66 results for Working or discussion paper, 2002

  • Auction Beats Posted Prices in a Small Market

    Julien, Benoit; Kennes, John; King, Ian (2002)

    Working or discussion paper
    The University of Auckland Library

    In a model with two buyers and sellers we consider the choice of sales mechanism from three possibilities: posted prices, and auctions with and without reserve prices. With homogenous goods, sellers expected revenues are highest when both sellers auction with reserve prices 33% higher than if posting prices and 100% higher than if auctioning without reserve prices. When sellers can choose their mechanism before choosing prices, both sellers auction with a reserve price in the dominant strategy equilibrium. With heterogenous goods, the equilibrium with posted prices is inefficient (Montgomery (1991)) but the equilibria with both types of auctions are efficient.

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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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  • Compulsory Licensing of Technology and the Essential Facilities Doctrine

    Aoki, Reiko; Small, John (2002)

    Working or discussion paper
    The University of Auckland Library

    We look at compulsory licensing of intellectual property as remedy for anti-competitive practice. We identify aspects of intellectual property that warrants a different remedy from those using general definitions and remedies for essential facility. Based on the analysis, we present a characterisation of optimal compulsory licensing for a simple market.

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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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  • 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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  • 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 Simple Introduction to Dynamic Programming in Macroeconomic Models

    King, Ian (2002)

    Working or discussion paper
    The University of Auckland Library

    This is intended as a very basic introduction to the mathematical methods used in Thomas Sargent's book Dynamic Macroeconomic Theory. It assumes that readers have no further mathematical background than an undergraduate "Mathematics for Economists" course. It contains sections on deterministic finite horizon models, deterministic infinite horizon models, and stochastic infinite horizon models. Fully worked out examples are also provided.

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  • A Class of Nonlinear Stochastic Volatility Models

    Yu, Jun; Yang, Zhenlin (2002)

    Working or discussion paper
    The University of Auckland Library

    This paper proposes a class of stochastic volatility (SV) models which offers an alternative to the one introduced in Andersen (1994). The class encompasses all standard SV models that have appeared in the literature, including the well known lognormal model, and allows us to empirically test all standard specifications in a convenient way. We develop a likelihood-based technique for analyzing the class. Daily dollar/pound exchange rate data reject all the standard models and suggest evidence of nonlinear SV. An efficient algorithm is proposed to study the implications of this nonlinear SV on pricing currency options and it is found that the lognormal model overprices options.

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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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  • Panel Dynamic OLS Cointegration Vector Estimation and Long-Run Money Demand

    Mark, Nelson; Sul, Donggyu (2002)

    Working or discussion paper
    The University of Auckland Library

    Now published as a journal article in Oxford Bulletin of Economics & Statistics Volume 65 Issue 5 Page 655 - December 2003 doi:10.1111/j.1468-0084.2003.00066.x We study the panel DOLS estimator of a homogeneous cointegration vector for a balanced panel of N individuals observed over T time periods. Allowable heterogeneity across individuals include individual-specific time trends, individual-specific fixed effects and time- specific effects. The estimator is fully parametric, computationally convenient, and more precise than the single equation estimator. For fixed N as T approaches infinity, the estimator converges to a function of Brownian motions and the Wald statistic for testing a set of linear constraints has a limiting chi-square distribution. The estimator also has a Gaussian sequential limit distribution that is obtained first by letting T go to infinity then letting N go to infinity. In a series of Monte Carlo experiments, we find that the asymptotic distribution theory provides a reasonably close approximation to the exact finite sample distribution. We use panel dynamic OLS to estimate coefficients of the long-run money demand function from a panel of 19 countries with annual observations that span from 1957 to 1996. The estimated income elasticity is 1.08 (asymptotic s.e.=0.26) and the estimated interest rate semi-elasticity is -0.02 (asymptotic s.e.=0.01).

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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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  • 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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  • Procyclical Skill Retooling and Equilibrium

    King, Ian; Sweetman, Arthur (2002)

    Working or discussion paper
    The University of Auckland Library

    We argue that more workers choose to switch occupations in booms than in recessions. That is, skill retooling is procyclical. This view is consistent with Lucas and Prescott's (1974) equilibrium search model modified with aggregate shocks and unemployment insurance. Empirical support is found in a unique Canadian administrative data set that measures the annual flow of workers (from 1979-1993) who separate from their jobs to "return to school". This flow is strongly procyclical.

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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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  • What Drives the Cross-Country Growth and Inequality Correlation?

    Bandyopadhyay, Debasis; Basu, Parantap (2002)

    Working or discussion paper
    The University of Auckland Library

    We present a neo-classical model that explores the determinants of growth-inequality correlation and attempts to reconcile the seemingly conflicting evidence on the nature of growth-inequality relationship. The initial distribution of human capital determines the long run income distribution and the growth rate by influencing the occupational choice of the agents. The steady state proportion of adults that innovates and updates human capital is path-dependent. The output elasticity of skilled-labor, barriers to knowledge spillovers, and the degree of redistribution determine the range of steady state equilibria. From a calibration experiment we report that a combination of a skill-intensive technology, low barriers to knowledge spillovers, and a high degree of redistribution characterize the group of countries with a positive growth-inequality relationship. A negative relationship arises in the group with the opposite characteristics.

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  • The Mortensen Rule and Efficient Coordination Unemployment

    Julien, Benoit; Kennes, John; King, Ian (2002)

    Working or discussion paper
    The University of Auckland Library

    We study the implementation of constrained-efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching function. We argue that these allocations can be achieved in equilibrium if wages are determined by ex post bidding. This holds true even in finite sized markets where the equilibrium matching function has decreasing returns to scale where the Hosios rule does not apply to both with and without heterogeneity. This wage determination mechanism is similar to the one proposed by Mortensen (1982) in a different setting.

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  • Asymmetric Information and R&D Competition

    Kao, Tina (2002)

    Working or discussion paper
    The University of Auckland Library

    This paper analyses R&D competition among firms with incomplete information. In a stochastic R&D game, firms possess private information regarding their R&D progress. They can only observe the rival's R&D investments, but not its actual R&D position, R&D investments thus carry both investment and signalling effects. In this two-period model. there are two possible regimes for the second period game: the complete information regime and the signalling regime. In the signalling regime. in order to credibly convey to the rival its first period research success, the first mover has to over-invest. Both firms have higher profits in the complete information regime. The game is in the signalling regime if the difference b€tween monopoly and duopoly profit is sufficiently large and if the possibility of leapfrogging is high. For some parameter ranges, the choice of the information regime is endogenous.

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  • Racing committees for large datasets.

    Frank, Eibe; Holmes, Geoffrey; Kirkby, Richard Brendon; Hall, Mark A. (2002-06-01)

    Working or discussion paper
    University of Waikato

    This paper proposes a method for generating classifiers from large datasets by building a committee of simple base classifiers using a standard boosting algorithm. It allows the processing of large datasets even if the underlying base learning algorithm cannot efficiently do so. The basic idea is to split incoming data into chunks and build a committee based on classifiers build from these individual chunks [3]. Our method extends earlier work in two ways: (a) the best chunk size is chosen automatically by racing committees corresponding to different chunk sizes, and (b) the committees are pruned adaptively to keep the size of each individual committee as small as possible without negatively affecting accuracy. This paper shows that choosing an appropriate chunk size automatically is important because the accuracy of the resulting committee can vary significantly with the chunk size. It also shows that pruning is crucial to make the method practical for large datasets in terms of running time and memory requirements. Surprisingly, the results demonstrate that pruning can also improve accuracy.

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