An identity for expectations of functions of order statistics

Summary We consider an identity for expectations of general functions of order statistics valid in a parametric class of probability distributions. Corresponding characterization results are indicated.     

Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?

Abstract. We present a non-scale continuous-time overlapping-generations growth model that provides an explanation for why economies with relative wage rigidity feature higher unemployment, but not slower productivity growth, than economies with flexible wages. The compression of the wage distribution associated with relative wage rigidity slows down human capital accumulation and growth ceteris paribus . But unemployment among the low-skilled workers strengthens the incentives to invest in human capital and, hence, growth. The two effects are offsetting, and growth is independent of the prevailing degree of relative wage rigidity. This knife-edge result is robust with respect to some modifications of the model.     

Velocity Effects of Increased Variability in Monetary Growth in Egypt: A Test of Friedman's Velocity Hypothesis

Abstract: This paper tests Friedman's hypothesis that increased variability in the growth of money supply causes velocity to decline, using Egyptian data from the period 1960–99. The monetary aggregates M1 and M2 are decomposed into anticipated and unanticipated components and the variability of money growth is computed as the standard deviation of five years of monetary growth rates. Cointegration tests show that there is a statistically significant long‐run relationship between the variability in money growth and velocity, for both M1 and M2. However, while increased variability in the growth of M2 is found to be associated with lower velocity — supporting Friedman's velocity hypothesis — increased variability in the growth of M1 seems to have no influence on velocity, possibly because the definition of M1 has changed over time. The findings also suggest that anticipated movements in M2 volatility are not neutral, in the sense that they do affect velocity. An important implication is that the scope for discretionary monetary policy in Egypt is somewhat circumscribed in the short run. However, if the Central Bank of Egypt were to make its decisions more transparent and pre‐announce its policies, then velocity would be more predictable and monetary policy more potent.     

The Economic Performance of Immigrants: a Theory of Assortative Matching

The economic performance of U.S. immigrants differs substantially from that of natives in ways that pose difficulties for standard theories of migration. In particular, immigrants cluster geographically and are often employed together. Immigrant earnings differ by origin and time spent in the United States, even after controlling for education and experience. A large fraction of immigrants eventually returns home, even to low-wage countries. This article offers a theory of international migration based on assortative matching under imperfect information that accounts for a broad range of these empirical regularities.     

The impact of transport-and transaction-cost reductions on food markets in developing countries: evidence for tempered expectations for Burkina Faso

Reductions in transport and transaction costs are expected to have a major effect on the functioning of food markets in developing countries. For Burkina Faso, this is a relevant issue as it may have important consequences for the food markets in urban and rural deficit areas. A partial equilibrium model is presented to analyze the short-term effects of reduced costs on price formation, inter-regional cereal trade, and farmers' and traders' storage strategies. Our results show that the high expectations with regard to the direct effects of cost reductions on food prices and food availability require some nuance. The effects of a reduction of transport costs will be small. Moreover, also the unintended negative consequences on the competitive position of farmers and traders in other regions that do not profit from road construction should be taken into account. Finally, it is concluded that only if transport and transaction costs are reduced simultaneously, will both the consumers and farmers benefit significantly.     

Issues relating to Agricultural Pricing Policies and their Analysis in Developing Countries

Agricultural pricing policies in developing countries are often the result of complex interactions between producer, consumer and merchant groups and their relative effectiveness in influencing government decision making. Even within governments, various ministries often have opposing views. In this environment one of the contributions a policy analyst can make is to attempt to quantify the effects of different policy options. This permits a more informed discussion which hopefully leads to better decision-making and an improved incentive environment. Many analyses of agricultural pricing policies have used the standard partial equilibrium analysis where no linkages between commodity markets were considered. In this paper we have considered cross-price effects. Also, we have discussed issues relating to other adjustments/refinements of the standard method so that a practitioner not familiar with the various methods can form an opinion of what the options are and what adjustments may be appropriate for a particular case in question. The adjustments relate to overvaluation of currencies, input price distortions, differences in the degree of distortions between producers and consumers, and variability of border prices. The inclusion of cross-price elasticities was important for assessing production, consumption and trade effects for Argentina, but for the other countries it resulted in only somewhat improved accuracy. The adjustment for exchange rates had a large impact in Egypt and was important for other countries as well. This underlines the importance of exchange rates as key variables for agricultural pricing policies in general. The numbers show that the traditional taxation policies of agricultural products in the sample of developing countries is somewhat less widespread than in the past. These policies, however, continue to favor consumers over producers, with significant losses for some of the latter. The large size of welfare losses, especially compared to efficiency losses, highlights the importance of correcting distorted prices that adversely affect the poorest sections of society. Also, the usual government objective of taxing producers to raise revenues is frequently defeated by the large subsidies provided to consumers. For the partitioner, for whom time is often of the essence, the assessment of welfare effects using the partial equilibrium method may provide reasonably good ‘first cut’ estimates of the order of magnitude of the impact of distortions. But often, these 'base case estimates' can and should be adjusted for a number of possible factors. The analyst needs to determine how important accurate estimates of key variables are to the policy makers; he or she then needs to compare the costs involved in generating or gathering the data and doing the calculations with the benefits of a broader and more accurate analysis of the distortionary effects of the particular case in question.     

On the selection of forecasting models

It is standard in applied work to select forecasting models by ranking candidate models by their prediction mean squared error (PMSE) in simulated out-of-sample (SOOS) forecasts. Alternatively, forecast models may be selected using information criteria (IC). We compare the asymptotic and finite-sample properties of these methods in terms of their ability to mimimize the true out-of-sample PMSE, allowing for possible misspecification of the forecast models under consideration. We show that under suitable conditions the IC method will be consistent for the best approximating model among the candidate models. In contrast, under standard assumptions the SOOS method, whether based on recursive or rolling regressions, will select overparameterized models with positive probability, resulting in excessive finite-sample PMSEs.