Financial development and economic growth in Australia: An empirical analysis

The paper empirically examines the dynamic relationship between financial development and economic growth in Australia in terms of bank-based and market-based financial structure. A time-series approach using the VAR Model is used to provide evidence for the dynamic relationship. The paper provides empirical evidence on the causal impact of the financial market on the economic growth of the Australian economy. The results suggest that financial intermediaries and financial markets have different impacts on economic growth given their diverse roles in the domestic economy. In particular there is evidence of causality from economic growth to the development of the financial intermediaries. On the other hand, development in the financial markets causes economic growth but there is no evidence of any causality from economic growth to financial markets. The sensitivity test using different interest rates does not change the results.I Jel classification: O16, G18, G28I We would like to thank Tilak Abeysinghe and Rajagurn Gunasekaran for their helpful comments on the first draft. Also, we would like to thank the Editor, Prof. Baldev Raj, and two anonymous referees for their helpful comments.First version received: October 2001/Final version received: October 2002     

Inverse probability weighted M-estimators for sample selection, attrition, and stratification

I provide an overview of inverse probability weighted (IPW) M-estimators for cross section and two-period panel data applications. Under an ignorability assumption, I show that population parameters are identified, and provide straightforward -consistent and asymptotically normal estimation methods. I show that estimating a binary response selection model by conditional maximum likelihood leads to a more efficient estimator than using known probabilities, a result that unifies several disparate results in the literature. But IPW estimation is not a panacea: in some important cases of nonresponse, unweighted estimators will be consistent under weaker ignorability assumptions.JEL Classification: C13, C21, C23I would like to thank Bo Honoré, Christophe Muller, Frank Windmeijer, and the participants at the CeMMAP/ESCR Econometric Study Group Microeconometrics Workshop for helpful comments on an earlier draft.     

Investment in Swedish manufacturing: Analysis and forecasts

This paper uses a neoclassical investment model extended with installation costs for capital, agency costs for investment financing, and the possibility of the firm being output constrained as a framework for an empirical analysis of investment behaviour in the Swedish manufacturing industry. The theory is implemented within a multivariate error-correction approach on data covering the time period 1951 to 1995, and we gain the following main results: (1) Tobins average Q is not the sole determinant of investment, neither in the short nor in the long run, and other variables like real output and capital gearing also affect investment activity; (2) the out-of-sample forecasts of the model track the evolution of actual investment growth quite impressively, especially at short- and medium-term horizons (1–2 years); (3) a relative equity-price variable is shown to constitute a good approximation of average Q, both for empirical modelling in general and forecasting in particular.Jel classification: C32, E22, E27We would like to thank Bob Chirinko, Stefan Palmqvist, Anders Vredin, seminar participants at Sveriges Riksbank, and two anonymous referees for helpful comments. Thanks also to Jan Södersten, Uppsala University, who provided us with most of the data for this analysis. All correspondence to Per Jansson.First version received: July 2000/Final version received: November 2002     

Expected utility inequalities: theory and applications

Suppose we know the utility function of a risk averse decision maker who values a risky prospect X at a price CE. Based on this information alone I develop upper bounds for the tails of the probabilistic belief about X of the decision maker. In the paper I also illustrate how to use these expected utility bounds in a variety of applications, which include the estimation of risk measures from observed data, option valuation, and the study of credit risk. I would like to thank John Cochrane, Tom Cosimano, Amanda Friedenberg, George Korniotis, Markus Brunermeier and Paul Schultz for helpful discussions and to participants at two Notre Dame seminars, at the 2006 Spring Midwest Economic Theory and International Economics Conference, and at the 2006 Australasian Meeting of the Econometric Society for their very useful comments. I began working on this project during a year-long visit to the Central Bank of Venezuela. I gratefully acknowledge their hospitality and financial support.     

Monetary transmission in Germany: Lessons for the Euro area

This study analyses the transmission of monetary policy in Germany for the EMS period in the framework of a structural vector error correction model (S-VECM).Three stable cointegration relationships are found: a money demand relation, an interest rate spread and a stationary real interest rate. Based on both contemporaneous and long-run restrictions, five structural shocks to the economy are identified. In contrast to analyses for the euro area, we find that output and inflation are not independent in the long run for Germany. In accordance with results previously found for Europe, we do not find strong support for monetary targeting for Germany. Our analysis indicates that uncertainties remain concerning the controllability of money and its usefulness as a leading indicator with respect to inflation. Stability of the money demand relationship does not seem to be problematic.Jel classification:C32, C52, E41, E43, E52We would like to thank Jörg Breitung, Bertrand Candelon, Peter van Els, Carsten Folkertsma, Helmut Lütkepohl, Dieter Nautz, Hans-Eggert Reimers, Nikolaus Siegfried and Jürgen Wolters, two anonymous referees as well as participants of the 8th World Congress of the Econometric Society in Seattle and the Annual Meeting of the Verein für Sozialpolitik in Berlin for helpful comments. The views expressed in this paper do not necessarily reflect those of the European Central Bank or De Nederlandsche Bank.Both authors were working at the research department of De Nederlandsche Bank at the time of writing.First revision received: April 2002/Final revision received: January 2003     

A simple axiomatization and constructive representation proof for choquet expected utility

>P>Summary. We provide a set of simple and intuitive set of axioms that allow for a direct and constructive proof of the Choquet Expected Utility representation for decision making under uncertainty. Received: October 29, 2002; revised version: November 13, 2002 RID="*" ID="*" We thank Matthew Ryan for very useful comments and suggestions on related work and for encouraging us to write this note. Correspondence to: S. Grant     

Policy matters. The long run effects of aggregate demand and mark-up shocks on the Italian unemployment rate

This paper estimates a VAR including labor productivity, real wage and unemployment rate, to identify the dynamic effects of technology, demand, and mark-up shocks, respectively, on the Italian labor market. Identification is achieved by imposing recursive restrictions on the matrix of long run multipliers. Our results show that both mark up and aggregate demand shocks permanently reduce the unemployment rate. Finally, technology shocks do not significantly affect the unemployment rate in the long run. These findings convey important policy implications: expansionary aggregate demand and deregulation policies reducing the mark up permanently decrease the Italian unemployment rate.Jel classification: C32, E32, J29This paper has been produced as part of a CEPR Research Network on New Approaches to the Study of Economic Fluctuations. We would like to thank Marcello DAmato, Mario Forni, Marco Lippi and Antonio Ribba for useful comments. We are also grateful to Bernd Sussmuth for pointing out to us several significant improvements to the paper.First version received: November 2001/Final version received: October 2002     

A monetary vector error correction model of the Euro area and implications for monetary policy

In this paper, a vector error correction model for Euro area money, prices, output, long-term interest rate and short-term interest rate with three identified cointegration relations is specified. It is shown that Euro area money and prices can be considered as variables that are integrated of order two or I(2), that is, they have to be differenced twice to become stationary. Accordingly, the relation between money, prices and other macroeconomic variables is analyzed in an econometric framework which is suited for the analysis of I(2)-variables. Monetary policy implications are derived from the estimated system.First revision received: May 2002/Final revision received: May 2003I thank Helmut Lütkepohl, Jürgen Wolters, and two anonymous referees for helpful comments. Financial support from the Deutsche Forschungsgemeinschaft (SFB 373) is gratefully acknowledged.     

Fractional integration and business cycle features

We show in this article that fractionally integrated univariate models for GDP lead to a better replication of the main business cycle characteristics. We firstly show that the business cycle features are clearly affected by the degree of integration as well as by the other short run (AR, MA, etc.) components of the series. Then, we model the real GDP in the UK and the US by means of fractionally ARIMA (ARFIMA) model, and show that the time series can be specified in terms of this type of model with orders of integration higher than one but smaller than two. Comparing the ARFIMA specifications with those based on ARIMA models, we show via simulations that the former better describe the business cycles features of the data.Jel classification: C12, C15, C22The authors want to thank two anonymous referees for wise remarks. We have also benefited from questions and comments of the attendances at the econometric seminar of the Humboldt Universität zu Berlin and the ESEM2001 congress in Lausanne. Remaining errors and omissions are ours. All correspondence to: Luis A. Gil-Alana.First version received: February 2002/Final version received: December 2002     

A common trends model of UK core inflation

In this paper the long-run trend in RPI inflation (core inflation) for the UK over the 1961–1997 period is estimated within the framework of a multivariate common trends model which extends the bivariate VAR approach of Quah and Vahey (1995). In this context core inflation is directly linked to money and wage growth and interpreted as the long-run forecast of inflation from a small-scale, cointegrated macroeconomic system. First version received: September 1999/Final version received: October 2001 RID="*" ID="*"  We thank two anonymous referees for many helpful comments and suggestions. Work on this paper was partially conducted when C. Morana was at Heriot-Watt University.     

Quantile estimation of frontier production function

The purpose of the paper is to provide new information on the performance of frontier estimation methods, using data from Italian hotel industry. Quantile regression is also suggested as solution to frontier production function estimation. It is shown that, while the choice of estimation methods among conventional techniques significantly affects the economic analysis, quantile regression provides valuable new information by estimating the whole spectrum of production functions corresponding to different efficiency levels. In addition, the method makes available a coherent framework to analyze the performance of the conventional techiniques. Jel classification: C14, C16, D24We would like to thank the Co-Editor, the Associate Editor and an anonymous referee for comments and suggestions. The research was supported by the University Research Council and the National Research Council. The usual disclaimer applies.The estimates were computed using the Roger Koenker and StatLibS-Plus routine of quantile regression and the Tim Coelli and CEPA Web site FRONTIER 4.1 Program. The data set is provided by the Ho.Re.Ca. survey conducted by ISTAT in 1992.First version received: June 2001/Final version received: December 2002     

A short proof of the Bulow-Klemperer auctions vs. negotiations result

Summary. Bulow and Klemperer [1] have provided an upper bound on the value of bargaining power for a seller of an indivisible object. Specifically, negotiating optimally with N buyers yields lower revenue than an English auction with N + 1 buyers. In this paper, a short and intuitive proof of this result is presented.Received: 2 August 2004, Revised: 6 December 2004, JEL Classification Numbers: C78, D44, D82.I would like to thank Per B. Overgaard and an anonymous referee for many valuable comments.     

Left-side Relatively Weak Increases in Risk and Their Comparative Statics

This paper proposes a new concept, a left-side relatively weak increase in risk (L-RWIR) order, that extends the definition of a relatively weak increase in risk (RWIR) order. We show that, for the class of linear payoffs, one can obtain an appealing comparative statics result for L-RWIR shifts imposing additional restrictions on risk preferences of a risk-averse decision maker.JEL classification: D81.revised version received October 10, 2003Acknowledgements The authors would like to thank an anonymous referee for insightful comments and useful suggestions.     

An efficiency characterization of plurality social choice on simple preference domains

Summary. We consider a model of social choice dealing with the problem of choosing a subset from a set of objects (e.g. candidate selection, membership, and qualification problems). Agents have trichotomous preferences for which objects are partitioned into three indifference classes, goods, bads, and nulls, or dichotomous preferences for which each object is either a good or a bad. We characterize plurality-like social choice rules on the basis of the three main axioms, known as Pareto efficiency, anonymity, and independence.Received: 29 August 2003, Revised: 3 June 2004, JEL Classification Numbers: D70, D71, D72.Biung-Ghi Ju: I am grateful to William Thomson and Jianbo Zhang for their helpful comments and discussions. I also thank Brandon Dupont, the participants in seminars at Iowa State University, University of Kansas, and the Midwest Theory Meeting at University of Notre Dame. I thank an anonymous referee for detailed comments and suggestions that were very helpful in simplifying the proof of Theorem 1 and in revising the paper.     

Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India

This study estimates the balance of trade model similar to Rose (1991) to test the J-curve hypothesis and analyse the effect of conditional exchange rate volatility on the balance of trade in India. The model is estimated on quarterly data from 1975:02 to 1996:03 and the exchange rate is measured alternatively in terms of the trade and export weighted real effective exchange rate. The model variables are tied together in a long run equilibrium relationship. The study does not find any evidence for the presence of the J-curve effect in the balance of trade. The study finds the presence of weak ARCH but strong GARCH effects in the exchange rate series. But this exchange rate volatility does not play any significant role in affecting the balance of trade in India.Jel classification: F31, F32, F40, F41I am grateful to Dr. Glenn Otto of the University of New South Wales, Sydney, Australia for his valuable comments and incisive suggestions which helped to improve the paper substantially. I am also gratefull to an anonymous Referee and Editor, Baldev Raj, of the Journal for giving very useful suggestions. However, I am solely responsible for any error and omission that may remain in the paper. The views expressed in the article are my personal views and not of the institution Iam associated with.First version received: October 2000/Final version received: October 2002     

Bayesian estimation of duration models: An application of the multiperiod probit model

The multiperiod probit model is presented and Bayesian estimation using the Gibbs sampler with data augmentation is described. As an empirical illustration, the multiperiod probit model is then used to estimate a duration model using employment duration data for the Canadian province of New Brunswick. Bayesian estimation with unobserved heterogeneity is shown to be a simple extension of estimation of a duration model with no unobserved heterogeneity. More importantly, perhaps, some numerical problems encountered by other authors using Maximum Likelihood are avoided.I would like to thank M. Baker, G. Koop, A. Melino and D. Poirier for helpful comments and discussions. I would also like to thank M. Baker for providing his data.     

Fiscal policy and private consumption behaviour: The Spanish case

In this article we analyse whether the Ricardian equivalence hypothesis is a valid approximation for Spains economic reality or whether there exist deviations from that situation which would be more in line with the conventional Keynesian perspective of the effects of debt on private consumption-savings decisions.Our aim is to contribute to the rather sparse empirical literature on the subject for the Spanish case. The analysis is based on annual aggregate data for Spain covering the years 1955 to 2000, and uses both the structural and the Euler equation approaches to test the neutrality proposition, and is thus to be considered as a generalization of foregoing work on the Spanish economy.The findings indicate that support for Ricardian equivalence is mixed, while we also find very little support for the Keynesian specification of consumption and fiscal policy.First revision received: March 2003 / Final version received: October 2003The authors wish to thank M. Ferré, J.M. González-Páramo, A. Marchante, P. Meguire, F. Pedraja, J.L. Raymond, J. Salinas and two anonymous referees for their helpful comments and suggestions on this paper. We also thank the participants in the V Encuentro de Economía Aplicada (Oviedo, Spain, June 2002) and the XVII Simposio de Análisis Económico (Salamanca, Spain, December 2002) for their comments. Any remaining defects are our responsibility. We also are grateful to the Institute for Fiscal Studies of Spain (Ministerio de Hacienda, Secretaría de Estado de Hacienda) for its financial support.     

Testing for unit roots with income distribution data

In this paper I test the unit root hypothesis for US log GNP using the information available in income distribution data. The percentile data of an income distribution are shown to follow the same autoregressive pattern as does mean income. Under the null hypothesis of a unit root log GNP is cointegrated with the percentile data. A sequence of augmented HEGY-Tests, however, presents strong evidence against the unit root hypothesis for the distribution data and hence for log GNP. Using a full information estimation procedure for the percentiles under the alternative yields an estimate of the autoregressive coefficient which is in principle testable by an approximate Dickey-Hasza-Fuller test. The appropriate critical values are found by bootstrap methods. Again, inference is clearly unfavorable for the unit root hypothesis.An earlier version of this paper was presented at the ESEM 1993 in Uppsala. I thank Prof. Jürgen Wolters, seminar participants at the Free University of Berlin and an anonymous referee of this journal for valuable comments. The usual disclaimer applies.     

Nash and Walras equilibrium via Brouwer

Summary. The existence of Nash and Walras equilibrium is proved via Brouwer's Fixed Point Theorem, without recourse to Kakutani's Fixed Point Theorem for correspondences. The domain of the Walras fixed point map is confined to the price simplex, even when there is production and weakly quasi-convex preferences. The key idea is to replace optimization with “satisficing improvement,” i.e., to replace the Maximum Principle with the “Satisficing Principle.” Received: July 9, 2001; revised version: February 25, 2002 RID="*" ID="*" I wish to thank Ken Arrow, Don Brown, and Andreu Mas-Colell for helpful comments. I first thought about using Brouwer's theorem without Kakutani's extension when I heard Herb Scarf's lectures on mathematical economics as an undergraduate in 1974, and then again when I read Tim Kehoe's 1980 Ph.D dissertation under Herb Scarf, but I did not resolve my confusion until I had to discuss Kehoe's presentation at the celebration for Herb Scarf's 65th birthday in September, 1995. RID="*" ID="*"Correspondence to: C. D. Aliprantis