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

  • 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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  • 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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  • 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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  • 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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  • 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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  • 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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  • 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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  • The Determinants of Optimal Interchange Fees in Payment Systems

    Wright, Julian (2001)

    Working or discussion paper
    The University of Auckland Library

    A fundamental aspect of any open payment system is the interchange fee that is paid from the merchant's bank to the cardholder's bank. Using a model in which there is partial participation by heterogeneous consumers and merchants, this paper characterizes the output maximizing, profit maximizing and welfare maximizing level of such an interchange fee. It examines how the optimal level of the fee depends on costs, profits margins, pass-through coefficients, participation rates, and membership fees, as well as two different strategic effects arising from competition between merchants. It also determines the factors which drive deviations between the output maximizing, profit maximizing, and welfare maximizing interchange fees.

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  • Bias in Dynamic Panel Estimation with Fixed Effects, Incidental Trends and Cross Section Dependence

    Phillips, Peter; Sul, Donggyu (2003)

    Working or discussion paper
    The University of Auckland Library

    Explicit asymptotic bias formulae are given for dynamic panel regression estimators as the cross section sample size N 8. The results extend earlier work by Nickell (1981) in several directions that are relevant for practical work, including models with unit roots, deterministic trends, predetermined and exogenous regressors, and errors that may be cross sectionally dependent. The asymptotic bias is found to be so large when incidental linear trends are fitted and the time series sample size is small that it changes the sign of the autoregressive coefficient. Another finding of interest is that, when there is cross section error dependence, the probability limit of the dynamic panel regression estimator is a random variable rather than a constant, which helps to explain the substantial variability observed in dynamic panel estimates when there is cross section dependence even in situations where N is very large.

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  • Deviance Information Criterion as a Model Comparison Criterion for Stochastic Volatility Models

    Berg, Andreas; Meyer, Renate; Yu, Jun (2002)

    Working or discussion paper
    The University of Auckland Library

    Bayesian methods have proven very efficient in estimating parameters of stochastic volatility (SV) models for analysing financial time series. Recent work extends the basic stochastic volatility model to include heavy-tailed error distributions, covariates, leverage effects, and jump components. Hierarchical Bayesian methods (usually implemented via state-of-the-art Markov chain Monte Carlo methods for posterior computation) allow fitting of such complex models. However, a formal model comparison via Bayes factors is difficult because the marginalization constants are not readily available. Bayesian modelcomparison using the Schwarz criterion as a Bayes factor approximation requires the specification of the number of free parameters in the model. This number of free parameters, or degrees of freedom, is not well defined in stochastic volatility models. The main objective of this paper is to demonstrate that model selection within the class of SV models is better performed using the deviance information criterion (DIC). DIC is a recently developed information criterion designed for complex hierarchical models with possibly improper prior distributions. It combines a measure of fit with a measure of model complexity. We illustrate the performance of DIC in discriminating between various different SV models using simulated data and daily returns data on the S&P 100 index.

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  • Estimation of Hyperbolic Diffusion using MCMC Method

    Tse, Y.K.; Zhang, Bill; Yu, Jun (2002)

    Working or discussion paper
    The University of Auckland Library

    In this paper we propose a Bayesian method for estimating hyperbolic diffusion models. The approach is based on the Markov Chain Monte Carlo (MCMC) method after discretization via the Milstein scheme. Our simulation study shows that the hyperbolic diffusion exhibits many of the stylized facts about asset returns documented in the financial econometrics literature, such as a slowly declining autocorrelation function of absolute returns. We demonstrate that the MCMC method provides a useful tool to analyze hyperbolic diffusions. In particular, quantities of posterior distributions obtained from MCMC outputs can be used for statistical inferences.

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  • Optimal Income Tax in the Presence of Status Effects

    Ireland, Norman (1998)

    Working or discussion paper
    The University of Auckland Library

    The classical optimal income tax problem does not reveal many general properties except for the well-known tendency for marginal tax rates to reduce for high ability types, and in fact to become zero for the top type. The existence of distortions from individuals competing to attain social status by using consumption signals justifies some measure of income tax. The question posed here is whether it also constitutes a reason for a more progressive income tax schedule. The answer is found to be broadly negative if progressivity is interpreted as increasing marginal tax rates. On the other hand, status-seeking makes the optimal tax schedule steeper so that redistribution is increased. Broadly, the analysis of status-seeking based on a signalling approach confirms and strengthens the existing view of an optimal tax schedule.

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  • Forecasting New Zealand's Real GDP

    Schiff, Aaron; Phillips, Peter (2000)

    Working or discussion paper
    The University of Auckland Library

    Recent time series methods are applied to the problem of forecasting New Zealand_s real GDP. Model selection is conducted within autoregressive (AR) and vector autoregressive (VAR) classes, allowing for evolution in the form of the models over time. The selections are performed using the Schwarz (1978) BIC and the Phillips-Ploberger (1996) PIC criteria. The forecasts generated by the data determined AR models and an international VAR model are found to be competitive with forecasts from fixed format models and forecasts produced by the NZIER. Two illustrations of the methodology in conditional forecasting settings are performed with the VAR models. The first provides conditional predictions of New Zealand_s real GDP when there is a future recession in the United States. The second gives conditional predictions of New Zealand_s real GDP under a variety of profiles that allow for tightening in monetary conditions by the Reserve Bank.

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  • Health Insurance in the Presence of Physician Price Discrimination

    Vaithianathan, Rhema (1998)

    Working or discussion paper
    The University of Auckland Library

    We model equilibrium in the health insurance market, when a monopolistic physician price discriminates on the basis of coinsurance rates. The physician extracts surplus created in the insurance market, leading to some consumers remaining uninsured. This 'hold-up' problem is solved if the physician and insurer integrate or enter a price agreement prior to writing the insurance contract. Both approaches improve insurer and physician profitability, and restore complete insurance market coverage. This paper therefore explains both partial insurance market coverage and the emergence of various contractual and ownership arrangements in the health insurance industry.

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  • The Impact of Recent Welfare Reforms on Labour Supply Behaviour In New Zealand

    Maloney, Tim (1998)

    Working or discussion paper
    The University of Auckland Library

    New Zealand recently initiated sweeping reforms to its social welfare programmes by cutting benefits and tightening eligibility criteria. One of the objectives of these reforms was to provide incentives for people to enter or re-enter the labour force. Econometric analysis is used in this paper to isolate the actual effects of these benefit reforms on labour supply. Previous research in many counties has often failed to accurately measure the extent of these work disincentives, or to observe variation in these programmes that would allow this empirical analysis to take place. The structure of these benefit programmes in New Zealand, and the nature of these reforms offers a unique opportunity to identify these behavioural responses. Quarterly random samples of individuals between 1985 and 1995 are used to isolate the effects of these reforms, while controlling for a wide variety of other influences. This study finds compelling evidence that these benefit reforms resulted in a substantial increase in aggregate labour supply in this country.

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  • Can The Distribution of Highest Educational Attainment Be Characterised By A Discrete Probability Distribution?

    Bandyopadhyay, Debasis (1999)

    Working or discussion paper
    The University of Auckland Library

    Distribution of human capital is a recent addition in the literature to the list of a few fundamental determinants of growth. This paper addresses an important problem associated with the empirical characterization of that distribution by utilizing the recently available distribution of the highest educational attainment in the labor force. We tried to fit the distribution of the number of years of school by over-dispersed Poisson and Negative-Binomial distributions. Based on the data compiled by Barro and Lee, none of the discrete distributions fit the data. The standard discrete probability distributions are too smooth to account for the important information contained in the data, ie., schooling is more likely to be terminated at the completion of a category of schooling (e.g., primary, secondary, and higher education) than during a category, an important feature contained in the frequency distribution of highest educational attainment. Future research of this data should focus on more complex models which account for this "discontinuity" in the data, or modeling of other important features of the frequency distribution of highest educational attainment.

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  • The Elusive Empirical Shadow of Growth Convergence

    Phillips, Peter; Sul, Donggyu (2003)

    Working or discussion paper
    The University of Auckland Library

    Two groups of applied econometricians have figured prominently in empirical studies of growth convergence. In terms of a popular caricature, one group believes it has found a black hat of convergence (evidence for growth convergence) in the dark room of economic growth, even though the hat may not exist (the task may be futile). A second group believes it has found a black coat of divergence (evidence against growth convergence) even though this object also may not exist (empirical reality, including the nature of growth divergence, is ever more complex than the models used to characterize it). The present paper seeks to light a candle to see whether there is a hat, a coat or another object of identifiable clothing in the room of regional and multi-country economic growth. After our examination, we find that the candle power of applied econometrics is too low to clearly distinguish a black hat in the huge dark room of economic growth. However, in our theory model, we find an important new role for heterogeneity over time and across economies in the transitional dynamics of economic growth; and, in our empirical work, these transitional dynamics reveal an elusive shadow of the conditional convergence hat in both US regional and inter-country OECD growth patterns.

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