MGARCH models: Trade-off between feasibility and flexibility

Multivariate GARCH (MGARCH) models need to be restricted so that their estimation is feasible in large systems and so that the covariance stationarity and positive definiteness of conditional covariance matrices are guaranteed. This paper analyzes the limitations of some of the popular restricted parametric MGARCH models that are often used to represent the dynamics observed in real systems of financial returns. These limitations are illustrated using simulated data generated by general VECH models of different dimensions in which volatilities and correlations are interrelated. We show that the restrictions imposed by the BEKK model are very unrealistic, generating potentially misleading forecasts of conditional correlations. On the other hand, models based on the DCC specification provide appropriate forecasts. Alternative estimators of the parameters are important in order to simplify the computations, and do not have implications for the estimates of conditional correlations. The implications of the restrictions imposed by the different specifications of MGARCH models considered are illustrated by forecasting the volatilities and correlations of a five-dimensional system of exchange rate returns.     

A green Lewis development model

This paper develops an environmental extension of a Lewis dual economy model, in which the interaction between environmental quality and economic growth, in one of its several dimensions, is explicitly modeled to explore long-run effects of a pollution abatement rule in developing economies. The government requires the modern sector to dedicate a fraction of its output to pollution abatement, with such profitability-reducing fraction being endogenous to the level of environmental quality. Meanwhile, the level of environmental quality positively affects labor productivity, profits and, therefore, savings, which has a positive impact on capital accumulation. It is shown that this pollution abatement requirement, by affecting profitability in the modern sector both negatively and positively, makes for the emergence of an ecological development trap from which a developing dual economy, if left to the free play of its structural forces, never escapes. Fortunately, however, this economy can be released from such a trap not only through a standard Big Push, in the spirit of Rosenstein-Rodan, but also by means of what we call an Environmental Big Push.     

BIBLIOMETRIC ANALYSIS OF THE QUANTITATIVE METHODS APPLIED TO THE MEASUREMENT OF INDUSTRIAL CLUSTERS

Literature on methods for analysing interindustry interdependence and geographical concentration of firms began to multiply since the 1990s. The aim of this paper was to systematize the literature on methods and measures applied to the analysis of industrial clusters, as well as to identify trends in this knowledge field. The method used was bibliometrics, which consisted of a frequency evaluation of the publications and the relationship network between them. It was verified an exponential increase in the number of papers that composed this area, based mainly on the theories of New Economic Geography. Recently, the literature has focused on the geographic location in relation to interindustry linkages, and the frontier of knowledge has shifted from traditional methods of regional science to areas such as spatial statistics, econophysics and artificial intelligence. There are still relevant questions being explored, as Modifiable Area Unit Problem (aggregation bias), nevertheless, spatial anisotropy (directional bias) is still neglected and indicates a new research path.     

Environmental transparency and investors' risk perception: Cross-country evidence on multinational corporations' sustainability practices and cost of equity

We explore whether a greater amount of environmental disclosure can reduce a firm's ex ante cost of equity. This could occur because the quantity of environmental information changes investors' risk perception of the company, thereby influencing its ex ante cost of equity. Our study is a cross-country analysis of 1481 multinational corporations (MNCs) across 43 countries and territories from 2013 to 2019. Firstly, we measure investors' risk perception as a firm's ex ante cost of equity by employing five different valuation models, all based on equity analysts' forecasted data. We then investigate whether large quantities of environmental information disclosed by an MNC affect its ex ante cost of equity. We find evidence that investors price the amount of environmental disclosure. More environmental disclosure decreases a firm's ex ante cost of equity because it lessens investors' information asymmetry. However, this relationship is non-linear. Once the amount of environmental disclosure data exceeds a certain threshold level, a firm's ex ante cost of equity will rise again. Our empirical results also suggest that non-financial factors at the country level play a role in shaping how investors perceive a firm's riskiness. Locating the firm in a country with better environmental performance and a higher score of the human development index can reduce investors' risk perception and result in a lower ex ante cost of equity. A policy implication of our findings is that a global standardised and effective corporate sustainability reporting is needed to provide investors a more holistic view for evaluating the riskiness of their investments.     

Returns of Education in the Czech Republic

Prepared for presentation at the Congress of the International Institute of Public Finance (IIPF) in Seville, Spain, 28–31 August 2000, for the session on the opportunity-equalising effects of fiscal systems.University education is nowadays provided as public goods in the Czech Republic. Due to economic pressure on public finance the trend of the 90s became the internalisation of costs associated with university education.The generally accepted hypothesis is that nowadays the returns from the costs of university education are achieved in a shorter time than before economic transition. Additionally, it is thought that the return on university education is differentiated by professions. We aim to test these hypotheses. That is why the cornerstone of our study is the deeper analysis of the differentiation of selected professions in the current state in comparison to the period before transition.After 1989, due to the economic transition and development of the market economy, wage differentiation accelerated in the Czech Republic. An important factor in differentiation seems to be the level of human capital, represented above all by university education. Education significantly increased the chance of finding a job, as another analysis has proven. However, these positive effects of education have been paid for by considerable monetary and non-monetary costs.The paper provides an economic analysis at the level of an individual and his point of return between costs and revenues from university education. To achieve an exact but still simple analysis we take into account only quantifiable monetary costs and revenues. The calculation of the point of return is done with the use of the construction of a cumulated whole-life income and its interpolation. The analysis uses data for the Czech Republic in 1988 and 1997.     

ALGORITHMIC METHODS FOR SINGLE SERVER SYSTEMS WITH REPEATED ATTEMPTS

In many practical situations customers applying for service and finding the server busy will not join a queue, but make a new attempt to enter service after some time. In this paper we study single server systems with repeated attempts both for infinite-source input and finite-source input where the service times are general and the reattempt times are exponential. Numerically stable recursion schemes are derived by which the time-average and customer-average steady-state probabilities can be effectively computed.     

Hoglex Demand Systems and Welfare Policy in Major Asean Developing Countries: A Bayesian Analysis Using Expenditure Unit Records

The HOGLEX demand system (Tran Van Hoa (1983, 1985)) is integrable and flexible in the sense that it is based on utility maximization and encompasses most other well-known demand systems (e.g., LINEX, AIDS) in the literature on consumer behaviour (Laitinen et al. (1983)). HOGLEX studies to date have been based on conventional OLS or MLE methods and panel aggregate income and price data, and restricted to investigating consumption patterns. The paper elaborates on three important subsets of the HOGLEX demand system and, using household expenditure unit records from two major ASEAN developing countries (i.e., Thailand and the Philippines), estimates by the Bayesian method these subsets for 20 socio-demographic cohorts, and discusses their substantial implications in social security and welfare policy analysis. We also estimate the models in the more practical case of measurement errors in total expenditure and compare the results with those without measurement errors.

     

Opinions on the Tax Deductibility of Mortgages and the Consensus Effect

Summary We present the results of a survey-experiment – using a representative sample of the Dutch population – in which we relate respondents’ opinion about a restriction of the tax deductibility of mortgages to their estimates about other people’s opinions. We find a strong consensus effect; meaning that respondents’ estimates of others’ opinions are related to their own opinion. Furthermore, we find that the size of the effect is not affected by the ambiguity of the question posed. The provision of arguments pro and contra the tax provision and monetary incentives for accuracy reduce the consensus effect, but only so in conjunction. Finally, we find that house owners display a significantly stronger consensus effect. Our results suggest that both cognitive and motivational factors are responsible for the consensus effect. Aside from the consensus effect, our survey gives interesting insights into people’s opinion on tax deductibility of mortgages. A majority consider a general restriction to be unfair, but a proposal to restrict only mortgages as of a certain size meets with much more approval. We thank Marcel Das and Corrie Vis of CentERdata for their excellent support in conducting the survey-experiment and two referees of this journal and Dirk Engelmann for helpful comments. Financial support from the Faculty of Economics and Business administration is gratefully acknowledged.