EVALUATING RATIONAL PARTISAN BUSINESS CYCLE THEORY: A RESPONSE*

In a recent article published in this journal Steven Sheffrin presented the results of two tests on the so called “Rational Partisan Theory”. Sheffrin concluded that the evidence provides “little support for a strict interpretation of the theory”. This note argues that, although interesting in itself, the tests performed by Sheffrin are not particularly informative about the empirical relevance of the Rational Partisan Theory. Also, this note reconciles Sheffrin's results on OECD economies with the literature, which, in general, has found rather supportive evidence for the Rational Partisan Theory.     

Revisiting the threshold effect of remittances on total factor productivity growth in South Asia: a study of Bangladesh and India

Both Bangladesh and India are among the top recipient of remittances in absolute terms. However, in relative terms – remittances as a per cent of GDP – the two countries stand at 6.1% and 2.8%, respectively, well below the levels of the top 10 recipients. In this article, we explore the effect of remittances on the total factor productivity (TFP) growth considering Bangladesh and India, as reference countries over the periods 1980–2012 and 1977–2012, respectively. We examine the presence of a long-run association between remittances and TFP using a number of tests. The results indicate that remittances have threshold effects on TFP growth in both countries. Despite the two countries receiving substantial amount of remittances, we note that Bangladesh has a U-shaped relationship whereas India has an inverted U-shaped relationship with TFP growth. For Bangladesh, a minimum threshold of remittances (% GDP) is 5.3% and for India, a tipping point of remittances (% GDP) is at 1.8%. The causality tests confirm a bidirectional effect, which implies that remittances and TFP growth are mutually reinforcing. Interestingly, while the two economies have similar remittances impact in regards to causality, the study highlights two different tipping points of remittances.     

A note on the Wald,LR and LM tests and misspecification

In this note, we investigate sensitivity of the Wald, LR and LM tests to specification error. It is shown that these three tests are very sensitive to specification error, but the LM test is relatively superior to other two tests under certain situations.     

Breaks in the chain of comparative advantage

The chain proposition of comparative advantage states that when factor prices differ between two countries producing many products with two factors, every export of the capital abundant country would be more capital intensive than any of its imports. The present note points out that an economy has the option to break the chain to reach full employment if its factor endowment is not spanned by the production cone of the more intensive products.     

THE FOREIGN CURRENCY LOANS AFFAIR: SOME COMMENTS

Kingston (1995) discusses the legal complications arising out of the foreign currency loans taken out in the middle eighties. This note discusses a number of points of difference within Kingston's interpretations. The most important example of these is the predictability of the losses arising from the loans. Some potential solutions of the problems identified by Kingston, and in this note, are also canvassed.     

THE FOREIGN CURRENCY LOANS AFFAIR: SOME COMMENTS

Kingston (1995) discusses the legal complications arising out of the foreign currency loans taken out in the middle eighties. This note discusses a number of points of difference within Kingston's interpretations. The most important example of these is the predictability of the losses arising from the loans. Some potential solutions of the problems identified by Kingston, and in this note, are also canvassed.     

Wald,likelihood ratio,and Lagrange multiplier tests as an F test

This expository note contains, in the case of a multiple regression model, a derivation of the Wald, Lagrange, and Likelihood Ratio tests as a function of the small sample F test. This also allows us to readily establish the well-known small sample inequalities among the first three large sample tests.     

Tests of functional form in dynamic econometric models: Some empirical experience

Econometric theory has provided several rival tests of functional form specifications in economic relations, but there is little empirical experience in using many of them. This note reports some practical applications, and compares the performance of various tests, in specifying dynamic econometric models.     

Advertising and the aggregate demand for cigarettes: A comment

The McGuinness-Cowling study represented a serious attempt to assess the impact of advertising on the demand for cigarettes in the UK, both before and after the 1962 report of the Royal College of Physicians (RCP). This note covers three points. First, it lists some general methodological criticisms of the McGuinness-Cowling approach. Second, it demonstrates a mathematical and conceptual error in their treatment of long-run elasticities. Third, it shows that corrected estimates of the long-run elasticities, based on the McGuinness-Cowling empirical results, are approximately thirty percent and forty percent of the two values given in their paper.     

On Endogeneity Bias: Some General Remarks and Correction of the ROIW Paper by Bourguignon,Ferreira, and Menéndez (2007)

This paper is a short note on the question of correcting for endogeneity bias in a regression. It also points out errors and omissions in the derivation of this bias in Bourguignon, Ferreira, and Menéndez (2007). We show that some assumptions needed for the derivation are not explicit and even under these assumptions, certain simplifications adopted are not valid. We support our points using simulation experiments.     

Economic models based on Pareto and Gamma random variables

The distribution of products of random variables arises explicitly in economics and related areas. This has increased the need to have available the widest possible range of statistical results on products of random variables. In this note, the exact distribution of the product XY is derived when X and Y are independent random variables and arise from the two most applied models for economic data. The associated estimation procedures and percentage points are provided.     

The stability assumption in tests of causality between money and income

This note argues that structural stability is an important condition for tests of Grangercausality. Despite this fact the standard causality tests are sometimes applied to data for which structural stability cannot be assumed a priori. Therefore the stability of GNP/M1 systems of the U.S., Canada, and West Germany in the aftermath of the 1973/74 oil crisis is analyzed using formal statistical tests. Prediction tests are particularly useful for that purpose. The stability of the model for Canadian data is rejected whereas stability is not rejected for the U.S. and West Germany.     

Financial frictions and the ratio in UK manufacturing

This note concerns an asymptotic distribution result from the literature on nonlinear estimation with integrated variables. It points out a way of strengthening local asymptotic distribution results towards results that hold for the global minimizer of the criterion function.     

Life-Cycle Consumption under Rational Expectations: Some Australian Evidence*

Using Australian data, this note tests the srochastic implications of Hall's (1978) national-expectations life-cycle consumption model. The strong version of the hypothesis can only be rejected using lagged values of the change in the unemployment rate and a particular measure of disposable income.     

Beyond the principle of population: Malthus's Essay

Abstract

After an introductory section, this article reviews reasons and arguments establishing the invalidity of Malthus's construct of a ‘principle of population’. Section 3 propounds that Malthus's theory is located beyond the principle of population, with the oscillation figure as its centre. Section 4 takes note of the trajectory which the Essay describes between natural and moral science, assesses inequality and growth as the two focal points of Malthus's theory and eventually observes Malthus looking forward to a state beyond the dictates of growth.     

Multivariate tests of the capm under heteroskedasticity: A note

This note extends the multivariate testing procedure to the case where heteroskedasticity is present. Previous tests of the CAPM relied on the market model. However, a substantial body of literature indicates that the error term in the market model is heteroskedastic. Failing to correct for heteroskedasticity can lead to biased estimates of the variance-covariance matrix and hence, incorrect statistics for hypothesis testing. In this note, a Wald test with a variance-covariance matrix corrected for heteroskedasticity is derived to test the CAPM. Using monthly data from 1926 to 1994, the adjusted test overwhelmingly rejects the zerobeta version of the CAPM for the 14 subperiods and for the entire sample period.     

Disease and development: The role of life expectancy reconsidered

This note estimates the causal effect of life expectancy on per capita income and tests the hypothesis of a non-monotonic effect using finite mixture models. The results confirm the hypothesis and qualify recent evidence for a negative effect by Acemoglu and Johnson (2007).     

TAX DATA FOR WEALTH CONCENTRATION ANALYSIS: AN APPLICATION TO SPANISH WEALTH TAX

As recent studies in different countries show, tax data offer the opportunity to estimate income or wealth shares for the upper income groups. However, several critical points must be considered in order to avoid misleading conclusions: the interpolation technique used, legal amendments, and tax fraud. In this note we take Spanish wealth tax as a case study to assess the importance of these factors, and compare our results with those obtained by Alvaredo and Saez (2009 ). Although the results of the two analyses are very similar, our approach complements theirs by offering a more precise treatment of the correction of fiscal underassessment and tax fraud in real estate, which is the main asset in Spaniards' portfolios.     

On the use of autocorrelation in forecasting: Discussion of Aucamp and Eckardt's article in vol. 21, no. 1 of this journal

This note discusses a recent article concerned with various measures of autocorrelation and their appropriateness as tools for making forecasts. It aims to put the record straight on several points, and also suggests an improved way of looking at sample autocorrelations, when the purpose is to identify a plausible model from time series data.     

Spectral analysis as a tool for model discrimination: An application to international capital movements

Empirical discrimination between ‘stock’ and ‘flow’ formulations of international investment based on regression tests has consistently proved unsuccessful. By applying the new technique of model discrimination in the frequency domain, this note provides unequivocal empirical support for the stock model.