Testing for Fractional Integration Versus Short Memory with Structural Breaks*

Although it is commonly accepted that most macroeconomic variables are non‐stationary, it is often difficult to identify the source of the non‐stationarity. Integrated processes and short‐memory models with trending components, possibly affected by structural breaks, imply similar features in the data and, accordingly, are hard to distinguish. The goal of this article is to extend the classical testing framework of I(1) versus I(0) + trends and/or breaks by considering a more general class of models under the null hypothesis: fractionally integrated (FI) processes. The asymptotic properties of the proposed tests are derived and it is shown that they are very well‐behaved in finite samples. An illustration using US inflation data is also provided.     

The economics of the Books of Moses

The Books of Moses contained economic precepts that made a twofold impact in the history of economic thought. First, Mosaic precepts shaped Israel's transition from a nomadic to a sedentary economy. This transition as such had parallels in many other societies, but Israel's case was unique in that Moses grounded economic precepts on theology. Second, Moses shaped conceptions of economics by Jews and by non‐Jews, in two ways: first, he laid a path for theologically derived economics that continued in Christianity and in Islam; second, he cast terms of reference for the right to own property that were dominant in Western economic thinking until the Enlightenment.     

TOWARDS AN ALGORITHMIC REVOLUTION IN ECONOMIC THEORY

Abstract This is an attempt to tell a coherent story of a possible path towards an algorithmic revolution in economic theory, based on foundational debates in mathematics. First, by exposing the non‐computational content of classical mathematics, and its foundations, it is shown that both set theory and the tertium non datur can be dispensed with, as foundational concepts. Next, then, as a natural sequel, it follows that every kind of economic theory that bases its theoretical underpinning on classical mathematics can be freed from these foundations and can be made naturally algorithmic. This will make the subject face, in an all pervasive way, absolutely (algorithmically) undecidable decision problems. The thrust of the path towards an algorithmic revolution in economics lies, then, in pointing out that only a radically new mathematical vision of microeconomics, macroeconomics, behavioural economics, game theory, dynamical systems theory and probability theory can lead us towards making economic theory a meaningfully applied science and free of mysticism and subjectivism.     

A semiparametric stochastic volatility model

In this paper the correlation structure in the classical leverage stochastic volatility (SV) model is generalized based on a linear spline. In the new model the correlation between the return and volatility innovations is time varying and depends nonparametrically on the type of news arrived to the market. Theoretical properties of the proposed model are examined. The model estimation and comparison are conducted by Bayesian methods. The performance of the estimates are examined in simulations. The new model is fitted to daily and weekly US data and compared with the classical SV and GARCH models in terms of their in-sample and out-of-sample performances. Empirical results suggest evidence in favor of the proposed model. In particular, the new model finds strong evidence of time varying leverage effect in individual stocks when the classical model fails to identify the leverage effect.     

The True Meaning of ‘Social Justice’: A Catholic View of Hayek

Hayek's well‐known dismissal of the concept of ‘social justice’ is examined and questioned. While basically agreeing with Hayek's critique, the author argues that we should not entirely reject this concept, although it is often used in a vague and emotional way – ‘social justice talk’. Drawing on the tradition of classical liberalism and Catholic social teaching, he makes the case for the true meaning of social justice, which applies to the basic legal and institutional framework of a society rather than the distributional outcomes of market processes.     

Inference in regression models with many regressors

We investigate the behavior of various standard and modified F$F$, likelihood ratio (LR$LR$), and Lagrange multiplier (LM$LM$) tests in linear homoskedastic regressions, adapting an alternative asymptotic framework in which the number of regressors and possibly restrictions grows proportionately to the sample size. When the restrictions are not numerous, the rescaled classical test statistics are asymptotically chi-squared, irrespective of whether there are many or few regressors. However, when the restrictions are numerous, standard asymptotic versions of classical tests are invalid. We propose and analyze asymptotically valid versions of the classical tests, including those that are robust to the numerosity of regressors and restrictions. The local power of all asymptotically valid tests under consideration turns out to be equal. The “exact” F$F$ test that appeals to critical values of the F$F$ distribution is also asymptotically valid and robust to the numerosity of regressors and restrictions.     

Paternalism,Nudging and Liberty

The recent popularity of ‘nudge’ – involving governments structuring choices to lead individuals to choose outcomes which policymakers wish to encourage – has given rise to a belief that ‘libertarian paternalism’ offers a modern substitute for classical liberalism. But most governments are more paternalistic and less libertarian than nudge theorists. If ‘nudge’ was taken seriously, many existing laws would be repealed and few new laws would be made.     

The Anti-Benthamism of J. M. Keynes: Implications for The General Theory

A bstract Keynes severely criticized the "Benthamite tradition," the overvaluation of the "economic criterion" He found "the love of money" corrosive of community and esthetic values and an encouragement to reckless exploitation of places that should be in the public domain In "Art and the State," he proposes the rebuilding of large sections of modern cities to rekindle popular feelings of beauty and community values
One of the factors behind this philosophy was G E Moore's Principia Ethica (1903) It criticizes Bentham for committing "the naturalistic fallacy" of confusing means with ends and idealizes two "goods" in themselves, the pleasure of human relations and the enjoyment of beauty in nature and art These ideals Keynes saw undermined by the Benthamite tradition
Such criticism is the "moral-political paradigm" on which The General Theory is erected Minute calculation of advantages and disadvantages, on which classical economics is based, is rejected Behind consumption and investment functions are sociological and psychological factors, "animal spirits," and the like Calculation prevails in the stock and bond markets ( liquidity preference )–to everybody's sorrow The proposed slow elimination of institutions that make liquidity preference possible, and of the rentier , follow logically Econometrics , viewed as the tool of the overvaluation of the economic criterion, is also rejected. In many articles Keynes aimed at much more than revolutionizing political economy , he aimed at weaning England from Benthamite utilitarianism and raising the cultural values of the populace By 1938 he knew that he had failed.     

A simple test for regression specification with non-nested alternatives

In this paper, I introduce a simple test for the presence of the data-generating process among several non-nested alternatives. The test is an extension of the classical J test for non-nested regression models. I also provide a bootstrap version of the test that avoids possible size distortions inherited from the J test.     

Functional regression of continuous state distributions

In this paper, we consider a regression model to study the distributional relationship between economic variables. Unlike the classical regression dealing exclusively with mean relationship, our model can be used to analyze the entire dependent structure in distribution. Technically, we treat density functions as random elements and represent the regression relationship as a compact linear operator in the Hilbert spaces of square integrable functions. We propose a consistent estimation procedure for our model, and develop a test to investigate the dependent structure of moments. An empirical example is provided to illustrate how our methodology can be implemented in practical applications.     

Credit claiming

We consider a leader and a subordinate he appoints who work in a team. The public observes the organization’s performance, but not the separate contribution of the leader or of the subordinate. The leader may therefore claim credit for the good work of his subordinate. We find conditions which induce the leader to claim credit (both truthfully and untruthfully), and the conditions which lead the leader to appoint a subordinate of low ability.JEL Classification: M5Björn Segendorff gratefully acknowledge financial support from The Swedish Council for Research in Humanities and Social Sciences (HSFR, F0357/97). We are also grateful for comments by an anonymous referee.     

The effect of microaggregation by individual ranking on the estimation of moments

Microaggregation by individual ranking (IR) is an important technique for masking confidential econometric data. While being a successful method for controlling the disclosure risk of observations, IR also affects the results of statistical analyses. We conduct a theoretical analysis on the estimation of arbitrary moments from a data set that has been anonymized by means of the IR method. We show that classical moment estimators remain both consistent and asymptotically normal under weak assumptions. This theory provides the justification for applying standard statistical estimation techniques to the anonymized data without having to correct for a possible bias caused by anonymization.     

Scale development and validation of Transaction Cost Economics typology for contracts: A systems thinking approach

A variety of contract typologies that exist in the literature are helpful in the exploration of different approaches in contractual relations, but only when measured with the right instruments. Although Transaction Cost Economics (TCE) has a distinct, high-level, and abstract typology for contracts, it still lacks a measurement scale. In this paper, a measurement scale for the TCE contract typology (classical, neo-classical, and relational contracts) was developed and validated, using systems thinking approach and experimental design to contribute to the empirical tests of TCE within the contracting realm. First, the antecedents of contract selection within the TCE literature were analyzed using the systemigram technique to visualize and parse out complex relationships that lead to contract selection. The analysis of the TCE Systemigram helped the development of the scale and revealed the need to revisit the risk neutrality assumption embedded in TCE. Second, a measurement scale for the TCE contract typology (classical, neo-classical, and relational contracts) was developed adhering to the original texts of seminal papers and reviews from the TCE literature. Third, the 14-item measurement scale was validated using a series of three vignette-based experimental studies.Key messageThis research explores the antecedents of the TCE contract typology and develops a measurement scale for essential characteristics of classical, neo-classical, and relational contracts, as defined in TCE, using systems thinking approach and a novel vignette-based experimental design.     

What Was ‘New’ About Neoliberalism?

This article advances an interpretation of the core contribution of neoliberalism to the liberal tradition. At the hands of neoliberal thinkers, the classical liberalism of Locke, Smith and Mill underwent a reconstruction involving certain re‐conceptualisations of individual and political freedom, which served to shift the crux of the case for classical liberalism from market success propositions to government failure propositions.     

The Libertarian Character of the Islamic Economy

This article reviews the shari'a approach to markets and examines its treatment by certain twentieth‐century Islamic economists such as Nejatullah Siddiqui, Nawab Haider Naqvi, Umer Chapra and M.A. Mannan. It characterises the arguments of these economists as largely statist, redistributive and socialist, possibly reflecting post‐colonial intellectual experiences. Yet shari'a endorses negative freedom by proscribing price controls and guaranteeing consumer protection from coercion. Islamic law, this article argues, as evinced in both revealed knowledge and human exegesis, has endorsed a market‐friendly, libertarian and limited‐government philosophy.     

Generalized empirical likelihood tests in time series models with potential identification failure

We introduce test statistics based on generalized empirical likelihood methods that can be used to test simple hypotheses involving the unknown parameter vector in moment condition time series models. The test statistics generalize those in Guggenberger and Smith [2005. Generalized empirical likelihood estimators and tests under partial, weak and strong identification. Econometric Theory 21 (4), 667–709] from the i.i.d. to the time series context and are alternatives to those in Kleibergen [2005a. Testing parameters in GMM without assuming that they are identified. Econometrica 73 (4), 1103–1123] and Otsu [2006. Generalized empirical likelihood inference for nonlinear and time series models under weak identification. Econometric Theory 22 (3), 513–527]. The main feature of these tests is that their empirical null rejection probabilities are not affected much by the strength or weakness of identification. More precisely, we show that the statistics are asymptotically distributed as chi-square under both classical asymptotic theory and weak instrument asymptotics of Stock and Wright [2000. GMM with weak identification. Econometrica 68 (5), 1055–1096]. We also introduce a modification to Otsu's (2006) statistic that is computationally more attractive. A Monte Carlo study reveals that the finite-sample performance of the suggested tests is very competitive.     

Statistical treatment choice based on asymmetric minimax regret criteria

This paper studies the problem of treatment choice between a status quo treatment with a known outcome distribution and an innovation whose outcomes are observed only in a finite sample. I evaluate statistical decision rules, which are functions that map sample outcomes into the planner’s treatment choice for the population, based on regret, which is the expected welfare loss due to assigning inferior treatments. I extend previous work started by Manski (2004) that applied the minimax regret criterion to treatment choice problems by considering decision criteria that asymmetrically treat Type I regret (due to mistakenly choosing an inferior new treatment) and Type II regret (due to mistakenly rejecting a superior innovation) and derive exact finite sample solutions to these problems for experiments with normal, Bernoulli and bounded distributions of outcomes. The paper also evaluates the properties of treatment choice and sample size selection based on classical hypothesis tests and power calculations in terms of regret.     

Marshall's Parable of the Meteoric Stones:

A bstract Marshall defended the classical concepts of land, labor and capital, even though many of his neoclassical contemporaries rejected these old distinctions and explained all factor incomes with a unified and general theory In his parable of the meteoric stones. Marshall illustrated the principles that separately determine rent, quasi-rent and interest , but he reconciled the old and the new by making special assumptions, which he did not fully explain His theory of rent requires the supply of land to be perfectly inelastic, and his doctrine of quasi-rent implies that markets are imperfectly competitive