Structural changes and regional disparity in China's inflation: a revisit

The study re-examined the time series properties and regional disparities in Chinese inflation by extending the work of Chong, Zhang, and Feng (2011 Chong, Tai-Leeung, Terence, Ning Zhang and Feng, Qu. 2011. Structural Changes and Regional Disparity in China's Inflation. Economics Bulletien, 31(1): 572–583.  [Google Scholar]). For this purpose we employed the Lagrange Multiplier (LM) unit root test with one structural break and two structural breaks suggested by Lee and Strazicich (2003 Lee, Junsoo, Mark, C. and Strazicich. 2003. Minimum LM Unit Root Test with Two Structural Breaks. Review of Economics and Statistics, 85(4): 1082–1089. [Crossref], [Web of Science ®] , [Google Scholar], 2004 Lee, J. and Strazicich, M. 2004. Minimum LM unit root test with one structural break. Working Paper 04–17, Boone, North Carolina: Department of Economics, Appalachian State University.  [Google Scholar]) and a recently developed ADF type unit root test with two structural breaks of Narayan and Popp (2010 Narayan, Paresh Kumar and Stephan Popp. 2010. A New Unit root test with Two Structural Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37(9): 1425–1438. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]). We found that national, urban and rural series of the overall inflation series, clothing, and food, national series of education and residence and the rural series of residence and education are stationary. We also found regional disparity in Chinese inflation, but the disparities existed only in education inflation series.     

Sustainability of external debt: further evidence from non-linear framework

This study investigates sustainability of external debt under a two-step non-linear framework. The first step uses a general linearity test proposed by Harvey and Leybourne (2007 Harvey, David I. and Leybourne, Stephen J. 2007. Testing for time series linearity. Econometric Journal, 10: 149–165. [Crossref], [Web of Science ®] , [Google Scholar]) to determine the linearity property of external debt. The second step applies a non-linear ADF unit root test proposed by Kapetanios, Shin, and Snell (2003 Kapetanios, G., Y. Shin, and A. Snell. 2003. Testing for a unit root in the nonlinear STAR. Journal of Econometrics 112: 359–79.  [Google Scholar]) on the non-liner processes and the linear ADF test on the linear processes to examine the sustainability of external debt. The analysis of 36 debt and 55 current account ratios identifies strong evidence of non-linearity and sustainability. The results indicate superior performance of the non-linear unit root test over the ADF test in determining the stationary property of the data.     

Purchasing power parity for G-7 countries: panel SURADF tests

In this study, the panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests advanced by Breuer et al. (2001 Breuer, J. B., McNown, R. and Wallace, M. S. 2001. Misleading inferences from panel unit-root tests with an illustration from purchasing power parity. Review of International Economics, 9: 482–93. [Crossref] , [Google Scholar]) are used to test the validity of Purchasing Power Parity (PPP) for G-7 countries over the period 1980M1 to 2008M5. The empirical results from several panel-based unit root tests indicate that PPP does not hold for G-7 countries under study; however, Breuer et al.'s (2001 Breuer, J. B., McNown, R. and Wallace, M. S. 2001. Misleading inferences from panel unit-root tests with an illustration from purchasing power parity. Review of International Economics, 9: 482–93. [Crossref] , [Google Scholar]) panel SURADF tests unequivocally indicate that PPP is valid for half of the G-7 countries.     

Ownership herding and informational herding

This article takes as its point of departure the herding model of Bikhchandani et al. (1992 Bikhchandani, S., Hirshleifer, D. and Welch, I. 1992. A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100: 992–1026. [Crossref], [Web of Science ®] , [Google Scholar]). We extend earlier experimental evidence to distinguish between informational herding, as in the model, and ownership herding, an alternative explanation for observed behaviour.     

Nonlinearity in real exchange rates: an approach with disaggregated data and a new linearity test

Employing disaggregated real exchange rates from nine European counties in 16 goods categories, we assess in this study the nonlinearity in the real exchange rates. Surprisingly, we find evidence for nonlinearity in only four (10) out of 143 series with the linearity test proposed by Harvey et al. (2008 Harvey, D. I., Leybourne, S. J. and Xiao, B. 2008. A powerful test for linearity when the order of integration is unknown. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]) at the 5% (10%) significance level. This result differs greatly from those of Juvenal and Taylor (2008 Juvenal, L. and Taylor, M. P. 2008. Threshold adjustment of deviations from the law of one price. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]), Imbs et al. (2003 Imbs, J., Mumtaz, H., Raven, M. O. and Rey, H. 2003. Nonlinearities and real exchange rate dynamics. Journal of the European Economic Association, 1: 639–49. [Crossref] , [Google Scholar]), Sarno et al. (2004 Sarno, L., Taylor, M. P. and Chowdhury, I. 2004. Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study. Journal of International Money and Finance, 23: 1–25. [Crossref], [Web of Science ®] , [Google Scholar]) and Berka (2009 Berka, M. 2009. “Non-linear adjustment in law of one price deviations and physical characteristic of good”. In Review of International Economics Vol. 17, 51–73.  [Google Scholar]), who report ample evidence for nonlinearity for the same or similarly disaggregated real exchange rate datasets.     

Revisiting purchasing power parity for major OPEC countries: evidence based on nonlinear panel unit-root tests

In this study, we apply nonlinear panel unit-root test to assess the nonstationary properties of the real exchange rate for seven major Organization of the Petroleum Exporting Countries (OPEC). We find that nonlinear panel unit-root test has higher power than linear method suggested by Breuer et al. (2001 Breuer, J. B., McNown, R. and Wallace, M. S. 2001. Misleading inferences from panel unit-root tests with an illustration from purchasing power parity. Review of International Economics, 9: 482–93. [Crossref] , [Google Scholar]) if the true data generating process of exchange rate is in fact a stationary nonlinear process. We re-examine the validity of Purchasing Power Parity (PPP) from the panel nonlinear point of view and provide robust evidence clearly indicating that PPP holds true for four countries, namely Angola, Indonesia, Iran and Saudi Arabia. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way.     

Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989 Blecker, R. 1989. International competition, income distribution and economic growth. Cambridge Journal of Economics, 13: 395–412. [Web of Science ®] [Google Scholar]). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990 Bhaduri, A. and Marglin, S. 1990. Unemployment and the real wage: The economic basis for contesting political ideologies. Cambridge Journal of Economics, 14: 375–93. [Crossref], [Web of Science ®] [Google Scholar]) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E., Onaran, Ö. and Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area. Cambridge Journal of Economics, 33(1): 139–59. [Crossref], [Web of Science ®] [Google Scholar]) and Hein and Vogel (2008 Hein, E. and Vogel, L. 2008. Distribution and growth reconsidered – empirical results for six OECD countries. Cambridge Journal of Economics, 32: 479–511. [Crossref], [Web of Science ®] [Google Scholar], 2009 Hein, E. and Vogel, L. 2009. Distribution and growth in France and Germany – single equation estimations and model simulations based on the Bhaduri/Marglin‐model. Review of Political Economy, 21(2): 245–72. [Taylor & Francis Online] [Google Scholar]). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.     

Monetary policy rules and directions of causality: A test for the euro area

Abstract

Using a VAR model in first differences with quarterly data for the euro zone, the study aims to ascertain whether decisions on monetary policy can be interpreted in terms of a “monetary policy rule” with specific reference to the so-called nominal GDP targeting rule (Hall and Mankiw, 1994 Granger, C.W.J. “Investigating Causal Relations by Econometric Models and Cross-Spectral Methods.” Econometrica, 1969, 37 (3), 424–438.[Crossref], [Web of Science ®] , [Google Scholar]; McCallum, 1988 McCallum, B. “Nominal GDP Targeting”, Shadow Open Market Committee, October 21, 2011. [Google Scholar]; Woodford, 2012 Taylor, J.B., Williams, J.C. “Simple and Robust Rules for Monetary Policy”, NBER Working Paper No. 15908, April, 2010. [Google Scholar]). The results obtained indicate a causal relation proceeding from deviation between the growth rates of nominal gross domestic product (GDP) and target GDP to variation in the three-month market interest rate. The same analyses do not, however, appear to confirm the existence of a significant inverse causal relation from variation in the market interest rate to deviation between the nominal and target GDP growth rates. Similar results were obtained on replacing the market interest rate with the European Central Bank refinancing interest rate. This confirmation of only one of the two directions of causality does not support an interpretation of monetary policy based on the nominal GDP targeting rule and gives rise to doubt in more general terms as to the applicability of the Taylor rule and all the conventional rules of monetary policy to the case in question. The results appear instead to be more in line with other possible approaches, such as those based on post Keynesian analyses of monetary theory and policy and more specifically the so-called solvency rule (Brancaccio and Fontana, 2013 ———. Macroeconomics, 2nd ed., Pearson Education Company, ch. 30. [Google Scholar], 2015 Brancaccio, E. The Central Banker as “Regulator” of Conflict. In G. Fontana and M. Setterfield (eds.), Macroeconomic Theory and Macroeconomic Pedagogy. Basingstoke: Palgrave Macmillan, 2009, 295–308.[Crossref] , [Google Scholar]). These lines of research challenge the simplistic argument that the scope of monetary policy consists in the stabilization of inflation, real GDP, or nominal income around a “natural equilibrium” level. Rather, they suggest that central banks actually follow a more complex purpose, which is the political regulation of the financial system with particular reference to the relations between creditors and debtors and the related solvency of economic units.     

The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach

This article examines the J-curve phenomenon for 16 European transition economies. While previous studies assume a linear relationship between the exchange rate and the trade balance, this paper allows for nonlinearity. Following Bahmani-Oskooee and Fariditavana (2015 Bahmani-Oskooee, M., and H. Fariditavana. 2015. “Nonlinear ARDL Approach, Asymmetric Effects and the J-curve.” Journal of Economic Studies 42 (3): 519–530. doi:10.1108/JES-03-2015-0042.[Crossref], [Web of Science ®] , [Google Scholar], 2016 Bahmani-Oskooee, M., and H. Fariditavana. 2016. “Nonlinear ARDL Approach and the J-curve Phenomenon.” Open Economies Review 27 (1): 51–70. doi:10.1007/s11079-015-9369-5.[Crossref], [Web of Science ®] , [Google Scholar]), the empirical method used is the nonlinear cointegrating autoregressive distributed lag (NARDL) model of Shin et al. (2013 Shin, Y., B. Yu, and M. J. Greenwood-Nimmo. 2013. “Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework.” In Festschrift in Honor of Peter Schmidt, edited by William C. Horrace and Robin C. Sickles. New York, NY: Springer Science and Business Media. [Google Scholar]) in which short-run and long-run nonlinearities are introduced via positive (appreciation) and negative (depreciation) partial sum decompositions of the real exchange rate. We argue that the lack of support for the J-curve phenomenon could be due to the linearity assumption. This issue is examined by utilizing the linear and the NARDL models. Using the linear autoregressive distributed lag (ARDL) model, we are unable to find support for the J-curve phenomenon in any case. However, when the NARDL model is used, we are able to find evidence for the J-curve in 12 out of the 16 countries. This suggests that allowing for nonlinearity in the adjustment process is important when studying the J-curve phenomenon.     

Unit roots and purchasing power parity: another kick at the can

Lopez et al. (2005 Lopez, C, Murray, C and Papell, D. 2005. State of the art unit root tests and purchasing power parity. Journal of Money, Credit and Banking, 37: 361–9. [Crossref], [Web of Science ®] , [Google Scholar]) demonstrated that single-equation unit-root tests cannot provide conclusive evidence of whether real exchange rates are stationary because inference depends critically on the lag-lengths used to construct the test statistics, a result reinforced by a recent work by Sweeney (2006 Sweeney, D. 2006. Mean reversion in nominal G-10 exchange rates. Journal of Financial and Quantitative Analysis, 41: 685–708. [Crossref], [Web of Science ®] , [Google Scholar]). The purpose of this article is to revisit the issue, first demonstrating the necessary conditions under which this approach of testing for Purchasing Power Parity (PPP) is appropriate.     

A Note on Forecasting the Euro: Do Forecasters Have an Asymmetric Loss Function?

Based on the approach advanced by Elliott, Komunjer, and Timmermann (2005 Elliott, G., Komunjer, I., & Timmermann, A. (2005). Estimation and testing of forecast rationality under flexible loss. Review of Economics Studies, 72, 1107–1125. doi: 10.1111/0034-6527.00363[Crossref], [Web of Science ®] , [Google Scholar]), we analyzed whether the loss function of a sample of exchange-rate forecasters is asymmetric in the forecast error. Using forecasts of the dollar/euro exchange rate, we found that the shape of the loss function varies across forecasters. Some forecasters appear to make forecasts under an asymmetric loss function, while a symmetric loss function seems to describe well the loss function of other forecasters. Accounting for an asymmetric loss function does not necessarily make forecasts ‘look’ rational.     

Immiserizing Growth and the Metzler Paradox in the Ricardian Model

Conditions for the occurrence of immiserizing growth and the Metzler paradox are analysed in the Ricardian model when consumers in the foreign country have Leontief preferences while consumers in the home country have Cobb-Douglas preferences. By using specific functional forms, the conditions for the occurrence of the two paradoxes are defined in terms of the exogenous parameters of the model rather than endogenous variables such as the foreign import demand elasticity in the conditions of Bhagwati (1958) Bhagwati, J. N. 1958. Immiserizing growth: a geometrical note. Review of Economic Studies, 25: 201–205. [Crossref], [Web of Science ®] , [Google Scholar] and Metzler (1949a Metzler, L. A. 1949a. Tariffs, the terms of trade and the distribution of national income. Journal of Political Economy, 57: 1–29. [Crossref], [Web of Science ®] , [Google Scholar], b Metzler, L. A. 1949b. Tariffs, international demand, and domestic prices. Journal of Political Economy, 57: 345–351. [Crossref], [Web of Science ®] , [Google Scholar]). It is shown that the simultaneous occurrence of both paradoxical results is possible for some parameter values.     

Underground Economy,Evasion and Inequality

Economic theory is paying increasing attention to a non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al., 2000 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2000. Income inequality and the informal economy in transitions economies. Journal of Comparative Economics, 28(1): 156–171.  [Google Scholar], 2003 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2003. Multiple unofficial economy equilibria and income distribution dynamics in systemic transition. Journal of Post Keynesian Economics, 25(3): 425–447. [Web of Science ®] , [Google Scholar]) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using ‘regular’ incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion that can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation, I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.     

Towards solving the PPP puzzle: evidence from 113 countries

Several different approaches have been followed by researchers to test the validity of Purchasing Power Parity (PPP). Since the introduction of the unit-root tests, researchers have applied a battery of these tests to determine whether the real exchange rates are stationary. If the answer is in the affirmative, PPP is validated. While application of the standard augmented Dickey–Fuller test has not provided much support for PPP, a test that incorporates nonlinearity in the rates has. Under both tests, however, the null of nonstationary is tested against the alternative of stationarity. In this article, when we switch the null with the alternative and apply Kwiatkowski et al. (1992 Kwiatkowski, D, Phillips, PCB, Schmidt, P and Shin, Y. 1992. Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54: 159–78. [Crossref], [Web of Science ®] , [Google Scholar]) test, we provide relatively more support for the theory, getting closer and closer towards solving the PPP puzzle.     

Service innovation and the proximity-concentration trade-off model of trade and FDI

This paper introduces service innovation in the proximity-concentration trade-off model of trade and foreign direct investments (FDI) [Helpman, E., M. Melitz, and S. R. Yeaple 2004 Helpman, E., M. Melitz, and S. R. Yeaple. 2004. “Export Versus FDI with Heterogeneous Firms.” American Economic Review 94 (1): 300–316. doi: 10.1257/000282804322970814[Crossref], [Web of Science ®] , [Google Scholar]. “Export Versus FDI with Heterogeneous Firms.” American Economic Review 94 (1): 300–316]. The idea is that innovation will have two main effects on service firms’ choice between exports and FDI. First, innovative firms will on average have higher productivity levels than non-innovative enterprises. Secondly, innovators will have to pay a higher relational distance cost for undertaking export activities, and they will, therefore, prefer to avoid (or reduce) these costs by choosing an FDI strategy instead. We test the empirical relevance of this idea on a new survey data set for a representative sample of firms in all business service sectors in Norway. The results show that firms are more likely to choose FDI rather than export the greater their productivity level and the higher the relational distance costs they face.     

PATTERNS OF INNOVATION IN THE SERVICE SECTOR: SOME INSIGHTS FROM THE SPANISH INNOVATION SURVEY

Although the attention of innovation studies has traditionally been focused on manufacturing, the differential features of innovation activities carried out by services are gaining more and more relevance in innovation research. The aim of this paper is to thoroughly analyse the data from the Spanish Innovation Survey 2000, the first large-scale innovation survey that included service activities in Spain, in order to identify the main patterns of innovation in Spanish services. The results of our investigations confirm that a high degree of heterogeneity, in relation to innovation patterns, exists among service firms and among service industries as well. Nevertheless, important similarities are found between pioneer classifications, such as the theoretical taxonomy of service industries by Soete and Miozzo (1989) Soete, L. and Miozzo, M. 1989. “Trade and Development in Services: A Technological Perspective”. The Netherlands: MERIT Research Memorandum, 89-031. MERIT.  [Google Scholar] or the classification of service firms elaborated by Hollenstein (2003) Hollenstein, H. 2003. Innovation modes in the Swiss service sector: a cluster analysis based on firm-level data. Research Policy, 32(5): 845–863. [Crossref], [Web of Science ®] , [Google Scholar], and the taxonomy we obtained by applying multivariate analysis.     

Functional income distribution and growth in Thailand: A post Keynesian econometric analysis

The aim of this article is to analyze the effect of the income distribution between labor and capital on the growth performance of Thailand from a post Keynesian view. It rests on the theoretical model of Bhaduri and Marglin (1990 Bhaduri, A., and Marglin, S. “Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies.” Cambridge Journal of Economics, December 1990, 14 (4), 375–393.[Crossref], [Web of Science ®] , [Google Scholar]) to see if an increase in the labor income share has a sufficient positive effect on consumption to offset a negative effect on investment and export demand. In order to investigate the question empirically we adopt and develop the approach of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E.; Onaran, Ö.; and Ederer, S. “Functional Income Distribution and Aggregate Demand in the Euro-area.” Cambridge Journal of Economics, 2009, 33 (1), 139–159.[Crossref], [Web of Science ®] , [Google Scholar]). Several measures of the labor income share are calculated to take into account the fact that wage labor represents only half of the total labor force and check the robustness of our results. We also introduce a new treatment of external trade to better integrate the price competitiveness of Thailand. The econometric investigation shows that the growth regime is profit-led over the period 1970–2011, which shows that rebalancing the Thai economy will be difficult and requires an overall change of strategy going beyond a simple prolabor policy.     

Does Higher Education Affect Economic Growth? The Case of Greece

Abstract

The purpose of the study is twofold: first, it presents an extensive review of empirical studies that have examined the relationship between higher education and economic growth. Second, it estimates the effect of higher education on economic growth in Greece over the period 1960–2009. It applies the model introduced by Mankiw, Romer, and Weil (1992 Mankiw, G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407–437. doi: 10.2307/2118477[Crossref], [Web of Science ®] , [Google Scholar]) by using the higher enrolment rates as a proxy of human capital. The paper employs cointegration and an error-correction model to test the causal relationship between higher education, physical capital investments and economic growth. The empirical analysis reveals that there is a long-run cointegrating relationship between higher education, physical capital investments and economic growth. The elasticity of economic growth with respect to higher education is 0.52%. The results also suggest that there is evidence of unidirectional long-run and short-run Granger causality running from higher education and physical capital investments to economic growth.     

Correcting the Merton and Henriksson timing model

This article provides evidence of a common bias found in traditional timing models, which is related with a negative correlation between timing and stock-picking abilities resulting in spurious coefficients. We consider as a possible cause for this bias the failure to include in the timing models the cost of the option implied in timing activities, and on this basis we opt for a corrected version of the Merton and Henriksson's model (1981 Merton, R. C. and Henriksson, R. D. 1981. On market timing and investment performance II: statistical procedures for evaluating forecasting skills. Journal of Business, 54: 513–34. [Crossref] , [Google Scholar]). As far as we know, this correction has not previously been applied. Our results confirm both the existence of this bias and the correction of the problem when the cost of the option is included in timing models.     

The Political Power of Big Business: A Response to Bell and Hindmoor

There has been a recent resurgence of interest in debates about the power of business (Culpepper 2011 Culpepper, P. (2011). Quiet Politics and Business Power: Corporate Control in Europe and Japan, Cambridge: Cambridge University Press. [Google Scholar]; Bell 2012 Bell, S. (2012). The Power of Ideas: The Ideational Mediation of the Structural Power of Business. International Studies Quarterly, 56(4), 661–73. doi: 10.1111/j.1468-2478.2012.00743.x[Crossref], [Web of Science ®] , [Google Scholar]) and Bell and Hindmoor (2013 Bell, S., Hindmoor, A. (2013). The Structural Power of Business and the Power of Ideas: The Strange Case of the Australian Mining Tax. New Political Economy, ,forthcoming. Available from: http://dx.doi.org/10.1080/13563467.2013.796452 [19 (3), pp. 470–486, cross-references updated] [Google Scholar]) make an important, theoretically informed, but empirically rooted, contribution to that debate. In this response, we address both aspects of their contribution, arguing that their treatment of Lindblom is partial and, consequently, so is their explanation of the case. As such, we largely rely on their narrative of the evolution of the Australian mining tax, focusing first on critically examining Bell and Hindmoor's theoretical position, before turning to their analysis of the case.