A note on decomposing the Malmquist productivity index by means of subvector homotheticity

Summary. This paper introduces a decomposition of the Malmquist productivity index into component indexes. The motivation is to derive an analogue of the decomposition of the T?rnqvist index into productivity and quality change provided by Fixler and Zieschang (1992) to the Malmquist index. Since we employ no second order approximations, this decomposition requires additional structure, namely a generalized version of Shephard's (1970) inverse homotheticity, which we dub subvector homotheticity. We show that subvector homotheticity is necessary and sufficient for our decomposition. Received: July 10, 1998; revised version: August 11, 1999     

Forecasting industrial production in the Euro area

The creation of the Euro area has increased the importance of obtaining timely information about short-term changes in the area's real activity. In this paper we propose a number of alternative short term forecasting models, ranging from simple ARIMA models to more complex cointegrated VAR and conditional models, to forecast the index of industrial production in the euro area. A conditional error-correction model in which the aggregate index of industrial production for the area is explained by the US industrial production index and the business confidence index from the European Commission harmonised survey on manufacturing firms achieves the best score in terms of forecasting capacity. First version received: Jan. 2000/Final version received: March 2000     

Uniqueness of the index for Nash equilibria of two-player games

Summary. Given a map whose roots are the Nash equilibria of a game, each component of the equilibrium set has an associated index, defined as the local degree of the map. This note shows that for a two-player game, every map with the same roots induces the same index. Moreover, this index agrees with the Shapley index constructed from the Lemke-Howson algorithm. Received: May 30, 1996; revised version June 25, 1996     

On moment condition failure in German stock returns: an application of recent advances in extreme value statistics

This note reconsiders divergent results on the extremal behaviour of German stock returns that have been published recently. In particular, investigations of this issue have arrived at different conclusions regarding the finiteness of the second moment of the return distributions. Here we apply some newly developed, improved techniques for the estimation of the so-called tail index to the time series of returns on various German stocks. We find evidence indicating that in the vast majority of cases the tails are not fat enough to conform with an infinite-variance distribution. Conflicting results in previous studies are shown to be due to different a priori choices of the size of the tail region. First version received: Dec. 1998/Final version received: April 2000     

Efficiency and options on the market index

Summary. In a static exchange economy, when all the endowments are issued as securities on a stock exchange, Pareto optimal allocations may be reached by trading options on the market index (see Breeden and Litzenberger (1978)). We extend this result when some of the risks cannot be exchanged on the market. Options on an appropriate index, which typically differs from the market index, depending on the correlation of the non-tradable risks with the exchanged securities, are still an appropriate tool to support a (constrained) efficient equilibrium. This suggests that the recent development of derivatives based on interest rates may be an efficient way to reach a Pareto optimal allocation of risks. Received: June 16, 1997; revised version: July 25, 1997     

Estimates of real economic activity in Switzerland, 1886–1930

This paper uses annual data spanning 1870 to 1930 on a set of variables correlated with business conditions to construct an index of real economic activity in Switzerland. We extract an estimate of the common component of the data series using principal components analysis and the unobservable variables approach proposed by Stock and Watson (1989, 1991). The resulting index is similar to that constructed by Andrist et al. (2000) but displays more variation over time and is available for a longer time period. Moreover, it is less volatile and covers a longer time period in the 20th century than the estimate by Ritzmann-Blickenstorfer (1996).First version received: May 2002/Final version received: September 2004The views expressed in this paper are solely our own and are not necessarily shared by the institutions we are affiliated with. We thank the Editor and the anonymous referees for helpful comments (in particular for finding serious errors in the principal components analysis), and Jim Stock and Mark Watson for detailed explanations of their estimation strategy.     

Nonlinear dynamics: Evidence for a small stock exchange

This paper models the main stock index of the Vienna Stock Exchange with daily data from 1986 to 1992. We find that returns are nonnormal and show linear and nonliner dependence. On that basis we compare the fit of alternative specifications of Generalized Autoregressive Conditional Heteroscedasticity (GARCH) to the Markov-Switching approach. The models are evaluated with diagnostic tests on the standardized residuals. We consider evidence for deterministic structures and for infinite variance. Our main result is that a parsimonious model from the GARCH – class can generate the statistical properties of daily returns. The behavior of the two types of models with respect to temporal aggregation is found to differ significantly. First version received: January 1996/Final version received: December 1997     

Circularity of the Malmquist productivity index

The geometric mean version of the Malmquist productivity index does not satisfy the circular test, and its component adjacent period indexes can give different productivity change measures for the same data. A fixed-base version of the index solves both problems, but it is not independent of the base period. It has been argued that time-neutrality of technical change is necessary and sufficient for all three properties to hold. We show that time-neutrality is sufficient, but not necessary, for all three properties. We develop a weaker version of time-neutrality that is necessary and sufficient for all three properties to hold. We thank a very perceptive referee for helpful comments, although content remains our responsibility. A longer working paper is available on request.     

A mean-variance approach to forecasting with the consumer confidence index

This article refines the way consumer confidence survey data are used in forecasting models. The refinement is easy to describe: it extends existing models by controlling for statistically significant changes in consumer confidence index values. The motivation behind this refinement is simply that not all changes in the confidence index are statistically significant, and mean index values alone provide a noisy signal. Using Michigan Index of Consumer Confidence from 1967 through 2013, we show that controlling for significant versus insignificant changes in the consumer confidence index materially enhances the explanatory power of household expenditure forecasting models.     

Goodness-of-fit techniques for count data models: an application to the demand for dental care in Spain

This paper compares the practical performance of alternative goodness-of-fit techniques for count data models in the context of a study of the determinants of demand for dental care in Spain. We apply alternative goodness-of-fit techniques to different specifications. In particular, we implement recently proposed specification tests which are consistent in the direction of general nonparametric alternatives. The analysis suggests that a negative binomial model is an appropriate specification for dental care demand. Dental health and income are identified as important predictors of individuals' behavior. First version received: April 2000/Final version received: March 2001     

Is it efficient to analyse efficiency rankings?

When production functions are estimated as frontier functions, the deviations from the frontier can be interpreted as individual inefficiency estimates. Unfortunately, it has recently been shown that efficiency differences across individuals are very often statistically insignificant. In this paper, we will analyse the consequences of the consideration of confidence statements for the reliability of efficiency rankings. The stochastic frontier and confidence intervals derived by Horrace and Schmidt are compared to the COLS approach and bootstrap confidence intervals. The membership function is proposed as a simple Monte-Carlo approximation for the probability for an individual to be the most efficient in the sample. First version received: May 1998/final version accepted: July 1999     

Conditional mean functions of non-linear models of US output

We compare a number of models of post War US output growth in terms of the degree and pattern of non-linearity they impart to the conditional mean, where we condition on either the previous period's growth rate, or the previous two periods' growth rates. The conditional means are estimated non-parametrically using a nearest-neighbour technique on data simulated from the models. In this way, we condense the complex, dynamic, responses that may be present in to graphical displays of the implied conditional mean. First version received: Feb. 1999/Final version received: June 2001     

Unit and fractional roots in the presence of abrupt changes with an application to the brazilian inflation rate

In this article we analyse the monthly structure of the Brazilian inflation rate by means of using fractionally integrated techniques. This series is characterized by strong government interventions to bring inflation to a low level. We use a testing procedure due to Robinson (1994) which permits us to model the underlying dynamics of the series in terms of an I(d) statistical model, with the government interventions being specified in terms of dummy variables. The results show that the series can be well described in terms of an I(0.75) process with some of the interventions having little impact on the series.The author gratefully acknowledges the valuable comments of an anonymous referee. Financial support from the Minsterio de Ciencia y Tecnologia (SEC2002-01839, Spain) is also acknowledged.First version received: November 2001 / Final version received: December 2003     

Changing rewards in contests: Has the three-point rule brought more offense to soccer?

In the mid-nineties FIFA decided to increase from two to three the number of points assigned to the winning team of a soccer match played under traditional round-robin national leagues. Since a game of soccer can be regarded as a contest, FIFA's measure provides an interesting case-study for analysing how a change in the system of rewards (from a zero to a non-zero sum rule) may affect the contestants' equilibrium behaviour. In this paper we try to assess, both theoretically and empirically, whether FIFA's new point rule has changed soccer towards a more offensive game, in which teams adopt more risky strategies. In particular, we evaluate the “na?ve hypothesis” according to which the measure would induce every team to play always more offensively, and we explore the extent to which the change in teams' behaviour may be affected by quality differentials between teams. Our most important hypothesis is that when the asymmetry between opposing teams is large enough, an increase in the reward for victory induces the weaker team to play more defensively, rather than the opposite. By looking at a subset of matches held in the Portuguese first division league, which approximate the conditions of our model, we find support for this hypothesis. First version received: July 1999/Final version received: May 2001     

Tax efficiency in selected Indian states

This paper attempts to measure pure tax efficiency of fifteen major Indian states (Andhra Pradesh, Assam, Bihar, Haryana, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal) for the period 1980–81 to 1992–93 in a manner that allows this efficiency to vary both across time as well as across states. It is discovered that there is a moral hazard problem in the design of central grants in that higher grants by the central government to the state governments reduce efficiency of tax collection by these states. The less poor states are more efficient in tax collection. The rankings of states by tax efficiency for the various years do not converge. An index of aggregate tax efficiency is calculated and it appears that this index has been stagnating. It is argued that the weight placed on tax effort in the formula determining central grants to state governments should be increased to improve tax efficiency of state governments. First version received: November 1997/final version received: November 1998     

Who is ruling Europe? Empirical evidence on the German Dominance Hypothesis

The aim of this paper is to analyze the hypothesis of German dominance in the European Monetary System (EMS). For this purpose, we use monthly interest rates for nine European countries from January 1979 to the second half of 1997. In particular, we test the stability of the implied long-run relationships to assess whether there has been a significant change in the EMS performance. The econometric methodology is based on Johansen's maximum likelihood procedure and several tests for parameter instability. The most important finding is that, although Germany has a significant influence on the monetary policy of the other European countries, it is not possible to accept the existence of dominance. First version received: May 1999/Final version received: November 2000     

Uncertainty of outcome versus reputation: Empirical evidence for the First German Football Division

This paper deals with the determinants of match attendance in the German premier football league. We analyse uncertainty measures of match outcome as well as uncertainty of championship outcome. Furthermore, we incorporate supporter clubs, reputation, performance measures and weather effects as explanatory variables. Due to the limited capacity of the stadiums, observations on attendance are right censored in our sample. While other authors use the ordinary least squares estimator, which is inconsistent in this framework, we take this restriction implicitly in consideration by using a Tobit model. In conclusion, we show that reputation and goodwill are more important for attendance levels than the thrill of outcome uncertainty.¹ First version received: September 1999/Final version received: January 2001     

A semiflexible normalized quadratic inverse demand system: an application to the price formation of fish

We propose a new inverse demand system, the normalized quadratic distance function, which is similar to the normalized quadratic expenditure function of Diewert and Wales (1988a). Aside from being able to maintain concavity in quantities globally, the resulting specification is also `flexible.' In addition, to obtain more parsimonious specifications, we apply the rank reduction procedures of Diewert and Wales (1988b) to the model's Antonelli matrix. We illustrate the techniques by estimating a system of inverse demands for bi-monthly fish landings, 1971–1991, for U.S. Great Lakes ports. To illustrate the model's usefulness, exact welfare measures associated with catch restrictions are derived. First version received: May 1999/Final version received: November 2000     

The symmetry of the wage-change distribution: Survey and contract data

Using a new non-parametric symmetry test we examine Canadian contract and survey data for evidence of nominal wage rigidities. We compare results from the two data sets with the view to examining the accuracy of survey data and consider whether the private/public and union/non-union sector distinctions are useful. First version received: July 2000/Final version received: June 2001