91 results for Working or discussion paper, ResearchSpace@Auckland

  • 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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  • 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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  • 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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  • Gender Differences in Trust and Reciprocity

    Chaudhuri, Ananish; Gangadharan, Lata (2003)

    Working or discussion paper
    The University of Auckland Library

    We use the investment game introduced by Berg, Dickhaut and McCabe (1995) to explore gender differences in trust and reciprocity. In doing so we replicate and extend the results first reported by Croson and Buchan (1999). We find that men exhibit greater trust than women do while women show higher levels of reciprocity. Trusting behavior is driven strongly by expectations of reciprocation. We posit that the lower levels of trust exhibited by women may be attributed to a higher degree of risk aversion.

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  • MCMC Methods for Estimating Stochastic Volatility Models with Liverage Effects: Comments on Jacquier, Polson and Rossi (2002)

    Yu, Jun (2002)

    Working or discussion paper
    The University of Auckland Library

    In this note we represent the well known discrete time stochastic volatility (SV) model with a leverage effect and the SV model of Jacquier, Polson and Rossi (JPR) (2002) using Gaussian nonlinear state space forms with uncorrelated measurement and transition errors. With the new representations, we show that the JPR specification does not necessarily lead to a leverage effect and hence is not theoretically justified. Empirical comparisons of these two models via Bayesian MCMC methods reveal that JPR's specification is not supported by actual data either. Simulation experiments are conducted to study the sampling properties of the Bayes estimator for the conventionally specified model.

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  • Two-way Interconnection with Partial Consumer Participation

    Schiff, Aaron (2001)

    Working or discussion paper
    The University of Auckland Library

    This paper incorporates partial consumer participation in a model of competition between telecommunications networks with two-way interconnection. It is shown, in contrast to the results of similar models with full participation, that the firms' equilibrium profits depend on the level of a reciprocal access charge under two-part retail pricing. Under some simplifying assumptions, it is shown that firms prefer the access charge be set equal to the marginal cost of termination, which coincides with the social optimum. Without these additional assumptions the model is analytically complex and simulation results are presented that suggest firms prefer the access charge to be less than marginal cost, while the socially optimal access charge may be above or below cost depending on the differentiation of the firms.

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  • Does Enviromental Regulation Stimulate Innovative Responses? Evidence from U.S. Manufacturing

    Ratnayake, Ravi (1999)

    Working or discussion paper
    The University of Auckland Library

    A wide spread concern can be witnessed among businessmen, policy makers and academics about the role of environmental regulations on innovative responses. In this study, we examine whether these regulations enhance or hinder R&D expenditure using the data for eight major U.S industries for the period 1982 to 1992. We find no strong evidence to support the view that environmental regulations proxied by abatements costs have any significant impact on the pollution abatement technology.

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  • Parental Income and the Choice of Participation in University, Polytechnic or

    Maani, Sholeh (2005)

    Working or discussion paper
    The University of Auckland Library

    This paper examines the link between parental income during adolescent years and higher education choices of the offspring at age 18. This study is the first to use a recent longitudinal data set from New Zealand (Christchurch health and development Surveys, CHDS), in the higher education context. The paper examines the impact of family income and other resources throughout adolescent years on later decisions to participate in higher education and the choice of type of tertiary education at age 18. A binary choice model of participation in education, and a multinomial choice model of the broader set of choices faced at age 18, of employment, university, or polytechnic participation are estimated. Among the features of the study are that it incorporates a number of variables, from birth to age 18, which allow us to control further than most earlier studies for ability heterogeneity, academic performance in secondary school, in addition to parental resources (e.g., childhood IQ, nationally comparable high school academic performance, peer effects, family size and family financial information over time). The results highlight useful features of intergenerational participation in higher education, and the effect of parental income on university education, in particular.

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  • Private and Public Returns to Investments in Secondary and Higher Education in NZ over time: 1981- 1996

    Maani, Sholeh (2000)

    Working or discussion paper
    The University of Auckland Library

    Utilising evidence from a longitudinal data set of young adults in New Zealand, this study examines the determinants of school leaving and labour supply behaviour of young adults at ages 16 and 18. The data set employed (the Christchurch Health and Development Survey) includes a number of variables, from birth to age 18, not commonly available in economic data sets. The analysis uses binary choice models to examine the effect of ability factors and household economic constraints on the choice to remain at secondary school beyond post-compulsory levels at age 16. The study further uses binary and multinomial choice models to examine the determinants of participation in tertiary education, as opposed to engaging in labour supply, or unemployment at age 18. The study finally examines the determinants of the type of tertiary institution attended. tertiary education in the 1981-1991 period, and a stabilisation of results for males and a relative decline in the returns for females since 1991.

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  • The Shaping of Research Agendas in International Economic Organizations: Illustrations from the World Bank, IMF and OECD

    Endres, Anthony; Fleming, G.A. (2002)

    Working or discussion paper
    The University of Auckland Library

    We investigate the determinants, development, character and distinctiveness of research programmes in international economic organisations (IEOs). In the twentieth century, IEOs emerged as another domain - in addition to government, business and academia - in which economists demonstrated the value of their intellectual constructs. What were the forces shaping economic thought in IEOs? How does the incorporation of new ideas in IEO research affect policy prescriptions emanating from IEOs? We offer illustrations from the IMF, OECD, and World Bank drawn from work in the late 1960s to the early 1980s. We view the subject matter as a variant of Schumpeterian 'political economy' rather than pure analytical economics. Economic research in IEOs enabled economists to assume positions as critical intellectual actors in IEO policy formation. Key determinants of economic thought in IEOs included the rationale for the existence of a particular organisation as expressed in formal charters or constitutions; contemporary ideas disseminated from academic economic analysis, and pressures applied by member governments to research and advise on specific policy questions either as events or operational functions demanded. We consider the World Bank as a purveyor of development strategies, in particular the concept of 'structural adjustment' in the 1980s; the self-styled monetary approach to the balance of payments prosecuted at the IMF from the 1960s to the 1980s, and the OECD policy line on economic policy reform in developed industrialised countries in the late 1970s. IEO research agendas were predominantly aimed at problems resulting from international economic interdependencies. We conclude that, for an IEO, international political economy was more likely to sway national policymakers if it employed a discourse - together with carefully chosen metaphors - turning on operational imperatives and articulating ruling policy concepts framed as part of eclectic, applicable models. We find little support for the public choice view of IEO research (and researchers) as involving bureaucratic and research budget maximization and strict research independence. Economic thought in IEOs is demand -driven though not completely demand- determined.

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  • Jacknifing Bond Option Prices

    Yu, Jun; Phillips, Peter (2002)

    Working or discussion paper
    The University of Auckland Library

    In continuous time specifications, the prices of interest rate derivative securities depend crucially on the mean reversion parameter of the associated interest rate diffusion equation. This parameter is well known to be subject to estimation bias when standard methods like maximum likelihood (ML) are used. The estimation bias can be substantial even in very large samples and it translates into a bias in pricing bond options and other derivative securities that is important in practical work. The present paper proposes a very general method of bias reduction for pricing bond options that is based on Quenouille's (1956) jackknife. We show how the method can be applied directly to the options price itself as well as the coefficients in continuous time models. The method is implemented and evaluated here in the Cox, Ingersoll and Ross (1985) model, although it has much wider applicability. A Monte Carlo study shows that the proposed procedure achieves substantial bias reductions in pricing bond options with only mild increases in variance that do not compromise the overall gains in mean squared error. Our findings indicate that bias correction in estimation of the drift can be more important in pricing bond options than correct specification of the diffusion. Thus, even if ML or approximate ML can be used to estimate more complicated models, it still appears to be of equal or greater importance to correct for the effects on pricing bond options of bias in the estimation of the drift. An empirical application to U.S. interest rates highlights the differences between bond and option prices implied by the jackknife procedure and those implied by the standard approach. These differences are large and suggest that bias reduction in pricing options is important in practical applications.

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  • On The Relation Among Some Definitions Of Strategic Stability

    Hillas, John; Jansen, Mathijis; Potters, Jos (2001)

    Working or discussion paper
    The University of Auckland Library

    In this paper we examine a number of different definitions of strategic stability and the relations among them. In particular, we show that the stability requirement given by Hillas (1990) is weaker than the requirements involved in the various definitions of stability in Mertens' reformulation of stability (Mertens 1989, 1991). To this end, we introduce a new de nition of stability and show that it is equivalent to (a variant of) the definition given by Hillas (1990). We also use the equivalence of our new de nition with the definition of Hillas to provide correct proofs of some of the results that were originally claimed (and incorrectly \proved") in Hillas (1990).

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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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  • Achieving an efficient equilibrium when simultaneously bidding on multiple, divisible-item auctions

    Beltran, Fernando; Roggendorf, Matthias (2006)

    Working or discussion paper
    The University of Auckland Library

    We investigate equilibrium properties of a bidding strategy in a situation in which bidders attempt to purchase a given amount of a divisible resource by bidding on multiple auctions. A possible application area for such a scenario is the next-generation of wireless networks, in which multiple, competing network providers sell bandwidth each using an auction to allocate their resources. A bidder may aggregate shares of the resource obtained from some of the auctions, and needs to coordinate his bids to maximise the utility derived from each auction. In order to deal with aggregation and coordination of bids, we introduce the notion of an aggregated market, which is an artificial construct by each bidder that allows him to distribute his demand among the auctions. Furthermore, the aggregate market helps to understand convergence of the bidding process occurring at each individual auction. We show that by using an incentive-compatible, efficient mechanism at each single auction bidders have incentives to truthfully reveal their demand to the aggregated market.

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  • Oligopoly Behaviour in the Trans-Tasman Air Travel Market: TheCase of Kiwi International

    Haugh, David; Hazledine, Tim (1999)

    Working or discussion paper
    The University of Auckland Library

    The duopoly of Air New Zealand and Qantas serving the trans-Tasman air travel market was disturbed in August 1995 by the entry of a small former charter airline, Kiwi International, based in Hamilton, NZ. Kiwi exited into liquidation in September 1996. The intervening thirteen months saw the entry of a 'fighting brand' no-frills airline, Freedom Air, set up by Air New Zealand to compete directly with Kiwi, and then a general price war initiated by Qantas, which directly preceded Kiwi_s demise. Was the behaviour of the incumbent duopolists 'predatory', in the sense of being designed to drive the new entrant from the market? Standard tests based on comparisons of price and costs are inconclusive. The innovation of this paper is to model the oligopolistic behaviour of the firms before and after entry. It is found that the duopolists became substantially more 'competitive' during the price war period, consistent with an interpretation of intent to predate.

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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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