectations. In contrast with the findings in the rest of the literature we find that there still exists a tradeoff between inflation and the stance of the real economy, regardless of the empirical measure used. This relationship also persists in the period since the UK adopted inflation targeting as a framework for monetary policy. Creation-Date: 2005-11 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/NKPC_UK.pdf File-Format: Application/PDF Number: UWEC-2005-25 Handle: RePEc:udb:wpaper:UWEC-2005-25 Template-Type: ReDIF-Paper 1.0 Author-Name: Stephen Turnovsky Author-Name: William Smith Title: Equilibrium Consumption and Precautionary Savings in a Stochastically Growing Economy Creation-Date: 2004-10 Revision-Date: 2004-10 Publication-Status: Published in Journal of Economic Dynamics and Control, Volume 30, 2006, 243-278 File-URL: http://www.econ.washington.edu/user/sturn/Turnovsky-Smith.pdf File-Format: Application/PDF Number: UWEC-2006-01-P Handle: RePEc:udb:wpaper:UWEC-2006-01-P Template-Type: ReDIF-Paper 1.0 Author-Name: Ott Ingrid Author-Name: Stephen Turnovsky Title: Excludable and Non-excludable Public Inputs: Consequences for Economic Growth Creation-Date: 2005-06 Revision-Date: 2005-06 Publication-Status: Published in Economica, Volume 73, 2006, 725-748 File-URL: http://www.econ.washington.edu/user/sturn/Ott-Turnovsky-Economica.pdf File-Format: Application/PDF Number: UWEC-2006-02-P Handle: RePEc:udb:wpaper:UWEC-2006-02-P Template-Type: ReDIF-Paper 1.0 Author-Name: Sibel Sirakaya Author-Name: Stephen Turnovsky Author-Name: N.M. Alemdar Title: Feedback Approximation of the Stochastic Growth Model by Genetic Neural Networks Creation-Date: 2005-07 Revision-Date: 2005-07 Publication-Status: Published in Computational Economics, Volume 27, 2006, 185-206 File-URL: http://www.econ.washington.edu/user/sturn/stoc_growth_rev.pdf File-Format: Application/PDF Number: UWEC-2006-03-P Handle: RePEc:udb:wpaper:UWEC-2006-03-P Template-Type: ReDIF-Paper 1.0 Author-Name: Cecilia Garcia-Penalosa Author-Name: Stephen Turnovsky Title: Growth and Income Inequality: A Canonical Model Creation-Date: 2005-01 Revision-Date: 2005-01 Publication-Status: Published in Economic Theory, Volume 28, 2006, 25-49 File-URL: http://www.econ.washington.edu/user/sturn/Garcia-Turnovsky-ET.pdf File-Format: Application/PDF Number: UWEC-2006-04-P Handle: RePEc:udb:wpaper:UWEC-2006-04-P Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Title: For a list of Theo Eicher's working papers please click here File-URL: http://faculty.washington.edu/te/resume.html#workingpaper File-Format: Application/PER Number: UWEC-2006-05 Handle: RePEc:udb:wpaper:UWEC-2006-05 Template-Type: ReDIF-Paper 1.0 Author-Name: Kum Hwa Oh Author-Name: Eric Zivot Title: The Clark Model with Correlated Components Creation-Date: 2006-01 File-URL: http://faculty.washington.edu/ezivot/research/The%20Clark%20Model%20with%20Correlated%20Components%2001162006.pdf File-Format: Application/PDF Number: UWEC-2006-06 Handle: RePEc:udb:wpaper:UWEC-2006-06 Template-Type: ReDIF-Paper 1.0 Author-Name: Charles Nelson Author-Name: Richard Startz Title: The Zero-Information-Limit-Condition and Spurious Inference in Weakly Identified Models Creation-Date: 2007-05 Publication-Status: Published in Journal of Econometrics, Volume Vol. 138, 47-62. File-URL: http://www.econ.washington.edu/user/cnelson/zilch_nelson_startz.pdf File-Format: Application/PDF Number: UWEC-2006-07-P Handle: RePEc:udb:wpaper:UWEC-2006-07-P Template-Type: ReDIF-Paper 1.0 Author-Name: Bingcheng Yan Author-Workplace-Name: Numeric Investors, Boston MA Author-Name: Eric Zivot Author-Workplace-Name: University of Washington Title: A Structural Analysis of Price Discovery Measures Abstract: We analyze the structural determinants of two widely used measures of price discovery between multiple markets that trade closely-related securities. Using a structural cointegration model, we show that both the information share (IS) and component share (CS) measures account for the relative avoidance of noise trading and liquidity shocks, but that only the IS can provide information on the relative informativeness of individual markets. In particular, the IS of one market is higher if it incorporates more new information and/or impounds less liquidity shocks. Use of the CS in conjunction with the IS can help sort out the confounding effects of the two types of shocks. Furthermore, we find that the IS only accounts for the immediate (one-period) responses of market prices to the news innovation which implies that the IS estimates based on high sampling frequencies may be distorted by transitory frictions and may miss important price discovery dynamics. Creation-Date: 2007-04 Revision-Date: 2007-04 Publication-Status: Forthcoming in Journal of Financial Markets File-URL: http://faculty.washington.edu/ezivot/research/structuralanalysispdmeasures.pdf File-Format: Application/PDF Number: UWEC-2006-08-FC Handle: RePEc:udb:wpaper:UWEC-2006-08-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Startz Title: Binomial Autoregressive Moving Average Models with an Application to U.S. Recessions Abstract: Binary Autoregressive Moving Average (BARMA) models provide a modeling technology for binary time series analogous to the classic Gaussian ARMA models used for continuous data. BARMA models mitigate the curse of dimensionality found in long lag Markov models and allow for non-Markovian persistence. The autopersistence function (APF) and autopersistence graph (APG) provide analogs to the autocorrelation function and correlogram. Parameters of the BARMA model may be estimated by either maximum likelihood or MCMC methods. Application of the BARMA model to U.S. recession data suggests that a BARMA(2,2) model is superior to traditional Markov models. Publication-Status: Forthcoming in Journal of Business and Economic Statistics Number: UWEC-2006-10-FC Handle: RePEc:udb:wpaper:UWEC-2006-10-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Title: A Closed-Form Asymptotic Variance-Covariance Matrix for the Maximum Likelihood Estimator of the GARCH(1,1) Model Abstract: This paper presents a closed-form asymptotic variance-covariance matrix of the Maximum Likelihood Estimators (MLE) for the GARCH(1,1) model. Starting from the standard asymptotic result, a closed form expression for the information matrix of the MLE is derived via a local approximation. The closed form variance-covariance matrix of MLE for the GARCH(1,1) model can be obtained by inverting the information matrix. The Monte Carlo simulation experiments show that this closed form expression works well in the admissible region of parameters. Creation-Date: 2006-10 Revision-Date: 2006-10 File-URL: http://students.washington.edu/junma/GARCH_CLOSE_FORM_10192006_EL.pdf File-Format: Application/PDF Number: UWEC-2006-11-R Handle: RePEc:udb:wpaper:UWEC-2006-11-R Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Title: Is There a Structural Break in the Risk Free Interest Rate Dynamics? Abstract: In this paper, I use the endogenous structural breakpoint tests to empirically search for a potential structural change in the dynamics of risk free interest rate based on the CKLS model (Chan et al. (1992)). To provide a better finite sample performance of this type of test, I bootstrap the critical values. My results indicate a mild evidence of a structural break during the period of monetary policy change in the 1980s. After this change the volatility of risk free interest rate seems to drop dramatically. Two Monte Carlo experiments are presented to show that bootstrapped critical values reduce the size distortion of asymptotic ones. Creation-Date: 2005-07 File-URL: http://students.washington.edu/junma/ckls_break_JEF_Complete.pdf File-Format: Application/PDF Number: UWEC-2006-12 Handle: RePEc:udb:wpaper:UWEC-2006-12 Template-Type: ReDIF-Paper 1.0 Author-Name: Michael Dueker Author-Workplace-Name: Federal Reserve Bank of St. Louis Author-Name: Charles Nelson Title: Business-Cycle Filtering of Macroeconomic Data Via A Latent Business-Cycle Index Creation-Date: 2006-11 Publication-Status: Published in Macroeconomics Dynamics, Volume Vol. 10, pp. 1-22. File-URL: http://www.research.stlouisfed.org/wp/2002/2002-025.pdf File-Format: Application/DF Number: UWEC-2006-13-P Handle: RePEc:udb:wpaper:UWEC-2006-13-P Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Author-Name: Charles Nelson Author-Name: Richard Startz Title: Spurious Inference in the GARCH(1,1) Model When It Is Weakly Identified Abstract: This paper shows that the Zero-Information-Limit-Condition (ZILC) formulated by Nelson and Startz (2006) holds in the GARCH(1,1) model. As a result, the GARCH estimate tends to have too small a standard error relative to the true one when the ARCH parameter is small, even when sample size becomes very large. In combination with an upward bias in the GARCH estimate, the small standard error will often lead to the spurious inference that volatility is highly persistent when it is not. We develop an empirical strategy to deal with this issue and show how it applies to real datasets. Creation-Date: 2007-03 Revision-Date: 2007-03 Publication-Status: Published in Studies in Nonlinear Dynamics & Econometrics, Volume Vol.11, Article 1 File-URL: http://www.bepress.com/snde/vol11/iss1/art1/ File-Format: Application/T1/ Number: UWEC-2006-14-P Handle: RePEc:udb:wpaper:UWEC-2006-14-P Template-Type: ReDIF-Paper 1.0 Author-Name: Kum Hwa Oh Author-Workplace-Name: Bank of Korea Author-Name: Eric Zivot Author-Workplace-Name: University of Washington Author-Name: Drew Creal Author-Workplace-Name: Free University Amsterdam Title: The Relationship between the Beveridge-Nelson Decomposition andUnobserved Component Models with Correlated Shocks Abstract: Many researchers believe that the Beveridge-Nelson decomposition leads to permanent and transitory components whose shocks are perfectly negatively correlated. Indeed, some even consider it to be a property of the decomposition. We demonstrate that the Beveridge-Nelson decomposition does not provide definitive information about the correlation between permanent and transitory shocks in an unobserved components model. Given an ARIMA model describing the evolution of U.S. real GDP, we show that there are many state space representations that generate the Beveridge-Nelson decomposition. These include unobserved components models with perfectly correlated shocks and partially correlated shocks. In our applications, the only knowledge we have about the correlation is that it lies in a restricted interval that does not include zero. Although the filtered estimates of the trend and cycle are identical for models with different correlations, the observationally equivalent unobserved components models produce different smoothed estimates. Creation-Date: 2006-07 Publication-Status: Forthcoming in JOURNAL OF ECONOMETRICS File-URL: http://faculty.washington.edu/ezivot/research/bnucrevision.pdf File-Format: Application/PDF Number: UWEC-2006-16-FC Handle: RePEc:udb:wpaper:UWEC-2006-16-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Ying Gu Author-Name: Eric Zivot Title: A Comparison of Univariate Stochastic Volatility Models for U.S. Short Rates Using EMM Estimation Abstract: In this paper, the efficient method of moments (EMM) estimation using a seminonparametric (SNP) auxiliary model is employed to determine the best fitting model for the volatility dynamics of the U.S. weekly three-month interest rate. A variety of volatility models are considered, including one-factor diffusion models, two-factor and three-factor stochastic volatility (SV) models, non-Gaussian diffusion models with Stable distributed errors, and a variety of Markov regime switching (RS) models. The advantage of using EMM estimation is that all of the proposed structural models can be evaluated with respect to a common auxiliary model. We find that a continuous-time twofactor SV model, a continuous-time three-factor SV model, and a discrete-time RS-involatility model with level effect can well explain the salient features of the short rate as summarized by the auxiliary model. We also show that either an SV model with a level effect or a RS model with a level effect, but not both, is needed for explaining the data. Our EMM estimates of the level effect are much lower than unity, but around 1/2 after incorporating the SV effect or the RS effect. Creation-Date: 2006-08 File-URL: http://faculty.washington.edu/ezivot/research/ShortRateEMM.pdf File-Format: Application/PDF Number: UWEC-2006-17 Handle: RePEc:udb:wpaper:UWEC-2006-17 Template-Type: ReDIF-Paper 1.0 Author-Name: Drew Creal Author-Name: Ying Gu Author-Name: Eric Zivot Title: Evaluating Structural Models for the U.S. Short Rate Using EMM and Particle Filters Abstract: We combine the efficient method of moments with appropriate algorithms from the optimal filtering literature to study a collection of models for the U.S. short rate. Our models include two continuous-time stochastic volatility models and two regime switching models, which provided the best fit in previous work that examined a large collection of models. The continuous-time stochastic volatility models fall into the class of nonlinear, non-Gaussian state space models for which we apply particle filtering and smoothing algorithms. Our results demonstrate the effectiveness of the particle filter for continuous-time processes. Our analysis also provides an alternative and complementary approach to the reprojection technique of Gallant and Tauchen (1998) for studying the dynamics of volatility. Creation-Date: 2006-08 File-URL: http://faculty.washington.edu/ezivot/research/Creal_Gu_Zivot_2006.pdf File-Format: Application/PDF Number: UWEC-2006-18 Handle: RePEc:udb:wpaper:UWEC-2006-18 Template-Type: ReDIF-Paper 1.0 Author-Name: Claus Portner Title: Gone With the Wind? Hurricane Risk, Fertility and Education Abstract: Despite a large literature on fertility and education there has been little research on how these joint decisions are affected by risks and shocks. This paper uses data on hurricanes in Guatemala combined with a household survey to analyse how households' decisions on fertility and investments in education respond to both risk and shocks. The data on hurricanes cover the period 1880 to 1997 and allow for the calculation of hurricane risk by municipality. An increase in risk leads to higher fertility for households with land, while households without land reduce fertility. For both types of households higher risk is associated with higher education but the effect is largest for households without land. Negative shocks lead to decreases in both fertility and education. There is a compensatory effect later in life for fertility, but not for education, indicating that births "lost" to shocks can be made up but lost schooling cannot. The most convincing explanation for these patterns is parents' need for insurance. Creation-Date: 2006-10 Revision-Date: 2008-02 File-URL: http://faculty.washington.edu/cportner/papers/gone.pdf File-Format: Application/PDF Number: UWEC-2006-19-R Handle: RePEc:udb:wpaper:UWEC-2006-19-R Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Title: Consumption Persistence and the Equity Premium Puzzle: A Resolution or Not? (Job Market Paper) Abstract: As first pointed out by Mehra and Prescott (1985), the excess return of equities over the risk-free rate, roughly 6%, is too high to be readily reconciled with a standard intertemporal model. Recently, Bansal and Yaron (2000, 2004) have demonstrated a resolution of the equity premium puzzle when high persistence in the consumption growth process is combined with the Generalized Expected Utility (GEU) specification of Epstein and Zin (1989, 1991). However, Nelson and Startz (2006) and Ma, Nelson, and Startz (2006) have shown that standard estimates of persistence are generally spurious in time series models that are weakly identified. This motivates the re-examination of the evidence for resolution of the equity premium puzzle in this paper. Using the valid Anderson-Rubin type test proposed by Ma and Nelson (2006) I show that weak identification may account for the apparent resolution and valid confidence regions and tests reject high persistence in consumption growth. Also, the possibility of integrated expectations is examined using the Median Unbiased Estimator of Stock and Watson (1998) and little supporting evidence is found. Evidently, the equity premium puzzle remains just that. Creation-Date: 2006-11 Revision-Date: 2006-11 File-URL: http://students.washington.edu/junma/Consumption_EPP.pdf File-Format: Application/PDF Number: UWEC-2006-21-R Handle: RePEc:udb:wpaper:UWEC-2006-21-R Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Author-Name: Charles Nelson Title: A General Approach to Constructing a Valid Test in Weakly Identified Models Where Zero-Limit-Information Condition (ZILC) Holds Creation-Date: 2006-08 Number: UWEC-2006-22 Handle: RePEc:udb:wpaper:UWEC-2006-22 Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Title: Evaluating the Impact of Financial Development to Economic Performance When Instruments Are Weak Creation-Date: 2003-12 Number: UWEC-2006-23 Handle: RePEc:udb:wpaper:UWEC-2006-23 Template-Type: ReDIF-Paper 1.0 Author-Name: Maria Kozhevnikova Author-Name: Ian Lange Title: Contract Completeness, Product Complexity, and Regulation: Evidence from Coal-Fired Power Plants Creation-Date: 2006-09 File-URL: http://faculty.washington.edu/ilange1/coalcontracts.pdf File-Format: Application/DF Number: UWEC-2006-24 Handle: RePEc:udb:wpaper:UWEC-2006-24 Template-Type: ReDIF-Paper 1.0 Author-Name: Stephen Turnovsky Author-Name: Goncalo Monteiro Title: Consumption Externalities, Production Externalities, and Efficient Capital Accumulation under Time Non-Separable Preferences Creation-Date: 2006-12 Publication-Status: Forthcoming in European Economic Review File-URL: http://www.econ.washington.edu/user/sturn/Turnovsky-Monteiro-11-05.pdf File-Format: Application/PDF Number: UWEC-2006-26-FC Handle: RePEc:udb:wpaper:UWEC-2006-26-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Cecilia Garcia-Penalosa Author-Name: Stephen Turnovsky Title: Growth, Income Inequality, and Fiscal Policy: What are the Relevant Tradeoffs? Publication-Status: Forthcoming in Journal of Money, Credit, and Banking File-URL: http://www.econ.washington.edu/user/sturn/GPT-JMCB.pdf File-Format: Application/PDF Number: UWEC-2006-27-FC Handle: RePEc:udb:wpaper:UWEC-2006-27-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Sibel Sirakaya Author-Name: Stephen Turnovsky Author-Name: Nedim Alemdar Title: Economic Growth, Trade, and Environmental Quality in a Two-region World Economy File-URL: http://www.econ.washington.edu/user/sturn/Sirakaya-Turnovsky-Alemdar.pdf File-Format: Application/PDF Number: UWEC-2007-01 Handle: RePEc:udb:wpaper:UWEC-2007-01 Template-Type: ReDIF-Paper 1.0 Author-Name: Ian Lange Author-Name: Josh Linn Title: Bush v. Gore and the Effect of New Source Review on Power Plant Emissions Creation-Date: 2006-11 File-URL: http://faculty.washington.edu/ilange1/NSR_nov27.pdf File-Format: Application/DF Number: UWEC-2007-02 Handle: RePEc:udb:wpaper:UWEC-2007-02 Template-Type: ReDIF-Paper 1.0 Author-Name: Neil Bruce Author-Name: Robert Halvorsen Title: The Marginal Willingness to Pay for Longevity: A Better Way to Value Changes in Mortality Hazard Abstract: One of the most contentious issues concerning benefit-cost analyses of environmental and other regulatory programs has been the valuation of reductions in mortality risks. The conceptual basis for most valuation exercises has been the value of a statistical life (VSL). However, despite decades of both theoretical and empirical research on the meaning and measurement of the VSL concept, there is no consensus concerning the validity of the results it produces in actual applications. In this paper we review the development and application of the VSL approach and then propose what we believe to be a better way to value changes in mortality hazard. Creation-Date: 2007-03 Revision-Date: 2007-03 File-URL: http://www.econ.washington.edu/user/halvor/Bruce-Halvorsen_SHedit_1__.pdf File-Format: Application/PDF Number: UWEC-2007-04-R Handle: RePEc:udb:wpaper:UWEC-2007-04-R Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Startz Author-Name: Kwok Ping Tsang Title: The Yield Curve through Time and Across Maturities Abstract: We develop an unobserved component model in which the short-term interest rate is composed of a stochastic trend and a stationary cycle. Using the Nelson-Siegel model of the yield curve as inspiration, we estimate an extremely parsimonious state-space model of interest rates across time and maturity. Our stochastic process generates a three-factor model for the term structure. At the estimated parameters, trend and slope factors matter while the third factor is empirically unimportant. Our baseline model fits the yield curve well. Model generated estimates of uncertainty are positively correlated with estimated term premia. An extension of the model with regime switching identifies a high-variance regime and a low-variance regime, where the high-variance regime occurs rarely after the mid-1980s. The term premium is higher, and more so for yields of short maturities, in the high-variance regime than that in the low-variance regime. The estimation results support our model as a simple and yet reliable framework for modeling the term structure. Creation-Date: 2007-03 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/The%20Yield%20Curve.pdf File-Format: Application/PDF Number: UWEC-2007-05 Handle: RePEc:udb:wpaper:UWEC-2007-05 Template-Type: ReDIF-Paper 1.0 Author-Name: Lan Shi Title: Productivity Effect of Piece Rate Contracts: Evidence from Two Small Field Experiments Abstract: I conducted two field experiments in a tree-thinning setting. In one experiment, farm workers were initially paid hourly wages, before a randomly chosen half were switched into piece rate pay. In the second experiment, workers were switched from hourly to piece rate pay all at once. The difference-in-difference and before-after estimators suggest that the productivity increase has a lower bound of 23 percent and an upper bound of 36 percent. Although the sample size is small, the estimates are statistically significant and robust. While the quality did not drop, the study highlights the measurement costs in setting up the right level of piece rates. I also provide evidence that high ability workers are attracted to piece rate contracts. Creation-Date: 2007-02 File-URL: http://faculty.washington.edu/lanshi/Research/field_experiment_2007_lan_shi.pdf File-Format: Application/PDF Number: UWEC-2007-06 Handle: RePEc:udb:wpaper:UWEC-2007-06 Template-Type: ReDIF-Paper 1.0 Author-Name: Daisuke Nagakura Author-Name: Eric Zivot Title: Implications of Two Measures of Persistence for Correlation Between Permanent and Transitory Shocks in U.S. Real GDP Abstract: Conventionally, shocks to permanent and transitory components in the unobserved components (UC) model for the log of real GDP are assumed to be uncorrelated. This assumption is mainly for identification of model parameters. In this paper, we show important implications of two popular measures of persistence for the correlation between permanent and transitory shocks in the UC model, and demonstrate that the correlation is negative for the log of U.S. real GDP under a very general specification of the cycle process. Creation-Date: 2007-01 File-URL: http://faculty.washington.edu/ezivot/research/trendcyclecorrelation.pdf File-Format: Application/PDF Number: UWEC-2007-07 Handle: RePEc:udb:wpaper:UWEC-2007-07 Template-Type: ReDIF-Paper 1.0 Author-Name: Jyotsna Jalan Author-Workplace-Name: Centre for Studies in Social Sciences, Calcutta Author-Name: E.Somanathan Author-Workplace-Name: Planning Unit, Indian Statistical Institute, Delhi Author-Name: Saraswata Chaudhuri Author-Workplace-Name: University of Washington Title: Demand for Environmental Quality: Survey Evidence on Drinking Water in Urban India Abstract: The demand for environmental quality is often presumed to be low in developing countries due to poverty. Less attention has been paid to the possibility that lack of awareness about the adverse health effects of environmental pollution could also keep the demand low. We use a household survey from urban India to estimate the effects of awareness proxies such as schooling and exposure to mass media controlling for wealth on home water purification. Average costs of different home purification methods are used to get estimates on willingness to pay for better drinking water quality. We find that our awareness proxy measures have statistically significant effects on adoption of different home purification methods and therefore, on willingness to pay. These effects are similar in magnitude to the wealth effects. Creation-Date: 2006-08 File-URL: http://students.washington.edu/saraswat/Research/nfhs_aug16_2006.pdf File-Format: Application/PDF Number: UWEC-2007-09 Handle: RePEc:udb:wpaper:UWEC-2007-09 Template-Type: ReDIF-Paper 1.0 Author-Name: Saraswata Chaudhuri Author-Name: Thomas Richardson Author-Name: James Robins Author-Workplace-Name: Departments of Epidemiology and Biostatistics, Harvard University Author-Name: Eric Zivot Title: Split-Sample Score Tests in Linear Instrumental Variables Regression Abstract: In this paper we design two split-sample tests for subsets of structural coefficients in a linear Instrumental Variables (IV) regression. Sample splitting serves two purposes – 1) validity of the resultant tests does not depend on the identifiability of the coefficients being tested and 2) it combines information from two unrelated samples one of which need not contain information on the dependent variable. The tests are performed on sub-sample one using the regression coefficients obtained from running the so-called first stage regression on subsample two (sample not containing information on the dependent variable). The first test uses the unbiased split-sample IV estimator of the remaining structural coefficients constrained by the hypothesized value of the structural coefficients of interest [see Angrist and Krueger (1995)]. We call this the USSIV score test. The USSIV score test is asymptotically equivalent to the standard score test based on sub-sample one when the standard regularity conditions are satisfied. However, the USSIV score test can be over-sized if the remaining structural coefficients are not identified. This motivates another test based on Robins (2004), which we call the Robins-test. The Robins-test is never oversized and if the remaining structural coefficients are identified, the Robins-test is asymptotically equivalent to USSIV score test against square-root-n local alternatives. Creation-Date: 2007-03 File-URL: http://students.washington.edu/saraswat/Research/split_sample.pdf File-Format: Application/PDF Number: UWEC-2007-10 Handle: RePEc:udb:wpaper:UWEC-2007-10 Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Jacques Lawarree Author-Name: Sungho Yun Title: Bribery vs. extortion: allowing the lesser of two evils File-URL: http://www.econ.washington.edu/user/khalil/kly Apr 27 2007.pdf File-Format: Application/PDF Number: UWEC-2007-11 Handle: RePEc:udb:wpaper:UWEC-2007-11 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Cecilia García-Peñalosa Title: Endogenous Strength of Intellectual Property Rights Abstract: In recent empirical work, institutions have been shown to explain a significant share of the differences in cross-country accumulation, productivity, and output levels. The key institution that determines sustained development in R&D based growth models is the strength of intellectual property rights, which have thus far been assumed to be exogenous. In this paper we endogenize the strength of the intellectual property rights institutions to study how incentives to protect and exploit property rights affect economic growth. Our model explains endogenous differences in the strength of intellectual property rights across countries and highlights development thresholds that are related to the quality of such property rights. We show that market size is a crucial determinant of the existence and high quality of such institutions. In addition we find that the endogenous determination of the strength of intellectual property rights generates multiple equilibria and an institutional development threshold that must be overcome if an economy is to have strong institutions and rapid growth in the long run. This result is in line with the observed transition of early/small economic communities with common property laws to mature nation states with large institution-based societies.€+• File-URL: http://faculty.washington.edu/~te/papers/endogenousip.pdf File-Format: Application/PDF Number: UWEC-2007-14 Handle: RePEc:udb:wpaper:UWEC-2007-14 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Till Schreiber Title: Institutions and Growth: Time Series Evidence from Natural Experiments Abstract: Documenting the long term impact of institutions on economic performance has generated tremendous interest in the development literature. Contemporary or intermediate term effects of institutions over time are difficult to establish, however, since institutions seldom change significantly in the short run. In addition, accepted instruments that control for endogeneity of institutions in cross sections are inappropriate for time series analysis. In this paper we utilize an eleven year panel of 26 countries with sufficient institutional variation to identify large and significant short and intermediate effects of institutions. To control for endogeneity, we utilize the hierarchy of institutions hypothesis and find that it holds strong explanatory power. A 10 percent change in institutional quality towards OECD standards is shown to raise annual growth by 3.5 percent. In discriminating between short run and intermediate term effects, we can also document that early reformers reap the greatest benefits, but that it is never too late to begin institutional reform. *We thank Sascha Becker, Christa Heinz, Stephan Klasen, Chris Papageorgiou, Charles Nelson, Richard Startz, Farid Toubal, Steve Turnovsky, and especially John Temple for helpful comments. Any remaining errors are our own. Theo Eicher thanks the German Science Foundation for financial support. …i File-URL: http://faculty.washington.edu/~te/papers/es.pdf File-Format: Application/PDF Number: UWEC-2007-15 Handle: RePEc:udb:wpaper:UWEC-2007-15 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Andreas Leukert Title: Institutions and Economic Performance: Endogeneity and Parameter Heterogeneity Abstract: The hallmark of the recent development and growth literature is the quest to identify institutions that explain significant portions of the observed differences in living standards. There are two drawbacks to the prominent approaches that focus either on the global sample, or on developing nations. First, it is unclear whether the identified institutions also hold explanatory power in advanced countries. Second, it is unclear whether the identified institutions matter to the same degree across all countries, or whether perhaps an altogether different set of institutions matters in advanced countries. To address these issues, we examine parameter heterogeneity in prominent approaches to institutions and economic performance. We find that parameter heterogeneity is so strong that it requires a new set of instruments to control for endogeneity. At the same time, however, we confirm that a common set of economically important institutions does exist among advanced and developing nations. The impact of these institutions is shown to vary substantially across subsamples; they are about three times important in developing countries as in OECD countries. Creation-Date: 2006-01 File-URL: http://faculty.washington.edu/~te/papers/el.pdf File-Format: Application/PDF Number: UWEC-2007-16 Handle: RePEc:udb:wpaper:UWEC-2007-16 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Cecilia García-Peñalosa Author-Name: Tanguy van Ypersele Title: Education, Corruption and Constitutional Reform Abstract: We model the two way interaction between education, corruption and the level of output. Corruption reduces income levels and hence educational attainment. Education in turn affects the incentives for corruption: more education increases output and thus the rents from corruption, but it also increases the probability that the electorate identifies corrupt behavior and ousts the incumbent politician. In this context, we identify the conditions under which an opportunist politician has the incentives to take actions that will allow the economy to escape from a poverty trap. Our analysis shows that the relationship between education, output levels and the level of corruption is non-monotonic, and that both institution-led development and education-led development are possible. Which path occurs crucially depends on the initial level of inequality. Creation-Date: 2006-10 File-URL: http://faculty.washington.edu/~te/papers/ept_1.pdf File-Format: Application/PDF Number: UWEC-2007-17 Handle: RePEc:udb:wpaper:UWEC-2007-17 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Christian Henn Author-Name: Chris Papageorgiou Title: Trade Creation and Diversion Revisited: Accounting for Model Uncertainty and Natural Trading Partner Effects Abstract: Trade theories covering Preferential Trade Agreements (PTAs) are as diverse as the literature in search of their empirical support. To account for the model uncertainty that surrounds the validity of the competing PTA theories, we introduce Bayesian Model Averaging (BMA) to the PTA literature. BMA minimizes the sum of Type I and Type II error, the mean squared error, and generates predictive distributions with optimal predictive performance. Once model uncertainty is addressed as part of the empirical strategy, we report clear evidence of Trade Creation, Trade Diversion, and Open Bloc effects. After controlling for natural trading partner effects, Trade Creation is weaker – except for the EU. To calculate the actual effects of PTAs on trade flows we show that the analysis must be comprehensive: it must control for Trade Creation and Diversion as well as all possible PTAs. Several prominent control variables are also shown to be robustly related to Trade Creation; they relate to factor endowments and economic policy. Creation-Date: 2007-05 File-URL: http://faculty.washington.edu/te/papers/EHP.pdf File-Format: Application/PDF Number: UWEC-2007-18 Handle: RePEc:udb:wpaper:UWEC-2007-18 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Jeff Begun Title: In Search of a Sulphur Dioxide Environmental Kuznets Curve: A Bayesian Model Averaging Approach File-URL: http://faculty.washington.edu/Desktop/papers/be.pdf File-Format: Application/PDF Number: UWEC-2007-19 Handle: RePEc:udb:wpaper:UWEC-2007-19 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Klaas van't Veld Title: Search in Research: An Evolutionary Approach to Technical Change and Growth File-URL: http://faculty.washington.edu/Desktop/papers/theoklaas.pdf File-Format: Application/PDF Number: UWEC-2007-20 Handle: RePEc:udb:wpaper:UWEC-2007-20 Template-Type: ReDIF-Paper 1.0 Author-Name: Kazi Iqbal Author-Workplace-Name: World Bank Author-Name: Stephen Turnovsky Author-Workplace-Name: University of Washington Title: Intergenerational Allocation of Government Expenditures: Externalities and Optimal Taxation Abstract: This paper studies optimal taxation in the context of provision of public goods when benefits are age-dependent. We develop a two period overlapping generations model with endogenous labor supply in both periods. We examine how the optimal Ramsey capital and labor income taxes change when the government fails to choose the optimal public provision for each cohort. The deviations of public expenditure from the optimal level create distortions at the intra and inter temporal margins and taxes are required to correct these distortions. We show that regardless of preferences, the government may choose to tax capital in the long run if spending on each cohort is not optimal. We also show that when sufficient tax instruments are available the Ramsey equilibrium can attain the first-best optimum. Creation-Date: 2007-10 Revision-Date: 2007-10 Publication-Status: Forthcoming in Journal of Public Economic Theory File-URL: http://www.econ.washington.edu/user/sturn/Iqbal-Turnovsky_JPET06089-FINAL.pdf File-Format: Application/PDF Number: UWEC-2007-21-FC Handle: RePEc:udb:wpaper:UWEC-2007-21-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Startz Title: Are Consumers Forward-Looking? Abstract: Are consumers forward-looking? According to the certainty-equivalence version of the life cycle/permanent income hypothesis, consumption is a function of the expected present value of income. Using longitudinal data from the PSID, I invert this function and compare the realized present value of income to consumption. Consumption proves to be a very poor predictor of future income, despite future income being predictable by past income. Under rational expectations, information known to the consumer should not enter the regression of present value on consumption. However, as an empirical matter lagged income does enter. The conclusion is that consumers act "as if" they are not forward-looking. Available data being imperfect much of the paper is devoted to robustness tests, none of which change the basic conclusion. Creation-Date: 2007-06 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/Consumption%20Present%20Value%20WP%20as%20posted.pdf File-Format: Application/PDF Number: UWEC-2007-22 Handle: RePEc:udb:wpaper:UWEC-2007-22 Template-Type: ReDIF-Paper 1.0 Author-Name: Shelly Lundberg Author-Name: Jennifer Romich Author-Name: Kwok Ping Tsang Title: Independence Giving or Autonomy Taking? Childhood Predictors of Decision-Making Patterns Between Young Adolescents and Parents Abstract: This article reports on a study of whether young adolescents make decisions autonomously, share decisions with their parents, or have decisions made for them by parents. Using a sample of 2,620 12- and 13-year-olds from the National Longitudinal Survey of Youth – Child Study we examine how childhood behavior and competence influence decision patterns in young adolescence. Individual models are used to test whether traits predict decision patterns and sibling fixed-effects models allow us to estimate effects of child characteristics net of stable family contributions. In both individual and sibling fixed-effects models, children with higher verbal ability share more decision-making with parents. Children with greater mathematical aptitude and children who are impulsive are more likely to make decisions without consulting parents. The impulsivity effect is stronger in families with fewer resources. These results suggest that children directly and indirectly influence household decision-sharing patterns. Creation-Date: 2007-04 File-URL: http://csde.washington.edu/lundberg/Romich_Lundberg_Tsang_decisions042707.pdf File-Format: Application/PDF Number: UWEC-2007-23 Handle: RePEc:udb:wpaper:UWEC-2007-23 Template-Type: ReDIF-Paper 1.0 Author-Name: Shelly Lundberg Author-Name: Jennifer Romich Author-Name: Kwok Ping Tsang Title: Decision Making By Children Abstract: In this paper, we examine the determinants of decision-making power by children and young adolescents. Moving beyond previous economic models that treat children as goods consumed by adults rather than agents, we develop a noncooperative model of parental control of child behavior and child resistance. Using child reports of decision-making and psychological and cognitive measures from the NLSY79 Child Supplement, we examine the determinants of shared and sole decision-making in seven domains of child activity. We find that the determinants of sole decision-making by the child and shared decision-making with parents are quite distinct: sharing decisions appears to be a form of parental investment in child development rather than a simple stage in the transfer of authority. In addition, we find that indicators of child capability and preferences affect reports of decision-making authority in ways that suggest child demand for autonomy as well as parental discretion in determining these outcomes. Creation-Date: 2007-07 File-URL: http://csde.washington.edu/lundberg/papers/DecisionMakingByChildren_072307.pdf File-Format: Application/PDF Number: UWEC-2007-24 Handle: RePEc:udb:wpaper:UWEC-2007-24 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo Eicher Author-Name: Chris Papageogiou Author-Name: Adrian E Raftery Title: Determining Growth Determinants: Default Priors and Predictive Performance in Bayesian Model Averaging Abstract: Economic growth has been a showcase of model uncertainty, given the many competing theories and candidate regressors that have been proposed to explain growth. Bayesian Model Averaging (BMA) addresses model uncertainty as part of the empirical strategy, but its implementation is subject to the choice of priors: the priors for the parameters in each model, and the prior over the model space. For a well-known growth dataset, we show that model choice can be sensitive to the prior specification, but that economic significance (model-averaged inference about regression coefficients) is quite robust to the choice of prior. We provide a procedure to assess priors in terms of their predictive performance. The Unit Information Prior, combined with a uniform model prior outperformed other popular priors in the growth dataset and in simulated data. It also identified the richest set of growth determinants, supporting several new growth theories. We also show that there is a tradeoff between model and parameter priors, so that the results of reducing prior expected model size and increasing prior parameter variance are similar. Our branch-and-bound algorithm for implementing BMA was faster than the alternative coin flip importance sampling and MC3 algorithms, and was also more successful in identifying the best model. Creation-Date: 2007-08 File-URL: http://faculty.washington.edu/te/papers/epr.pdf File-Format: Application/PDF Number: UWEC-2007-25 Handle: RePEc:udb:wpaper:UWEC-2007-25 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Title: Public goods, firm size and growth Creation-Date: 2007-08 File-URL: http://www.econ.washington.edu/user/yoramb/Firm, new, August 28,07.doc File-Format: Application/DOC Number: UWEC-2007-26 Handle: RePEc:udb:wpaper:UWEC-2007-26 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Title: LOP Creation-Date: 2007-09 File-URL: http://www.econ.washington.edu/user/yoramb/LOP Sep 13,07.doc File-Format: Application/DOC Number: UWEC-2007-27 Handle: RePEc:udb:wpaper:UWEC-2007-27 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoram Barzel Title: The State’s Dilemma in Guaranteeing Commodities’ and Services’ Quality by Reputation Creation-Date: 2007-08 File-URL: http://www.econ.washington.edu/user/yoramb/StateDillemaNoNotes,Aug8,07.doc File-Format: Application/DOC Number: UWEC-2007-28 Handle: RePEc:udb:wpaper:UWEC-2007-28 Template-Type: ReDIF-Paper 1.0 Author-Name: Chang-Jin Kim Author-Name: Yunmi Kim Author-Name: Charles R. Nelson Title: Pricing Stock Market Volatility: Does It Matter Whether the Volatility is Related to the Business Cycle? Creation-Date: 2008-05 File-URL: http://www.econ.washington.edu/user/cnelson/KKN.pdf File-Format: Application/PDF Number: UWEC-2007-29 Handle: RePEc:udb:wpaper:UWEC-2007-29 Template-Type: ReDIF-Paper 1.0 Author-Name: Charles R. Nelson Title: The Beveridge-Nelson Decomposition in Retrospect and Prospect Creation-Date: 2006-08 File-URL: http://www.econ.washington.edu/user/cnelson/BNRetro_2006.pdf File-Format: Application/PDF Number: UWEC-2007-30 Handle: RePEc:udb:wpaper:UWEC-2007-30 Template-Type: ReDIF-Paper 1.0 Author-Name: Elaina Rose Title: Your Momma Was Home and You Left?: Parental Influence on Military Service Abstract: This paper describes the relationship between a youth’s residence at age sixteen and the likelihood he eventually enlists in the military. Data from the NLSY97 show that white youths raised in two parent families are less likely to enlist than those raised in other family structures. Black youths living with fathers only are more likely to enlist than those living with mothers only. Given that men tend to be more supportive of the military, this suggests that parental preferences are transmitted through residence as a teen. Creation-Date: 2007-11 File-URL: http://www.econ.washington.edu/user/erose/rose_mommaleft_2feb.pdf File-Format: Application/PDF Number: UWEC-2007-31 Handle: RePEc:udb:wpaper:UWEC-2007-31 Template-Type: ReDIF-Paper 1.0 Author-Name: Chang-jin Kim Author-Name: N. Kundan Kishor Author-Workplace-Name: U of Wisc-Milw Author-Name: Charles R Nelson Title: A Time-Varying Parameter Model for a Forward-Looking Monetary Policy Rule Based on Real-Time Data Creation-Date: 2006-07 File-URL: http://www.econ.washington.edu/user/cnelson/KKN_2006.pdf File-Format: Application/PDF Number: UWEC-2007-32 Handle: RePEc:udb:wpaper:UWEC-2007-32 Template-Type: ReDIF-Paper 1.0 Author-Name: Nina S. Jones Author-Workplace-Name: University of Washington Author-Name: Eric Zivot Author-Name: University of Washington Title: Trends of U.S. Emissions of Nitrogen Oxides and Volatile Organic Compounds Abstract: Using an array of unit root and structural break tests we find that the trend behavior of two air pollutants, Nitrogen Oxides (NOX) and Volatile Organic Compounds (VOCs), is substantially different. VOCs emissions are found to be trend-stationary with a break at the time the Clean Air Act of 1970 was passed whereas NOX emissions are found to be difference-stationary. The presence and location of a trend break in the NOX emissions depends on the test used, whether the break date is known or unknown in advance, the null hypothesis specification, and on data transformations. Creation-Date: 2007-11 File-URL: http://faculty.washington.edu/ezivot/research/wp_jones_zivot.pdf File-Format: Application/PDF Number: UWEC-2007-33 Handle: RePEc:udb:wpaper:UWEC-2007-33 Template-Type: ReDIF-Paper 1.0 Author-Name: Judith Thornton Author-Workplace-Name: Department of Economics University of Washington Author-Name: Krisztina Nagy Author-Workplace-Name: Department of Economics University of Washington Title: The Response of Federal Transfers to Measures of Social Need in Russia's Regions Abstract: Do Russian federal expenditures serve to reduce regional inequality, to insure against exogenous shocks, or to compensate regions for low tax capacity? Do sub-national governments appear to engage in strategic behavior in attempting to influence central governmental transfers? Using a panel data base coving Russia’s regions during the period after the Russian financial crisis, we find that federal administrative employment in a region has a strong positive effect on federal transfers to the region, but that there is little evidence that federal expenditures serve to reduce levels of regional inequality and no evidence that changes in federal transfers respond to changes in “social needs” during the period studied. Creation-Date: 2006-07 File-URL: http://www.econ.washington.edu/user/thornj/FederalTrnsSocNeed_7_06.pdf File-Format: Application/PDF Number: UWEC-2007-34 Handle: RePEc:udb:wpaper:UWEC-2007-34 Template-Type: ReDIF-Paper 1.0 Author-Name: Judith Thornton Author-Workplace-Name: Department of Economics University of Washington Title: Benchmarking North Korean Economic Policies; The Lessons from Russia and China Abstract: This study attempts to provide benchmarks of North Korean institutional changes that signal the increased role of markets, looking at macroeconomic management, introduction of market-supporting policies, and provision of market-supporting infrastructure. The weight of the evidence indicates that North Korea today is an unraveling command system, which shares many features with China in 1978 or the former Soviet Union in 1985. A rising share of household purchases of food and consumer goods in informal markets at market-determined prices raises the question of whether a legal, market-oriented consumer sector is emerging. The answer depends on whether there is a legal, decentralized population of non-state producers, not merely black-market traders. Alternatively, the appearance of market-based trade may simply signal the ability of decision-makers within the state apparatus to convert their access to rationed goods at low prices into hard-currency, black-market revenues. A much more worrisome indicator for the planners is the indirect evidence that the DPRK is experiencing, not just a one-time adjustment from controlled to market prices, but a destabilizing approach to hyperinflation. Creation-Date: 2007-02 File-URL: http://www.econ.washington.edu/user/thornj/benchmarkingnklessons.pdf File-Format: Application/PDF Number: UWEC-2007-35 Handle: RePEc:udb:wpaper:UWEC-2007-35 Template-Type: ReDIF-Paper 1.0 Author-Name: Judith Thornton Author-Workplace-Name: Department of Economics University of Washington Title: Nationalization of Energy Assets and Regional Welfare; Sakhalin 2007 Abstract: Between 2001 and 2007, rising prices of oil and gas provided a gigantic domestic windfall for Russia’s government in the form of export duties and resource taxes. However, the windfall created incentives for the federal government to re-capture control rights to natural resource stocks. Thus, the past four years have seen a substantial transfer of effective ownership from private firms to government control. This study explores why multinationals were willing to commit billions of dollars of FDI to a remote Russian island in the North Pacific. It asks how the de facto re-nationalization of energy assets will impact the availability of advanced technologies, investment efficiency, and environmental risks to the North Pacific fishery. Creation-Date: 2007-06 File-URL: http://www.econ.washington.edu/user/thornj/ThorntonEnergyRegWelfare6_07.pdf File-Format: Application/PDF Number: UWEC-2007-36 Handle: RePEc:udb:wpaper:UWEC-2007-36 Template-Type: ReDIF-Paper 1.0 Author-Name: Douglas W. Allen Author-Workplace-Name: Simon Fraser University Author-Name: Yoram Barzel Author-Workplace-Name: University of Washington Title: The Evolution of Criminal Law and Police Abstract: Increased standardization of goods was a by-product of the technical innovations triggering the Industrial Revolution. A side effect of standardization was the new abilities it allowed for theft and embezzlement. Two significant modern institutions radically evolved during the 18th to mid 19th centuries to control these costs: criminal law and public police. These institutions strongly interacted with the pace of the Industrial Revolution. Our argument explains this evolution, and helps to explain several historical facts: the role of early police; the fall of the watch system; the removal of possession immunity; the rise and fall of factory colonies; the fall and rise of court cases during the 18th century; and the delay of per capita income in response to technical innovations in the Industrial Revolution. Creation-Date: 2007-12 File-URL: http://www.econ.washington.edu/user/yoramb/standard.pdf File-Format: Application/PDF Number: UWEC-2008-01 Handle: RePEc:udb:wpaper:UWEC-2008-01 Template-Type: ReDIF-Paper 1.0 Author-Name: Philip Brock Title: Mortgage Securitization and Economic Development: An Essay on the Caja de Crédito Hipotecario of Chile File-URL: http://www.econ.washington.edu/user/plbrock/NMB Paper 040408.pdf File-Format: Application/PDF Number: UWEC-2008-02 Handle: RePEc:udb:wpaper:UWEC-2008-02 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Zivot Author-Workplace-Name: Department of Economics, University of Washington Title: Practical Issues in the Analysis of Univariate GARCH Models Abstract: This paper gives a tour through the empirical analysis of univariate GARCH models for financial time series with stops along the way to discuss various practical issues associated with model specification, estimation, diagnostic evaluation and forecasting. Creation-Date: 2008-04 Publication-Status: Forthcoming in Handbook of Financial Statistics, Springer-Verlag. File-URL: http://faculty.washington.edu/ezivot/research/practicalgarchfinal.pdf File-Format: Application/PDF Number: UWEC-2008-03-FC Handle: RePEc:udb:wpaper:UWEC-2008-03-FC Template-Type: ReDIF-Paper 1.0 Author-Name: Veronika Czellar Author-Workplace-Name: HEC Paris Author-Name: Eric Zivot Author-Workplace-Name: Department of Economic, University of Washington Title: Improved small sample inference for efficient method of moments and indirect inference estimators Abstract: The efficient method of moments (EMM) and indirect inference (II) are two widely used simulation-based techniques for estimating structural models that have intractable likelihood functions. The poor performance in finite samples of traditional coefficient and overidentification tests based on the EMM or II objective function indicates a failure of first order asymptotic theory for the distribution of these tests, especially for EMM. We propose practically feasible saddlepoint coefficcient tests for hypotheses on structural coefficients estimated by II and EMM that are asymptotically chi-square distributed and have much better finite sample performance than traditional tests. To construct the tests, we make use of the fact that II and EMM estimators have asymptotically equivalent M-estimators and then use the coefficient saddlepoint tests for M-estimators developed by Robinson, Ronchetti and Young (2003). We evaluate the nite sample behavior of our coeffucient saddlepoint tests by Monte Carlo methods using a MA(1) model. Whereas traditional likelihood-ratio type tests can exhibit substantial size distortions,we show that our saddlepoint tests do not. We also find that the size-adjusted power of our saddlepoint tests is similar to and sometimes greater than the power of traditional tests. Creation-Date: 2008-04 File-URL: http://faculty.washington.edu/ezivot/research/CZ2007Latex2.pdf File-Format: Application/PDF Number: UWEC-2008-04 Handle: RePEc:udb:wpaper:UWEC-2008-04 Template-Type: ReDIF-Paper 1.0 Author-Name: Kathlyn Lucia Author-Name: Stephanie Price Author-Name: Edwin Wong Author-Name: Richard Startz Title: The Changing Relation Between the Canadian and U.S. Yield Curves Abstract: The term structures of Canada and of the United States, two countries with historically close economic ties, have been closely linked. We investigate the link between Canadian and U.S. yield curves and show previously strong correlations between yield curve components dissipate after Canadian monetary policy reforms in the early 1990s. First, the effect is particularly evident in the diminished cross-country correlations of the short term bond yields. Secondly, cross-country yields are cointegrated before the reforms, but not afterwards. Lastly, the results on the term structure are shown using a vector autoregression with an endogenously determined break date for Canadian and U.S. estimates of the three-factor Nelson-Siegel (1987) yield curve model. Creation-Date: 2008-05 File-URL: http://www.econ.washington.edu/user/startz/Working_Papers/Changing%20Relation%20May%202008%20wp.pdf File-Format: Application/PDF Number: UWEC-2008-05 Handle: RePEc:udb:wpaper:UWEC-2008-05 Template-Type: ReDIF-Paper 1.0 Author-Name: Jun Ma Author-Workplace-Name: U of Alabama Author-Name: Charles R. Nelson Title: Valid Inference for a Class of Models Where Standard Inference Performs Poorly: Including Nonlinear Regression, ARMA, GARCH, and Unobserved Components Creation-Date: 2008-09 Revision-Date: 2008-09 File-URL: http://www.econ.washington.edu/user/cnelson/Valid.pdf File-Format: Application/PDF Number: UWEC-2008-06-R Handle: RePEc:udb:wpaper:UWEC-2008-06-R Template-Type: ReDIF-Paper 1.0 Author-Name: Richard Hartman Title: Optimal Resource Management in a Stochastic Schaefer Model Abstract: This paper incorporates uncertainty into the growth function of the Schaefer model for the optimal management of a biological resource. There is a critical value for the biological stock, and it is optimal to do no harvesting if the biological stock is below that critical value and to exert whatever harvesting effort is necessary to prevent the stock from rising above that critical value. The introduction of uncertainty increases the critical value of the stock. Creation-Date: 2008-04 File-URL: http://www.econ.washington.edu/user/rhartman/Stochastic Schaefer Model-2008-04.pdf File-Format: Application/PDF Number: UWEC-2008-07 Handle: RePEc:udb:wpaper:UWEC-2008-07 Template-Type: ReDIF-Paper 1.0 Author-Name: Fahad Khalil Author-Name: Doyoung Kim Author-Name: Jacques Lawarree Title: Contracts in Bureaucracies Creation-Date: 2008-05 File-URL: http://faculty.washington.edu/lawarree/bureaucrat-5-2008-wp.pdf File-Format: Application/PDF Number: UWEC-2008-08 Handle: RePEc:udb:wpaper:UWEC-2008-08 Template-Type: ReDIF-Paper 1.0 Author-Name: Stephen J. Turnovsky Title: Stabilization Theory and Policy: 50 Years after the Phillips Curve Creation-Date: 2008-05 File-URL: http://www.econ.washington.edu/user/sturn/Phillips-plenary.pdf File-Format: Application/PDF Number: UWEC-2008-09 Handle: RePEc:udb:wpaper:UWEC-2008-09 Template-Type: ReDIF-Paper 1.0 Author-Name: Hendrik Wolff Author-Workplace-Name: University of Washington Author-Name: Howard Chong Author-Workplace-Name: University of California, Berkeley Author-Name: Maximilian Auffhammer Author-Workplace-Name: University of California, Berkeley Title: Consequences of Data Error in Aggregate Indicators Abstract: This paper examines the consequences of data error in data series used to construct aggregate indicators. Using the most popular indicator of country level economic development, the Human Development Index (HDI), we identify three separate sources of data error. We propose a simple statistical framework to investigate how data error may bias rank assignments and identify two striking consequences for the HDI. First, using the cutoff values used by the United Nations to assign a country as ‘low’, ‘medium’, or ‘high’ developed, we find that currently up to 45% of developing countries are misclassified. Moreover, by replicating prior development/macroeconomic studies, we find that key estimated parameters such as Gini coefficients and speed of convergence measures vary by up to 100% due to data error. Creation-Date: 2008-04 File-URL: http://faculty.washington.edu/hgwolff/Indicator.pdf File-Format: Application/PDF Number: UWEC-2008-10 Handle: RePEc:udb:wpaper:UWEC-2008-10 Template-Type: ReDIF-Paper 1.0 Author-Name: Yu-chin Chen Author-Workplace-Name: University of Washington Author-Name: Kenneth Rogoff Author-Workplace-Name: Harvard University Author-Name: Barbara Rossi Author-Workplace-Name: Duke University Title: Can Exchange Rates Forecast Commodity Prices? Abstract: This paper demonstrates that “commodity currency” exchange rates have remarkably robust power in predicting future global commodity prices, both in-sample and out-of-sample. A critical element of our in-sample approach is to allow for structural breaks, endemic to empirical exchange rate models, by implementing the approach of Rossi (2005b). Aside from its practical implications, our forecasting results provide perhaps the most convincing evidence to date that the exchange rate depends on the present value of identifiable exogenous fundamentals. We also find that the reverse relationship holds; that is, that commodity prices Granger-cause exchange rates. However, consistent with the vast post-Meese-Rogoff (1983a,b) literature on forecasting exchange rates, we find that the reverse forecasting regression does not survive out-of-sample testing. We argue, however, that it is quite plausible that exchange rates will be better predictors of exogenous commodity prices than vice-versa, because the exchange rate is fundamentally forward looking. Therefore, following Campbell and Shiller (1987) and Engel and West (2005), the exchange rate is likely to embody important information about future commodity price movements well beyond what econometricians can capture with simple time series models. In contrast, prices for most commodities are extremely sensitive to small shocks to current demand and supply, and are therefore likely to be less forward looking. J.E.L. Codes: C52, C53, F31, F47. Key words: Exchange rates, forecasting, commodity prices, random walk. Acknowledgements. We would like to thank C. Burnside, C. Engel, M. McCracken, R. Startz, V. Stavreklava, A. Tarozzi, M. Yogo and seminar participants at the University of Washington for comments. We are also grateful to various staff members of the Reserve Bank of Australia, the Bank of Canada, the Reserve Bank of New Zealand, and the IMF for helpful discussions and for providing some of the data used in this paper. Creation-Date: 2008-02 File-URL: http://faculty.washington.edu/yuchin/Papers/CRR.pdf File-Format: Application/PDF Number: UWEC-2008-11 Handle: RePEc:udb:wpaper:UWEC-2008-11 Template-Type: ReDIF-Paper 1.0 Author-Name: Yu-chin Chen Author-Workplace-Name: University of Washington Author-Name: Pisut Kulthanavit Author-Workplace-Name: University of Washington Title: Adaptive Learning and Monetary Policy: Lessons from Japan Abstract: Motivated by Japan's economic experiences and policy debates over the past two decades, this paper uses a dynamic general equilibrium open economy model to examine the volatility and welfare impact of alternative monetary policies. To capture the dynamic effects of likely structural breaks in the Japanese economy, we model agents’ expectation formation process with an adaptive learning framework, and compare four Taylor-styled policy rules that reflect concerns commonly raised in Japan's actual monetary policy debate. We first show that imperfect knowledge and the associated learning process induce higher volatility in the economy, while still retaining some of the policy conclusions from rational-expectations setups. In particular, explicit exchange rate stabilization is unwarranted; moreover, under volatile foreign disturbances, policymakers should consider targeting domestic price inflation rather than consumer price inflation. However, contrary to results based on rational expectations, we show that even though highly inflation-sensitive rules do raise output volatility, they may nevertheless improve overall welfare in an adaptive learning setting by smoothing inflation fluctuations. Our findings suggest that previous policy conclusions that are based on partial equilibrium analyses, or that ignore likely deviations from rational expectations, may not be robust. Creation-Date: 2007-12 File-URL: http://faculty.washington.edu/yuchin/Papers/Chen-Kulthanavit.pdf File-Format: Application/PDF Number: UWEC-2008-12 Handle: RePEc:udb:wpaper:UWEC-2008-12 Template-Type: ReDIF-Paper 1.0 Author-Name: Neil Bruce Author-Name: Stephen J. Turnovsky Title: Intergenerational Tax-Transfer Policies, Growth, and the Distribution of Consumption Abstract: In this paper we develop an overlapping-generations economy populated by mortal workers and retirees. Workers receive a stream of earnings from human capital, which consists of the stock of skills and knowledge that makes workers productive, and which grows by workers making investments in new human capital. Once acquired, human capital can be transferred to new workers entering the economy by means of an “education system”. Human capital is embodied in workers, so the economy loses human capital through mortality, and through a pre-mortality event described as “retirement”. The government undertakes two sorts of intergenerational transfers: i) a “younger-to-older” or “social security” transfer that insures workers against the pre-mortality loss of consumption by providing benefits to retirees, and ii) an “older-to-younger” or “education transfer” that provides “start-up” human capital to new workers entering the economy. The transfer programs are funded by taxes on earnings and consumption. With the simplifying assumptions of constant mortality and retirement hazard rates, the economy is aggregated and its growth rate derived. The growth rate is decreased by social security transfers if they are financed by taxes on the earnings, but education transfers can increase the growth rate regardless of how they are financed. The growth rate is higher if there is a greater share of consumption taxes in the tax mix, however the “optimal” tax mix is to finance social security transfers fully with consumption taxes and education transfers fully with earnings taxes. We also analyze earnings/consumption inequality in the economy, and show that the size distribution is a Pareto distribution. The impacts of the transfer programs on the mean and median values and the concentration index are derived. Creation-Date: 2008-05 File-URL: http://www.econ.washington.edu/user/brucen/wp\Intergenerational policies and Growth (rev 5).pdf File-Format: Application/PDF Number: UWEC-2008-13 Handle: RePEc:udb:wpaper:UWEC-2008-13 Template-Type: ReDIF-Paper 1.0 Author-Name: Yu-chin Chen Author-Workplace-Name: University of Washington Author-Name: Pisut Kulthanavit Author-Workplace-Name: University of Washington Title: Monetary Policy Design under Imperfect Knowledge: An Open Economy Analysis Abstract: This paper incorporates adaptive learning into a standard New-Keynesian open economy dynamic stochastic general equilibrium (DSGE) model and analyze under what conditions policymakers should target domestic producer price inflation (DI) versus consumer price inflation (CI). Our goal is to examine how monetary policy rules should adjust when agents’ information sets deviate from those assumed under the rational expectation paradigm. When agents form expectations using an adaptive learning mechanism, even though the central bank has no informational advantage, monetary policy can nonetheless facilitate the learning process and thus mitigate distortions associated with imperfect knowledge. We assume the policy-maker follows a forwardlooking Taylor rule and focus on analyzing the interplay between the source of the dominant shock and the extent of knowledge imperfection. We find that when agents have very limited knowledge and have to learn the dynamics governing both the relevant economic indicators and the underlying structural shocks, a DI targeting rule introduces fewer forecast errors and is better at stabilizing the economy. However, when agents can observe contemporaneous shocks and need only learn how key economic variables evolve (a situation akin to a post-structural-shift economy), targeting away from the dominant shocks helps anchor expectations and improve welfare. A CI target can then become the preferred policy rule when the economy is subject to large domestic shocks. Creation-Date: 2008-05 File-URL: http://faculty.washington.edu/yuchin/Papers/CK2.pdf File-Format: Application/PDF Number: UWEC-2008-14 Handle: RePEc:udb:wpaper:UWEC-2008-14 Template-Type: ReDIF-Paper 1.0 Author-Name: Drew Creal Author-Workplace-Name: Department of Econometrics, Vrije Universiteit Amsterdam Author-Name: Siem Jan Koopman Author-Workplace-Name: Department of Econometrics, Vrije Universiteit Amsterdam Author-Name: Eric Zivot Author-Workplace-Name: University of Washington Title: The effect of the great moderation on the U.S. business cycle in a time-varying multivariate trend-cycle model Abstract: In this paper we investigate whether the dynamic properties of the U.S. business cycle have changed in the last fifty years. For this purpose we develop a flexible business cycle indicator that is constructed from a moderate set of macroeconomic time series. The coincident economic indicator is based on a multivariate trend-cycle decomposition model that accounts for time variation in macroeconomic volatility, known as the great moderation. In particular, we consider an unobserved components time series model with a common cycle that is shared across different time series but adjusted for phase shift and amplitude. The extracted cycle can be interpreted as the result of a model-based bandpass filter and is designed to emphasize the business cycle frequencies that are of interest to applied researchers and policymakers. Stochastic volatility processes and mixture distributions for the irregular components and the common cycle disturbances enable us to account for all the heteroskedasticity present in the data. The empirical results are based on a Bayesian analysis and show that time-varying volatility is only present in the a selection of idiosyncratic components while the coefficients driving the dynamic properties of the business cycle indicator have been stable over time in the last fifty years. Creation-Date: 2008-08 File-URL: http://faculty.washington.edu/ezivot/research/crealKoopmanZivot2008.pdf File-Format: Application/PDF Number: UWEC-2008-15 Handle: RePEc:udb:wpaper:UWEC-2008-15 Template-Type: ReDIF-Paper 1.0 Author-Name: Lan Shi Author-Name: Anjana Susarla Title: Relational Contracts, Reputation Capital, and Explicit Contracts: Evidence from Information Technology Outsourcing Creation-Date: 2008-08 File-URL: http://faculty.washington.edu/lanshi/Research/spt_13_2008_relational_outsourcing.pdf File-Format: Application/PDF Number: UWEC-2008-16 Handle: RePEc:udb:wpaper:UWEC-2008-16 Template-Type: ReDIF-Paper 1.0 Author-Name: Robert Halvorsen Title: What Does the Empirical Work Inspired by Solow's 'The Economics of Resources or the Resources of Economics' Tell Us? Creation-Date: 2008-08 File-URL: http://www.econ.washington.edu/user/halvor/Solow, JNRPR.pdf File-Format: Application/PDF Number: UWEC-2008-17 Handle: RePEc:udb:wpaper:UWEC-2008-17 Template-Type: ReDIF-Paper 1.0 Author-Name: Seik Kim Title: Uncertainty in Human Capital Investment and Earnings Dynamics Abstract: There is a literature that examines the statistical properties of earnings dynamics by testing heterogeneous growth against random walk. This test is of great consequence because rejection of heterogeneous growth has often been interpreted as rejection of a key role for heterogeneity in human capital investment over the life-cycle. This paper shows that optimal life-cycle investment behavior implies not only individual heterogeneity in earnings slopes but also the presence of a persistent error process in earnings. Persistent errors are induced by the response of individuals in human capital investments to transitory shocks to the rental rate of human capital. We incorporate uncertainty about future rental rates for human capital into an optimal life-cycle human capital investment model and obtain an earnings equation implied by the solution to the worker's optimal investment decision. Using the National Longitudinal Survey of Youth 1979 (NLSY79), we confirm that heterogeneity in earnings slopes, permanent errors, and transitory shocks all play a significant role in earnings dynamics. We also learn that a worker's earnings are more affected by shifts in human capital accumulation path than by individual difference in the ability to human capital production. File-URL: http://faculty.washington.edu/seikkim/seikkim_edynamics.pdf File-Format: Application/PDF Number: UWEC-2008-18 Handle: RePEc:udb:wpaper:UWEC-2008-18 Template-Type: ReDIF-Paper 1.0 Author-Name: Seik Kim Title: Economic Assimilation of Foreign-Born Workers in the United States: An Overlapping Rotating Panel Analysis Abstract: This paper presents new evidence on whether foreign-born workers assimilate, which we define as the degree to which the wages of foreign-born workers approach those of comparable native-born workers with additional time spent in the United States. The key econometric challenge is to separate wage growth due to assimilation from composition effects. The composition of immigrant population varies over time due to variation in initial skill levels at year of entry and also because of selective return migration. While much of the existing literature relies on cross-section data, we use longitudinal data on native-born and foreign-born populations which allows us to control for initial skill composition. An advantage of using the Current Population Survey (CPS) is that one can construct cross-section samples by ignoring its longitudinal structure. We compare cross-section and panel models of foreign-native gap in wage growth, and the results suggest that analyses based on repeated cross-section studies are biased upward by fixed unobserved heterogeneity. Controlling for this heterogeneity reverses the conventional result of economic assimilation. Overall, we find little evidence of a narrowing of the foreign-native gap in economic performance. New immigrants from Central and South America earn lower wages than natives, and this gap widens with time in the U.S. labor market. The wages of new immigrants from Europe and Asia exceed those of natives and there is no strong evidence of convergence. We account for sample attrition in the presence of nonrandom outmigration and find that our results are robust to panel attrition. File-URL: http://faculty.washington.edu/seikkim/seikkim_immorpm.pdf File-Format: Application/PDF Number: UWEC-2008-19 Handle: RePEc:udb:wpaper:UWEC-2008-19 Template-Type: ReDIF-Paper 1.0 Author-Name: Kyongwook Choi Author-Workplace-Name: Department of Economics, The University of Seoul, Author-Name: Wei-Choun Yu Author-Workplace-Name: Economics and Finance Department, Winona State University Author-Name: Eric Zivot Author-Workplace-Name: Department of Economics, University of Washington Title: Long Memory versus Structural Breaks in Modeling and Forecasting Realized Volatility Abstract: We explore the possibility of structural breaks in realized volatility with observed long-memory properties for the daily Deutschemark/Dollar, Yen/Dollar and Yen/Deutschemark spot exchange rate realized volatility. We find that structural breaks can partly explain the persistence of realized volatility. We propose a VAR-RV-Break model that provides superior predictive ability compared to most of the forecasting models when the future break is known. With unknown break dates and sizes, we find that the VAR-RV-I(d) long memory model, however, is a very robust forecasting method even when the true financial volatility series are generated by structural breaks. Creation-Date: 2008-09 File-URL: http://faculty.washington.edu/ezivot/research/longMemoryStructuralBreaksRV.pdf File-Format: Application/PDF Number: UWEC-2008-20 Handle: RePEc:udb:wpaper:UWEC-2008-20 Template-Type: ReDIF-Paper 1.0 Author-Name: Yi-Chi Chen Author-Workplace-Name: Department of Economics, National Cheng Kung University, Tainan, Taiwan Author-Name: Eric Zivot Author-Workplace-Name: University of Washington Title: Postwar Slowdowns and Long-Run Growth: A Bayesian Analysis of Structural-Break Models Abstract: Using Bayesian methods, we re-examine the empirical evidence from Ben-David, Lumsdaine and Pappell (“Unit Roots, Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks”, Empirical Economics, 28, 2003) regarding structural breaks in the long-run growth path of real output series for a number of OECD countries. Our Bayesian framework allows the number and pattern of structural changes in trend and variance to be endogenously determined. We find little evidence of postwar growth slowdowns across countries, and we find smaller output volatility for most of the developed countries after the end of World War II. Our empirical findings are consistent with neoclassical growth models, which predict increasing growth over the long run. The majority of the countries we analyze have grown faster in the postwar era as opposed to the period before the first break. Creation-Date: 2008-10 File-URL: http://faculty.washington.edu/ezivot/research/ChenZivot_final.pdf File-Format: Application/PDF Number: UWEC-2008-21 Handle: RePEc:udb:wpaper:UWEC-2008-21 Template-Type: ReDIF-Paper 1.0 Author-Name: Theo S. Eicher Author-Workplace-Name: University of Washington Author-Name: Christian Henn Author-Workplace-Name: IMF Title: In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly Abstract: The literature measuring the impact of Preferential Trade Agreements (PTA) and WTO membership on trade flows has produced remarkably diverse results. Rose’s (2004) seminal paper reports a range of specifications that show no WTO effects, but Subramanian and Wei (2007) contend that he does not fully control for multilateral resistance (which could bias WTO estimates). Subramanian and Wei (2007) address multilateral resistance comprehensively to report strong WTO trade effects for industrialized countries but do not account for unobserved bilateral heterogeneity (which could inflate WTO estimates). We unify these two approaches by accounting for both multilateral resistance and unobserved bilateral heterogeneity, while also allowing for individual trade effects of PTAs. WTO effects vanish and remain robustly insignificant once multilateral resistance, unobserved bilateral heterogeneity, and individual PTA effects are introduced. The result is robust to the use of alternative definitions and coding conventions for WTO membership that have been employed by Rose (2004), Tomz et al. (2007), or by Subramanian and Wei’s (2007). Creation-Date: 2008-10 File-URL: http://faculty.washington.edu/te/papers/E_H_WTO.pdf File-Format: Application/PDF Number: UWEC-2008-22 Handle: RePEc:udb:wpaper:UWEC-2008-22 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Zivot Author-Workplace-Name: University of Washington Author-Name: Saraswata Chaudhuri Author-Workplace-Name: University of North Carolina, Chapel Hill Title: A Comment on Weak Instrument Robust Tests in GMM and the New Keynesian Phillips Curve Creation-Date: 2008-10 File-URL: http://faculty.washington.edu/ezivot/research/scjbescomment.pdf File-Format: Application/PDF Number: UWEC-2008-23 Handle: RePEc:udb:wpaper:UWEC-2008-23 Template-Type: ReDIF-Paper 1.0 Author-Name: Doyoung Kim Author-Name: Jacques Lawarree Title: On the Information Gathering Role of Firm-Sponsored Training for New Hires Creation-Date: 2008-10 File-URL: http://faculty.washington.edu/lawarree/Training-Lawarree-Kim.pdf File-Format: Application/PDF Number: UWEC-2008-24 Handle: RePEc:udb:wpaper:UWEC-2008-24