91 results for The University of Auckland Library, Working or discussion paper

  • Prewhitening Bias in HAC Estimation

    Sul, Donggyu; Phillips, Peter; Choi, Chi-Young (2003)

    Working or discussion paper
    The University of Auckland Library

    Later version now published as a Journal Article: Oxford Bulletin of Economics & Statistics 67 (4), 517-546. doi: 10.1111/j.1468-0084.2005.00130.x HAC estimation commonly involves the use of prewhitening filters based on simple autoregressive models. In such applications, small sample bias in the estimation of autoregressive coefficients is transmitted to the recoloring filter, leading to HAC variance estimates that can be badly biased. The present paper provides an analysis of these issues using asymptotic expansions and simulations. The approach we recommend involves the use of recursive demeaning procedures that mitigate the effects of small sample autoregressive bias. Moreover, a commonly-used restriction rule on the prewhitening estimates (that first order autoregressive coefficient estimates, or largest eigenvalues, greater than 0.97 be replaced by 0.97) adversely interferes with the power of unit root and KPSS tests. We provide a new boundary condition rule that improves the size and power properties of these tests. Some illustrations are given of the effects of these adjustments on the size and power of KPSS testing. Using prewhitened HAC estimates and the new boundary condition rule, the KPSS test is consistent, in contrast to KPSS testing that uses conventional prewhitened HAC estimates (Lee, 1996).

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  • Asymptotic Power Advantages of Long-Horizon Regressions

    Mark, Nelson; Sul, Donggyu (2002)

    Working or discussion paper
    The University of Auckland Library

    Local asymptotic power advantages are available for testing the hypothesis that the slope coefficient is zero in regressions of yt+k- yton xtfor k > 1, when { yt} ~ I(0) and {xt} ~ I(0). The advantages of these long-horizon regression tests accrue in empirically relevant regions of the admissible parameter space. In Monte Carlo experiments, small sample power advantages to long-horizon regression tests accrue in a region of the parameter space that is larger than that predicted by the asymptotic analysis.

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  • A Test Statistic and Its Application in Modelling Daily Stock Returns

    Shao, Qi-Man; Yu, Hao; Yu, Jun (1999)

    Working or discussion paper
    The University of Auckland Library

    In this paper we propose a test statistic to discriminate bctween models with finite variance and models with infinite variance. The test statistic is the ratio of the sample standard deviation and the sample interquartile range. Both asymptotic and finite sample propert,ies of the test statistic are discussed. We show that the test is consistent against infinite-variance distributiorls and has small size distortions. The statistic is applied to compare the competing models for S&P 500 index returns. Our test can not reject most distributions with finite variance for both a pre-crash sample and a post-crash sample, and hence supports the literature. However, for a sample including crash days, our test suggests that the finite-variance distributions must be rejected. The finding is different from what have been discovered in the recent literature.

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  • New Unit Root Asymptotics in the Presence of Deterministic Trends

    Phillips, Peter (1998)

    Working or discussion paper
    The University of Auckland Library

    Recent work by the author (1998) has shown that stochastic trends can be validly represented in empirical regressions in terms of deterministic functions of time. These representations offer an alternative mechanism for modelling stochastic trends. It is shown here that the alternate representations affect the asymptotics of all commonly used unit root tests in the presence of trends. In particular, the critical values of unit root tests diverge when the number of deterministic regressors K -+ rn as the sample size n + w. In such circumstances, use of conventional critical values based on fixed K will lead to rejection of the null of a unit root in favour of trend stationarity with probability one when the null is true. The results can be interpreted as saying that serious attempts to model trends by deterministic functions will always be successful and that these functions can validly represent stochastically trending data even when lagged variables are present in the regressor set, thereby undermining conventional unit root tests.

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  • Residual Wage Disparity in Directed Search Equilibrium

    King, Ian; Kennes, John; Julien, Benoit (2001)

    Working or discussion paper
    The University of Auckland Library

    We examine how much of the observed wage dispersion among similar workers can be explained as a consequence of a lack of coordination among employers. To do this, we construct a directed search model with homogenous workers but where firms can create either good or bad jobs, aimed at either employed or unemployed workers. Workers in our model can also sell their labor to the highest bidder. The stationary equilibrium has both technology dispersion ' different wages due to different job qualities, and contract dispersion ' different wages due to different market experiences for workers. The equilibrium is also constrained-efficient ' in stark contrast to undirected search models with technology dispersion. We then calibrate the model to the US economy and show that the implied dispersion measures are quite close to those in the data.

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  • Intergenerational Welfare Participation in New Zealand

    Maloney, Tim; Maani, Sholeh; Pacheco, Gael (2002)

    Working or discussion paper
    The University of Auckland Library

    New Zealand panel data, which provide extensive information on the benefit histories of children and their parents, is used to estimate an intergenerational correlation coefficient in welfare participation. Recent estimation techniques for addressing issues of measurement error are applied in this analysis (Zimmerman 1992, Solon 1992, Bjorklund and Jantti 1997, Couch, D. and T. Dunn 1997, Auginbaugh, 2000). The long-term benefit histories of parents and instrumental variable techniques provide lower and upper-bound estimates of the true intergenerational correlation. A remarkably narrow band is estimated for this parameter, placing this correlation coefficient at slightly less than 0.4. Approximately one-third of this effect appears to operate through the lower educational attainment of children reared in families receiving social welfare benefits.

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  • Spatial Market Efficiency and Policy Regime Change: Seemingly Unrelated Error Correction Model Estimation

    Thompson, Stanley; Sul, Donggyu; Bohl, Martin (2002)

    Working or discussion paper
    The University of Auckland Library

    Now published as a Journal Article in American Journal of Agricultural Economics Volume 84 Issue 4 Page 1042 - November 2002 doi:10.1111/1467-8276.00366 We investigate the degree to which the wheat markets of France, Germany and the United Kingdom are in spatial equilibrium and how reforms to the CAP affect the speed of convergence to the long-run relationship. Due to the interrelationship among these markets and the nonstationarity of our data we introduce a seemingly unrelated regression augmented Dickey-Fuller and error correction methodology. We argue this methodology is more efficient than ordinary cointegration and error correction models. Empirically we find strong evidence of efficient spatial markets and conformity to the law of one price. Market liberalization reforms in the EU increased the comovement of domestic and world wheat prices; our post-Uruguay Round price transmission elasticity was 0.183.

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  • Dynamic Panel Estimation and Homogenity Testing Under Cross Section Dependence

    Phillips, Peter; Sul, Donggyu (2002)

    Working or discussion paper
    The University of Auckland Library

    Now published as a Journal Article in The Econometrics Journal Volume 6 Issue 1 Page 217 - June 2003 doi:10.1111/1368-423X.00108 This paper deals with cross section dependence, homogeneity restrictions and small sample bias issues in dynamic panel regressions. To address the bias problem we develop a panel approach to median unbiased estimation that takes account of cross section dependence. The new estimators given here considerably reduce the effects of bias and gain precision from estimating cross section error correlation. The paper also develops an asymptotic theory for tests of coefficient homogeneity under cross section dependence, and proposes a modified Hausman test to test for the presence of homogeneous unit roots. An orthogonalization procedure is developed to remove cross section dependence and permit the use of conventional and meta unit root tests with panel data. Some simulations investigating the finite sample performance of the estimation and test procedures are reported.

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  • Open and Closed: Some Historical Dimensions of New Zealand's Participation in the World Economy

    Jackson, Kenneth (2002)

    Working or discussion paper
    The University of Auckland Library

    (Opening paragraph) Openness, along with trade liberalisation, is currently seen as a major factor in producing economic growth and relatively high standards of living as conventionally measured by Gross Domestic Product (GDP) per capita. In the modern literature these two components have been described as: '' believed to have been central to the remarkable growth of industrial countries since the mid-20th century (Winters, 2000, p. 43).

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  • Foundations of Strategic Equilibrium

    Hillas, John; Kohlberg, Elon (2001)

    Working or discussion paper
    The University of Auckland Library

    (Introductory Paragraph) The central concept of noncooperative game theory is that of the strategic equilibrium (or Nash equilibrium, or noncooperative equilibrium). A strategic equilibrium is a profile of strategies or plans, one for each player, such that each player's strategy is optimal for him, given the strategies of the others.

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  • Network Interconnection with Participation Constraints

    Poletti, Steve; Wright, Julian (2003)

    Working or discussion paper
    The University of Auckland Library

    This paper builds on the existing literature on telecommunications interconnection with non-linear pricing and hetrogenous agents, by explicitly taking into account consumers' participation decision. This single change leads to dramatically different conclusions regarding the scope for inclusion by interconnecting networks.

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  • The Growth-Inequality Relationship in A Model with Discrete Occupational Choice and Redistributive Tax

    Bandyopadhyay, Debasis; Basu, Parantap (1999)

    Working or discussion paper
    The University of Auckland Library

    Growth-inequality relationship is reexamined in a neo-classical growth model with discrete occupational choice and incomplete markets for human capital. In our model a fiscal redistributive tax program directly impacts the steady state distribution of human capital by influencing the occupational choice of the agents. Growth and income inequality are endogenously driven by the evolution of the proportion of innovators in the economy and the redistributive tax rate. The correlation between growth and factor shares depends crucially on the interaction between the redistributive tax policy and the initial distribution of human capital. The model predicts that the growth rate and income inequality are positively related across countries with different redistributive tax regimes. On the other hand, countries with different redistributive tax regimes as well as different initial distribution of human capital do not show any robust correlation between growth and inequality. The correlation depends on the skill intensity of the production technology and the degree of institutional barriers to knowledge diffusion. The lesson from the cross-country growth-inequality regression is that it is necessary to adequately control for the differences in initial distribution of human capital, and technology, as well as differences in redistributive tax regimes.

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  • Ragnar Nurkse's Rule-Based Approach to International Monetary Relations: Complementarities with Chicago

    Endres, Anthony; Fleming, G.A. (1998)

    Working or discussion paper
    The University of Auckland Library

    Ragnar Nurkse_s contributions in the 1940s provide rules for international policy coordination complementing the contemporary position outlined by the Chicago economist Henry Simons. Nurkse_s scheme was significantly different from Bretton Woods. Interwar currency and inflation experience underscored the ineffectiveness of sterilized intervention when proceeding with inconsistent monetary and fiscal policies and vague exchange rate commitments. Credible exchange rate rules are possible only with international coordination harmonized by inflation discipline. Nurkse uses an accelerationist, natural rate argument, thereby severely circumscribing attempts to subordinate monetary and fiscal policies to the growth of employment. Ultimately, countries participating in policy coordination must use macroeconomic policies to control the rate and variability of inflation. Nurkse_s scheme depends on the antiinflation and imported credibility messages embodied in his policy rules; insistence that rules be founded on publicly recognizable criteria; recognition of the NAIRU and negative view of trade restrictions and exchange controls. His analysis of policy coordination and scepticism regarding global schemes for international financial relations accord with received wisdom in the late twentieth century.

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  • Modern Theories of Entrepreneurial Behavior: An Appraisal

    Endres, Anthony; Woods, Christine (2003)

    Working or discussion paper
    The University of Auckland Library

    This paper compares three principal, contemporary theories of entrepreneurial decision making - neoclassical, Austrian and behavioral. We employ theory appraisal criteria made available in Fritz Machlup's (1967) celebrated article on alternative theories of the firm. The paper considers theories that treat sequences of behavior by which individual entrepreneurs reach decisions on two levels: the discovery of profit opportunities and their exploitation. We also consider how each theory characterizes the entrepreneur's decision making process by contrast with the posited behavior of other economic agents. Austrian theory is suited to explaining novel, adventurous behavior at the discovery stage. The algorithm for opportunity exploitation in both the neoclassical and Austrian approaches is a single-repertoire, optimization rule. Neoclassical theory is situated in frictionless, atomistic Walrasian markets and emphasizes mathematical tractability. Austrian and behavioral theories conceive entrepreneurial acts taking place in market processes understood as complex institutional phenomena. There are strong theoretical complementarities between Austrian and behavioral approaches; both approaches value descriptive accuracy, though the behavioralists place more weight on operational tractability. Austrians and behavioralists share an interest in heuristics; they emphasize the role of prior micro-level knowledge at the discovery stage. Currently there is no possibility of an all-encompassing theory of entrepreneurial behavior emerging in the literature.

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  • Oligopolisic Business-to-Business E-Market and Welfare

    Aoki, Reiko (2001)

    Working or discussion paper
    The University of Auckland Library

    We examine the effect of an oligopolistic upstream electronic market on upstream and downstream prices. The analysis highlights the two sources of competition that a firm that source from an electronic market (e-market firm) face: competition with less efficient firms that source traditionally (t-market firms) and competition among e-market firms. When size of the upstream e-market is small, the first effect dominates and there is higher profits with lower upstream prices in the e-market. When size of the emarket becomes very large, the second effect makes e-market firms less profitable than t-market firms even though e-market price may start to increase (as market size increases). As consequence, e-market will never completely eliminate the upstream t-market and downstream price can increase when e-market grows beyond a certain size.

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  • Dynamic Seemingly Unrelated Cointegrating Regression

    Mark, Nelson; Ogaki, Masao; Sul, Donggyu (2003)

    Working or discussion paper
    The University of Auckland Library

    Multiple cointegrating regressions are frequently encountered in empirical work as, for example, in the analysis of panel data. When the equilibrium errors are correlated across equations, the seemingly unrelated regression estimation strategy can be applied to cointegrating regressions to obtain asymptotically efficient estimators. While non-parametric methods for seemingly unrelated cointegrating regressions have been proposed in the literature, in practice, specification of the estimation problem is not always straightforward. We propose Dynamic Seemingly Unrelated Regression (DSUR) estimators which can be made fully parametric and are computationally straightforward to use. We study the asymptotic and small sample properties of the DSUR estimators both for heterogeneous and homogenous cointegrating vectors. The estimation techniques are then applied to analyze two long-standing problems in international economics. Our first application revisits the issue of whether the forward exchange rate is an unbiased predictor of the future spot rate. Our second application revisits the problem of estimating long-run correlations between national investment and national saving.

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  • Cournot and Bertrand Competition with Vertical Quality Differentiation

    Aoki, Reiko (2001)

    Working or discussion paper
    The University of Auckland Library

    We consider a model of vertical quality differentiation. We show that in Coumot (quality setting) competition firm's profit is increasing in its own quality and decreasing in its rival's quality. This differs from the results for Bertrand (price setting) competition and conforms to some previously made assumptions concerning profit functions in a setting of vertical quality differentiation. However, even in this case, when an initial stage in which firms make as costly investment in quality is added, an asymmetric equilibrium results. This follows from the fact that in both types of competition, it is possible to improve profit by moving away (either by choosing higher or lower quality) from rival's quality. This paper is the same as manuscript dated 1988 of the same name.

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  • Patent Licensing with Spillovers

    Aoki, Reiko; Tauman, Yair (1998)

    Working or discussion paper
    The University of Auckland Library

    The purpose of this paper is to study the effect of spillover on extent of licensing when cost reducing innovation is introduced and licensed to a number of oligopolistic firms. We characterize the equilibrium number of licenses that are sold through an auction. An increase in the number of licenses has two effects. First, it increases the competition between the licensees. Second, due to spillover, the non-licensees become more efficient contributing to even more competition. We find that despite these effects, a patentee of a significant innovation will sell more licenses when there is spillover than without spillover thereby inducing even more competition. In this case, consumer surplus will be greater with spillover. However, if the innovation is less significant, then the patentee will sell less licenses with spillover thereby restrict competition. In this case the market price will be higher and the consumer surplus will be smaller.

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  • Discrete Fourier Transforms of Fractional Processes August

    Phillips, Peter (1999)

    Working or discussion paper
    The University of Auckland Library

    Discrete Fourier transforms (dft's) of fractional processes are studied and a exact representation of the dft is given in terms of the component data. The new representation gives the frequency domain form of the model for a fractional process, and is particularly useful in analyzing the asymptotic behavior of the dft and periodogram in the nonstationary case when the memory parameter d > 1/2. Various asymptotic approximations are suggested. It is shown that smoothed periodogram spectral estimates remain consistent for frequencies away from the origin in the nonstationary case provided the memory parameter d < 1. When d = 1, the spectral estimates are inconsistent and converge weakly to random variates. Applications of the theory to log periodogram regression and local Whittle estimation of the memory parameter are discussed and some modified versions of these procedures are suggested.

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  • What Do Uncertainty-Averse Decision-Makers Believe? A Note

    Ryan, Matthew (1999)

    Working or discussion paper
    The University of Auckland Library

    The aim of this note is to plug an important gap in our understanding of the epistemic foundations of uncertainty-averse behavior. For Choquet expected utility maximizers (Schmeidler (1989)), the beliefs which motivate uncertainty-averse choice are frequently identified using Dow and Werlang's (1994) notion of support for convex capacities. Building on the work of Morris (1997), we present a new, preference-based belief operator which is is shown to characterize such epistemic inferences. This makes their behavioral foundations transparent, and enables readier comparison with alternative epistemic models for such behavior.

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