- Limited Participation in International Business Cycle Models: A Formal Evaluation
Gao, Xiaodan, University of British Columbia, gao.xiaodan@gmail.com
Hnatkovska, Viktoria, University of British Columbia, hnatkovs@mail.ubc.ca
Marmer, Vadim, University of British Columbia - Economics, vmarmer@interchange.ubc.ca
In this paper we study the role of limited asset market participation (LAMP) for international business cycles. We show that when limited participation is introduced into an otherwise standard model of international business cycles, the performance of the model improves significantly, especially in matching cross-country correlations. To perform formal evaluation of the models we develop a novel statistical procedure that adapts the test of Vuong (1989) to DSGE models and accounts for the possibility that models are misspecified. Based on this test we show that the improvements brought out by LAMP are statistically significant, leading a model with LAMP to outperform a representative agent model. Furthermore, when LAMP is introduced, a model with complete markets is found to do better than a model with no trade in financial assets -- a well-known favorite in the literature. Our results remain robust to the inclusion of investment specific technical change.
Creation Date: 2012-01-24 Revision Date: 2012-01-24
- Instrumental Variables Estimation and Weak-Identification-Robust Inference Based on a Conditional Quantile Restriction
Marmer, Vadim, University of British Columbia - Economics, vmarmer@interchange.ubc.ca
Sakata, Shinichi, University of Southern California, shinichi.sakata@gmail.com
Extending the L1-IV approach proposed by Sakata (1997, 2007), we develop a new method, named the $rho_{tau}$-IV estimation, to estimate structural equations based on the conditional quantile restriction imposed on the error terms. We study the asymptotic behavior of the proposed estimator and show how to make statistical inferences on the regression parameters. Given practical importance of weak identification, a highlight of the paper is a proposal of a test robust to the weak identification. The statistics used in our method can be viewed as a natural counterpart of the Anderson and Rubin's (1949) statistic in the $rho_{tau}$-IV estimation.
Creation Date: 2011-09-28 Revision Date: 2011-09-28
- Methods of Aggregation above the Basic Heading Level within Regions
Diewert, Erwin, University of British Columbia - Economics, diewert@econ.ubc.ca
The paper explains part of the methodology that was used in the 2005 International Comparison Program (ICP) that compared the relative price levels and GDP levels across 146 countries and 5 regions. This paper looks at the methodology which was used in order to calculate relative volumes and Purchasing Power Parities (PPPs) within each region. In previous rounds of the ICP, only two multilateral methods were used: the Gini Eltetö Köves Szulc (GEKS) method and the Geary Khamis (GK) method, which is an additive method. The axiomatic and economic properties of these methods and a relatively new additive method, the Iklé Dikhanov Balk (IDB) method used by the African region, are studied. A fourth method, the Minimum Spanning Tree method, due to Robert Hill is also studied.
Creation Date: 2011-09-23 Revision Date: 2011-09-23
- Methods of Aggregation above the Basic Heading Level: Linking the Regions
Diewert, Erwin, University of British Columbia - Economics, diewert@econ.ubc.ca
The paper explains part of the methodology that was used in the 2005 International Comparison Program (ICP) that compared the relative price levels and GDP levels across 146 countries and 5 regions. Each of the regions constructed its own set of Purchasing Power Parities (PPPs) and relative country expenditure volumes. The paper studies various methods for constructing a global set of relative country volumes and PPPs while respecting the regional parities—the fixity constraint. Two methods emerge as having good properties: a method due to Heston and Dikhanov and an alternative method due to Eurostat, the OECD and Robert Hill. Some small numerical examples illustrate the differences between the various methods.
Creation Date: 2011-09-23 Revision Date: 2011-09-23
- Afriat's Theorem and Some Extensions to Choice under Uncertainty
Diewert, Erwin, University of British Columbia - Economics, diewert@econ.ubc.ca
The first part of the paper reviews the methodology developed by Sydney Afriat for determining whether a finite set of price and quantity data are consistent with utility maximizing behavior by a consumer. Some extensions of his basic model to models of consumer behavior where the structure of preferences is restricted in some way are also explained. Examples of special structures are homotheticity, separability and quasilinearity of the utility function. The second half of the paper is devoted to developing Afriat type consistency tests for expected and nonexpected utility maximizing behavior.
Creation Date: 2011-09-01 Revision Date: 2011-09-01
- The Measurement of Banking Services in the System of National Accounts
Diewert, Erwin, University of British Columbia - Economics, diewert@econ.ubc.ca
Fixler, Dennis, Bureau of Economic Analysis,
Zieschang, Kimberly, International Monetary Fund,
The paper considers some of the problems associated with the indirectly measured components of financial service outputs in the System of National Accounts (SNA), termed FISIM (Financial Intermediation Services Indirectly Measured). The paper characterizes FISIM by a user cost and supplier benefit approach determining the price and quantity of various financial services in the banking sector. We examine the need for FISIM in the context of plausible alternative accounting schemes that could be used to account for financial services. The alternative accounting frameworks have implications for the labour and multifactor productivity of both the financial and nonfinancial sectors.
Creation Date: 2011-09-01 Revision Date: 2011-09-01
- Reciprocal Relationships and Mechanism Design
Celik, Gorkem, University of British Columbia, celik@interchange.ubc.ca
Peters, Michael, UBC, peters@econ.ubc.ca
We study an incomplete information game in which players are involved in a reciprocal relationship that allows them to coordinate their actions by contracting among themselves. We model this as a competing mechanism game in which players have the ability to write contracts. We characterize the set of outcome functions that can be supported as equilibrium in this enhanced game. We use our characterization to show that the set of supportable outcomes is bigger than the set of outcomes supported by a centralized mechanism designer who can offer mechanisms in which all players participate. The difference is that the contracting game makes it possible for players to convey partial information about their type at the time they offer contracts.
Creation Date: 2011-08-01 Revision Date: 2011-08-01
- Funding Empire: Risk, Diversification, and the Underwriting of Early Modern Sovereign Loans.
Drelichman, Mauricio, University of British Columbia - Economics, drelichm@interchange.ubc.ca
Voth, Hans-Joachim, ICREA / Universitat Pompeu Fabra,
Lending to early modern monarchs could be very profitable, yet highly risky. International financiers unlocked the excess returns in sovereign debt markets by parceling out the risk and transferring it to downstream investors in exchange for financial intermediation fees. We link two sovereign loans to Philip II of Spain to a downstream Genoese partnership. After examining the performance of the loans through the 1596 bankruptcy and its ensuing settlement, we conclude that the risk diversification scheme used by international bankers worked. Shares in sovereign loans were held within highly diversified portfolios, enhancing their returns in normal times and not posing excessive risks when caught in a default.
Creation Date: 2011-07-06 Revision Date: 2011-07-06
- Risk Sharing with the Monarch: Contingent Debt and Excusable Defaults in the Age of Philip II, 1556-1598
Drelichman, Mauricio, University of British Columbia - Economics, drelichm@interchange.ubc.ca
Voth, Hans-Joachim, ICREA / Universitat Pompeu Fabra,
Contingent sovereign debt has the potential to create important welfare gains – but actual issuance is rare. Using hand-collected archival data, we examine the first known case of large-scale issuance of contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date was contingent upon verifiable, exogenous events such as the arrival of silver fleets. This allowed for effective risk-sharing between the king and his bankers. The defaults that occurred were excusable, occurred in bad states of the world, and under conditions that could not be foreseen or contracted on ex ante.
Creation Date: 2011-07-04 Revision Date: 2011-07-04
- Hedonic Regressions and the Decomposition of a House Price index into Land and Structure Components
de Haan, Jan, Statistics Netherlands, Jhhn@cbs.nl
Diewert, Erwin, University of British Columbia - Economics, diewert@econ.ubc.ca
Hendriks, Rens, Statistics Netherlands, r.hendriks@cbs.nl
The paper uses hedonic regression techniques in order to decompose the price of a house into land and structure components using readily available real estate sales data for a Dutch city. In order to get sensible results, it was useful to use a nonlinear regression model using data that covered multiple time periods. It also proved to be necessary to impose some restrictions on the price of structures. The resulting builder’s hedonic regression model was compared with the results for traditional logarithmic hedonic regression models.
Creation Date: 2011-04-05 Revision Date: 2011-04-05
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