Social Security and personal saving: 1971 and beyond

Feldstein (1996, 1974) reported that Social Security in the U.S.A. reduced personal saving (“saving”) in 1992 (1971) by $416 ($61) billion. I reestimate his life-cycle consumption specification using data from the latest NIPA revision, correct his calculations, and find that the implied reduction in 1992 (1971) saving is now $280 ($22) billion, 48% (16%) of actual net private saving, with a standard error of $114 ($14) billion. If structural breaks around WWII and the 1972 Social Security amendments (which raised real per capita SSW by 22%) are allowed, and the market value of Treasury debt included in the specification, the reduction in 1971 and 1992 saving attributable to Social Security is at most 0.55 times its standard error, and 12% of net private saving. I then reestimate the preferred specification of Coates and Humphreys (1999), allowing for these structural breaks and relaxing other restrictions. The implied effect of Social Security on saving is again statistically zero. First version received: September 2000/Final version received: September 2001 RID="*" ID="*"  I thank Les Oxley for pointing out that correcting for AR(1) residuals is not a categorical imperative but a cultural relative, in which case common factor restrictions are crucial.     

Short- and long-term unemployment: How do temporary layoffs affect this distinction?

In this paper, we provide new evidence on how to model unemployment durations in the presence of temporary layoffs. Two different types of econometric models are used: the multiple phase duration model and the competing risks model. Special attention is paid to the possibility of time-varying or non-proportional effects of the explanatory variables on the hazard function. The results show that instead of using the multiple phase duration model as an alternative to the competing risks model, it may be more fruitful to use it to extend the specification of the competing risks model. First version received: August 2000/Final version accepted: July 2001 RID="*" ID="*"  Financial support from the Danish National Research Foundation is gratefully acknowledged. We thank Gerard van den Berg, Per-Anders Edin, Niels Haldrup, Winfred Pohlmeier and anonymous referees for useful comments. We also thank Jens Chr. Thellesen for research assistance.     

A convenient representation for structural vector autoregressions

Latent variables are used to rewrite a wide class of structural vector autoregressive (SVAR) models. The framework is general enough to include as particular cases all just and over-identified models recently used in applied macroeconomics. The latent variables representation can conveniently be estimated with standard software packages like LISREL, EQS, LINCS and AMOS, for example. The approach is illustrated by using the models of Blanchard and Quah (1989) and Swanson and Granger (1997). First version received: October 1999/Final version accepted: August 2000     

The effects of shocks on the Austrian unemployment rate – a structural VAR approach

Assuming full hysteresis in the Austrian labour market, a simple macroeconomic framework is used to model the effect of four structural shocks, i.e. shocks to productivity, demand, wages and labour supply. By using SVAR analysis, we derive impulse-response functions that show the effects of these shocks on unemployment. What constitutes a distinctive feature of our study is the deliberate use of overidentifying restrictions, allowing for a likelihood ratio test. The objection to SVAR methodology, that it relies on arbitrary assumptions, can thus be overcome, as invalid sets of identifying restrictions are rejected. First version received: September 2000/Final version received: March 2002 RID="*" ID="*"  I thank Juan F. Jimeno, Martin Wagner, Helmut Hofer and Bernhard B?hm for their assistance; Robert Kunst and Martin Spitzer for their discussion of an earlier version of this paper; Thomas Sparla, Michael Roos and two anonymous referees for their helpful comments.     

Bayesian estimation of social welfare and tax progressivity measures

This paper examines Bayesian methods of examining posterior distributions of inequality, concentration, tax progressivity and social welfare measures. Use is made of an explicit income distribution assumption and two alternative assumptions regarding the distribution of pre-tax mean incomes within each income group. The methods are applied to a simulated distribution of individual incomes and tax payments. It is possible to identify a minimum acceptable number of income classes to be used. The results suggest support for the use of group means in practical applications, particularly where large sample sizes are available. First version received: August 2000/Final version received: July 2001 RID="*" ID="*"  This research was supported by a Melbourne University Faculty of Economics and Commerce Research Grant. We should like to thank Bill Griffiths and two referees for comments on an earlier draft.     

The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects

We argue that the proper specification of a panel gravity model should include main (exporter, importer, and time) as well as time invariant exporter-by-importer (bilateral) interaction effects. In a panel of 11 APEC countries, the latter are highly significant and account for the largest part of variation. First version received: February 2001/Final version received: June 2002 RID="*" ID="*"  We are grateful to two anonymous referees and Robert Kunst for their helpful comments.     

Detecting multiple breaks in long memory the case of U.S. inflation

Multiple structural change tests by Bai and Perron (Econometrica 66:47–78, 1998) are applied to the regression by Demetrescu et al. (Econ Theory 24:176–215, 2008) in order to detect breaks in the order of fractional integration. With this instrument we tackle time-varying inflation persistence as an important issue for monetary policy. We determine not only the location and significance of breaks in persistence, but also the number of breaks. Only one significant break in U.S. inflation persistence (measured by the long-memory parameter) is found to have taken place in 1973, while a second break in 1980 is not significant.     

Pooling surveys in the estimation of income and price elasticities: An application to Tunisian households

This paper presents a methodological extension of Deaton's (1990) model for estimating price elasticities, by pooling Tunisian data from several surveys to improve the inter-cluster variability of unit values which is one of the key elements used in the derivation of these elasticities. Since the surveys cover a relatively long period, possible structural changes in consumption behaviour occurring over time are accounted for by postulating that certain response coefficients of the basic model vary from one survey to the other. The own price and cross price elasticities calculated using appropriate estimates of the extended model are satisfactory both from the economic point of view of their sign and the statistical point of view of their significance and superior to those obtained using a single survey. First version received: April 2000/Final version received: June 2001 RID="*" ID="*"  The authors would like to thank Angus Deaton and anonymous referees for useful comments and suggestions.     

An empirical note about additive outliers and nonstationarity in Latin-American inflation series

This note shows the empirical dangers of the presence of large additive outliers when testing for unit roots using standard unit root statistics. Using recent proposed procedures applied to four Latin-American inflation series, I show that the unit root hypothesis cannot be rejected.Jel classification: C2, C3, C5I want to thank Pierre Perron for useful comments on a preliminary version of this paper. Helpful comments from an anonymous referee, and Yiagadeesen Samy are appreciated. I thank the Editor Baldev Raj for useful comments about the final structure of this paper. Finally, I also thank André Lucas for helpful suggestions concerning the use of his nice computer program Robust Inference Plus Estimation (RIPE).First revision received: August 2001/Final revision received: December 2002     

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein–Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 23 European countries were used over the period of 1995–2009 on the quarterly basis. Two different tests were used to estimate the stationarity of the model variables, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Kejriwal and Perron (2008, 2010) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WDmax tests rejected the hypothesis of no breaks. To test the cointegration relationships between investment and saving flows of European Union members three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen' cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations. The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. The estimated saving retention coefficient in the presence of structural breaks using the Kejriwal and Perron (2008, 2010) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein–Horioka Puzzle in the considered EU countries, except Belgium.     

Does output have a unit root? New international evidence

In this paper unit-root tests for per capita output of 12 OECD countries are performed. Using traditional unit-root tests, it follows that the unit-root hypothesis cannot be rejected except for the US. However, following the approach of Perron (1989), which takes shifts in mean and/or trend into account, the null hypothesis of a unit-root can be rejected in most countries in our sample. In contrast to Perron, a method suggested by Christiano (1992)is used to determine the break date endogenously.     

Testing for hysteresis: Unemployment persistence and wage adjustment

This paper proposes a new testing strategy for unemployment hysteresis as the joint restriction of a unit-root in the unemployment rate and no feedback effect of unemployment in the Phillips wage equation. The associated test statistics are derived when this joint restriction is imposed and when a sequential two steps testing strategy is adopted. An empirical application leads to reject the null hypothesis of wage hysteresis for most of our OECD countries. Evidence against hysteresis is reinforced when accounting for wage adjustments in the bivariate approach. First version received: July 1999/Final version received: May 2002 RID="*" ID="*"  We thank R. Boyer, F. Collard, F. Karamé, F. Langot, F. Mihoubi, W. Pohlmeier and two anonymous referees for fruitful comments. This paper has also benefited from discussions at the T2M conference (Montréal, may 1999) and ESEM99 (Santiago, august 1999). The traditional disclaimer applies.     

Robust estimation of models of Engel curves

Both standard and robust methods are used here to estimate models of Engel curves for three household commodities, namely, food, transport, and tobacco and alcohol in Canada. The income elasticities of demand computed from the various methods differ significantly for the transport and tobacco-alcohol consumption where there are obvious outliers and zero expenditures problem. Robust estimators point to lower income elasticities and have better performance than the standard LS and Tobit estimator. These results are analyzed in the light of the information on finite-sample performance obtained in a previous Monte Carlo study. First version received: July 2000/Final version received: July 2001 RID="*" ID="*"  I wish to thank Victoria Zinde-Walsh, John Galbraith, Clint Coakley, two anonymous referees and an associate editor for helpful comments. I would also like to thank Anastassia Khouri for kindly providing the 1992 Family Expenditure Survey of Canada data.     

Okun's Law Does the Austrian unemployment–GDP relationship exhibit structural breaks?

Okun's Law postulates an inverse relationship between movements of the unemployment rate and the real gross domestic product (GDP). Initial empirical estimates for US data indicate that a two to three percent GDP growth rate above the natural or average GDP growth rate causes unemployment to decrease by one percentage point and vice versa. In this investigation we check whether this postulated relationship exhibits structural breaks by means of Markov-Chain Monte Carlo methods. We estimate a regression model, where the parameters are allowed to switch between different states and the switching process is Markov. As a by-product we derive an estimate of the current state within the periods considered. Using quarterly Austrian data on unemployment and real GDP from 1977 to 1995 we infer only one state, i.e. there are no structural breaks. The estimated parameters demand for an excess GDP growth rate of 4.16% to decrease unemployment by 1 percentage point. Since only one state is inferred, we conclude that the Austrian economy exhibits a stable relationship between unemployment and GDP growth. First version received: January 2000/Final version received: October 2000     

Do national business cycles have an international origin?

This paper analyses a set of output data for 113 countries and identifies common sources of fluctuations, to estimate a world business cycle. We also analyze the multiplier effects of worldwide or global shocks and their implications for the persistence and amplitude of cyclical fluctuations. We find that a higher relative importance of global shocks leads to lower persistence and greater volatility. Finally, we compare some regional integration agreements and find that the EC emerges as the most integrated block. The analytical framework used is that of Forni, Hallin, Lippi and Reichlin (1999). First version: November 1999/Final version accepted: November 2001 RID="*" ID="*"  Université Libre de Bruxelles, DULBEA – CP 140, 50 av. Franklin Roosevelt, 1050 Bruxelles, Belgium. We are grateful towards two anonymous referees for their really helpful remarks. We also wish to express our deepest gratitude towards Lucrezia Reichlin for her very precious advice. We also would like to thank Jorge Rodigez and Marco Lippi for providing large pieces of code and Khalid Sekkat, Christophe Croux, Frederic Pivetta, and Francois Rycx for helpful comments and discussions.     

A generalized additive Tobit model

This paper proposes a semi-parametric approach to estimation in Tobit models. A generalized additive Tobit model of residential local long distance (intra-LATA) telephone demand is estimated on a cross-section of residential telephone consumers across twenty-eight states. While past studies of telecommunications demand have used fully parametric models, the model presented here is non-parametric in two dimensions: first no distributional assumption is made for the error distribution, and second, the demand equation is non-parametric with respect to price. We find that the elasticity of demand is substantially lower (in absolute value) that found in previous studies for a 40% cut in tariffs. First version received: July 2000/Final version received: March 2001 RID="*" ID="*"  I thank the referee and Associate Editor for suggestions which improved the paper. The views expressed here are of the author and not Analysis Group | Economics.     

A panel cointegration approach to the investment-saving correlation

This paper augments the empirical literature concerning the Feldstein-Horioka puzzle using non-stationary panel data. Recently developed tests for panel cointegration and panel unit root tests are employed. We find substantial evidence to support the hypothesis of no cointegration in this panel, implying a high degree of international capital mobility. Our results suggest that tests for cointegration in panel data provides a better methodological focus than the magnitude of saving-retention coefficients. First version received: August 1999/Final version accepted: December 2000     

Unit roots,postwar slowdowns and long-run growth: Evidence from two structural breaks

This paper provides evidence on the unit root hypothesis and long-term growth by allowing for two structural breaks. We reject the unit root hypothesis for three-quarters of the countries – approximately 50% more rejections than in models that allow for only one break. While about half of the countries exhibit slowdowns following their postwar breaks, the others have grown along paths that have become steeper over the past 120 years. The majority of the countries, including most of the slowdown countries, exhibit faster growth after their second breaks than during the decades preceding their first breaks. First version received: May 2001/Final version received: January 2002     

Ten-year forecasts of real stock price changes

This paper provides the strongest evidence to-date on the predictability of real stock prices over long horizons. Ex ante forecasts account for over two-thirds of the variation of the growth rate of real stock prices over ten year spans from 1940 through 2001. The paper forecasts negative growth rates of real stock prices over the next ten years. This bearish long-run outlook is buttressed by the long-run relationship between the growth rates of real stock prices, inflation, dividends, and productivity. First version received: June 2000/Final version received: June 2001 RID="*" ID="*"  Special thanks to an anonymous referee for helpful comments.     

Inflation-unemployment tradeoff and regional labor market data

We estimate a linear and a piecewise linear Phillips curve model with regional labor market data for West German and Neue L?nder. Employing regional observations allows us to country difference the data. This eliminates, under the assumption of homogeneous L?nder, supply shocks and changes in the formation of expectations as possible identification failures. With seemingly unrelated regressions we find a flat Phillips curve in the Neue L?nder. For the West German L?nder a piecewise linear model with a higher inflation-unemployment tradeoff for the regime of low unemployment rates fits the data very well. The results hold true if we control for endogeneity of the unemployment rate. With a kinked but upward sloping aggregate supply curve there seems to be room for stabilization policies, at least in the range of aggregate demand shifts that our data covers. First version received: December 2000/Final version accepted: Jan. 2002 RID="*" ID="*"  An earlier version of this paper was written while the second author was at Universidad Carlos III in Madrid. He thanks Juan Dolado and is grateful for financial support by the TMR Program on New Approaches for the Study of Economic Fluctuations. He would also like to thank Bertrand Koebel for his critique on that earlier version. Both authors are grateful to an editor and three anonymous referees for very helpful comments. Moreover, we wish to thank participants of the seminar on Quantitative Wirtschaftsforschung by Jürgen Wolters and Peter Kuhbier, Freie Universit?t Berlin. Finally we profited from discussions with participants at the conferences of the European Economic Association in Lausanne and the Verein für Socialpolitik in Magdeburg where the paper was presented. Of course, all errors are to our sole responsibility.