Instability of the Inflation–Output Trade‐Off and Time‐Varying Price Rigidity

This paper studies the time instability of the Phillips curve by paying particular attention to the inflation environment and price stickiness. We identify various inflation episodes and investigate the changing nature of the curve across these periods for five advanced countries over 1960–2013. We show that the mean inflation, the slope of the curve and the threshold mean inflation that erodes price rigidity are time varying. The inflation environment is a key determinant of the inflation–output relationship, rejecting the evidence of a flat curve and restoring the inflation–output trade‐off above certain inflation thresholds.     

Peering at the Past Century's Corporate Strategy Through the Looking Glass of Time‐Series Analysis: Extrapolating from Chandler's Classic Mid‐Century American Firms?

ABSTRACT This study has a dual thrust. Substantively , it revisits Chandler's pragmatic fit-performance directive (Chandler's 'efficiency thesis') or his assertion that firms whose structure matches their strategy become more effective than mismatched firms. It is important to revisit the empirical origin of this result in view of its gradual international extrapolation beyond the time and place in which it originated. By gathering the financial data relevant to the firms cited as examples by Chandler, we identify whether the change to the multidivisional structure did indeed lead to improved financial performance in the mid-twentieth century American firms he described. Methodologically , it explores a novel approach to the empirical validation of basic theories. Using historical replication, it undertakes a longitudinal, time-series analysis of a classic theory based on twentieth-century data, and thus investigates the testing of classic data with a modern tool. We undertake multiple replications. Three separate longitudinal studies are performed, consisting of two forecasting methods applied to 11 individual time series, and a comparison technique applied to the same. These are used with the three most common measures of performance at the time of Chandler's writing. All three methods reveal that the differences predicted by his theory are not borne out by the longitudinal analysis of a core group of Chandler's own exemplary firms. The three sets of longitudinal analyses we present raise some substantive questions regarding this cornerstone of classical theory, and carry positive methodological portents regarding the use of historical replication as a stepping-stone for twenty-first-century research.     

Marginalized Predictive Likelihood Comparisons of Linear Gaussian State‐Space Models with Applications to DSGE,DSGE‐VAR,and VAR Models

The predictive likelihood is useful for ranking models in forecast comparison exercises using Bayesian inference. We discuss how it can be estimated, by means of marzginalization, for any subset of the observables in linear Gaussian state‐space models. We compare macroeconomic density forecasts for the euro area of a DSGE model to those of a DSGE‐VAR, a BVAR and a multivariate random walk over 1999:Q1–2011:Q4. While the BVAR generally provides superior forecasts, its performance deteriorates substantially with the onset of the Great Recession. This is particularly notable for longer‐horizon real GDP forecasts, where the DSGE and DSGE‐VAR models perform better. Copyright © 2016 John Wiley & Sons, Ltd.     

Functional Coefficient Cointegration Models Subject to Time–Varying Volatility with an Application to the Purchasing Power Parity

This paper analyses functional coefficient cointegration models with both stationary and non‐stationary covariates, allowing time‐varying (unconditional) volatility of a general form. The conventional kernel weighted least squares (KLS) estimator is subject to potential efficiency loss, and can be improved by an adaptive kernel weighted least squares (AKLS) estimator that adapts to heteroscedasticity of unknown form. The AKLS estimator is shown to be as efficient as the oracle generalized kernel weighted least squares estimator asymptotically, and can achieve significant efficiency gain relative to the KLS estimator in finite samples. An illustrative example is provided by investigating the Purchasing Power Parity hypothesis.     

The Changing Nature of Border,Scale and the Production of Hong Kong's Water Supply System since 1959

This article investigates the making of Hong Kong's water supply system since 1959. It starts by assessing the perspectives provided by the regime approach and the political ecology literatures. The case of Hong Kong brings in ideas from border studies and draws attention to the changing nature of the border to explain socio‐ecological and scaling interactions. The case study maps the border relationship between China and Hong Kong (and Britain), and the political tussle between them over the control of water supply to the city in the late colonial period 1959–78, which resulted in the creation of a localized self‐sufficient water supply system in Hong Kong, and the consolidation of Hong Kong's scale as a colonial city‐state under British rule. It further explicates the change in the nature of the political border since 1979, and the processes by which Hong Kong abandoned attempts to strengthen its local supply, becoming dependent on supply from the regional Dongjiang water networks, as well as the transformation of its scale to become a subordinate of the larger political unit in subsequent years.     

Assessing the Transmission of Monetary Policy Using Time‐varying Parameter Dynamic Factor Models*

This article extends the current literature which questions the stability of the monetary transmission mechanism, by proposing a factor‐augmented vector autoregressive (VAR) model with time‐varying coefficients and stochastic volatility. The VAR coefficients and error covariances may change gradually in every period or be subject to abrupt breaks. The model is applied to 143 post‐World War II quarterly variables fully describing the US economy. I show that both endogenous and exogenous shocks to the US economy resulted in the high inflation volatility during the 1970s and early 1980s. The time‐varying factor augmented VAR produces impulse responses of inflation which significantly reduce the price puzzle. Impulse responses of other indicators of the economy show that the most notable changes in the transmission of unanticipated monetary policy shocks occurred for gross domestic product, investment, exchange rates and money.     

A Comparison of Sequential and Information‐based Methods for Determining the Co‐integration Rank in Heteroskedastic VAR Models

In this article, we investigate the behaviour of a number of methods for estimating the co‐integration rank in VAR systems characterized by heteroskedastic innovation processes. In particular, we compare the efficacy of the most widely used information criteria, such as Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC) , with the commonly used sequential approach of Johansen [Likelihood‐based Inference in Cointegrated Vector Autoregressive Models (1996)] based around the use of either asymptotic or wild bootstrap‐based likelihood ratio type tests. Complementing recent work done for the latter in Cavaliere, Rahbek and Taylor [Econometric Reviews (2014) forthcoming], we establish the asymptotic properties of the procedures based on information criteria in the presence of heteroskedasticity (conditional or unconditional) of a quite general and unknown form. The relative finite‐sample properties of the different methods are investigated by means of a Monte Carlo simulation study. For the simulation DGPs considered in the analysis, we find that the BIC‐based procedure and the bootstrap sequential test procedure deliver the best overall performance in terms of their frequency of selecting the correct co‐integration rank across different values of the co‐integration rank, sample size, stationary dynamics and models of heteroskedasticity. Of these, the wild bootstrap procedure is perhaps the more reliable overall as it avoids a significant tendency seen in the BIC‐based method to over‐estimate the co‐integration rank in relatively small sample sizes.     

Measuring Spot Variance Spillovers when (Co)variances are Time‐varying – The Case of Multivariate GARCH Models

We propose global and disaggregated spillover indices that allow us to assess variance and covariance spillovers, locally in time and conditionally on time‐t information. Key to our approach is the vector moving average representation of the half‐vectorized ‘squared’ multivariate GARCH process of the popular BEKK model. In an empirical application to a four‐dimensional system of broad asset classes (equity, fixed income, foreign exchange and commodities), we illustrate the new spillover indices at various levels of (dis)aggregation. Moreover, we demonstrate that they are informative of the value‐at‐risk violations of portfolios composed of the considered asset classes.     

Measuring Financial Contagion Using Time‐Aligned Data: The Importance of the Speed of Transmission of Shocks*

This paper presents a new empirical approach to address the problem of trading time differences between markets in studies of financial contagion. In contrast to end‐of‐business‐day data common to most contagion studies, we employ price observations, which are exactly aligned in time to correct for time‐zone and end‐of‐business‐day differences between markets. Additionally, we allow for time lags between price observations in order to test the assumption that the shock is not immediately transmitted from one market to the other. Our analysis of the financial turmoil surrounding the Asian crisis reveals that such corrections have an important bearing on the evidence for contagion, independent of the methodology employed. Using a correlation‐based test, we find more contagion the faster we assume the shock to be transmitted.     

Time‐varying intercepts and equilibrium analysis: an extension of the dynamic almost ideal demand model

Demographic effects and user costs in demand systems have usually been modelled explicitly. A more robust approach is a state space formulation of the demand system, where time‐varying intercepts account for the effects of unobservable variables. The author embeds such a system in a vector autoregressive distributed lag model, with a Bayesian hierarchical prior. The model is estimated by a Markov chain Monte Carlo method on samples involving quarterly US and UK data. In the US case, the results are compared with a previously published cointegration analysis of the same data. Copyright © 2002 John Wiley & Sons, Ltd.     

Two Models of Ownership: How Commons Has Co‐Existed with Private Property

This article challenges the claim by many historians that the rise of capitalism requires the destruction of common property systems. In contrast to the English case in which commons were enclosed, French peasants used their common property system to regulate the market, provide a rural safety net and a democratic check on elites, while urban industry developed. European battles over common property replayed in surprising ways in colonial African countries such as Sierra Leone, and echoes reemerge today. The West African country of Guinea tests two possible paths to development of a market society: the English path and the French path. Interviews with key government officials collected in 1993 help explain why Guinea, despite adopting a land law in 1992 inspired by the English path, has so far failed to widely apply the law and, in fact, is following the French path. The United States pursued a policy of replacing American Indian common property systems with exclusive individual property rights. Nonetheless, Indian common property survives in the form of recent recognition of Indian off‐reservation hunting and fishing rights. The Menominee reservation successfully resisted the destruction of its common property system and today participates in the market in a manner that preserves reservation ecology, democratic government, and Menominee cultural identity. Rethinking the meaning of French, African, and U.S. accommodation to common property systems offers important lessons for contemporary development policies in Africa and around the world.     

Pricing Practices of Resellers in the Airline Industry: Posted Price vs. Name‐Your‐Own‐Price Models

I find that when a reseller with market power serves an airline company and only linear contracts are feasible, the airline prefers that the reseller utilizes the Name‐Your‐Own‐Price (NYOP) (a la Priceline) instead of the Posted Price (PP) (a la Hotwire) model. Essentially, the airline can better extract the surplus of the reseller if power over pricing is in the hands of numerous consumers, each bidding according to her preferences, instead of being concentrated in the hands of the reseller. Introducing two part tariff contracts or competition among resellers eliminates the distinction between the two pricing models. Either form of pricing generates the same outcome as vertical integration of the airline with the downstream market of resellers.     

Governing ‘Sustainable Urban Development’ Through Self‐Build Groups and Co‐Housing: The Cases of Hamburg and Gothenburg

This article critically examines the governing of ‘sustainable urban development’ through self‐build cohousing groups in Gothenburg and Hamburg. The two case cities have been selected because both are currently involved in major urban restructuring, and have launched programmes to support self‐build groups and cohousing as part of their emphasis on promoting urban sustainable development through this process. Departing from a theoretical discussion on advanced liberal urban governance, focusing in particular on the contemporary discourse on sustainable urban development, we examine the interaction between political institutions, civil society and private actors in the construction of cohousing as a perceived novel and alternative form of housing that may contribute to fulfilling certain sustainability goals. Questions centre on the socio‐political contextualization of cohousing; concepts of sustainability; strategies of, and relations between, different actors in promoting cohousing; gentrification and segregation; and inclusion and exclusion. In conclusion we argue that, while self‐build groups can provide pockets of cohousing as an alternative to dominant forms of housing, the economic and political logics of advanced liberal urban development make even such a modest target difficult, particularly when it comes to making such housing affordable.     

Efficient tests of long‐run causation in trivariate VAR processes with a rolling window study of the money–income relationship

This paper develops a simple sequential multiple‐horizon non‐causation test strategy for trivariate VAR models (with one auxiliary variable). We apply the test strategy to a rolling window study of money supply and real income, with the price of oil, the unemployment rate and the spread between the Treasury bill and commercial paper rates as auxiliary processes. Ours is the first study to control simultaneously for common stochastic trends, sensitivity of test statistics to the chosen sample period, null hypothesis over‐rejection, sequential test size bounds, and the possibility of causal delays. Evidence suggests highly significant direct or indirect causality from M1 to real income, in particular through the unemployment rate and M2 once we control for cointegration. Copyright © 2007 John Wiley & Sons, Ltd.     

The DNA of Enterprise: Jane Jacobs and Henry George on Innovation and Development Through Spin‐Offs

The main training grounds for entrepreneurial, technical, and business capacities are existing businesses. There are two ways that this training can lead to new growth—just as there are two ways that existing biological DNA can lead to the growth of bio‐mass, namely, (1) existing organisms getting bigger or (2) by spinning out offspring who in turn can spin out more offspring. Where growth has been vibrant, e.g., Silicon Valley, it has followed the second route, growth by offspring. This is also the biological principle of plenitude. Conventional ownership structures lessen the incentives for spin‐offs since managers do not want to reduce the “empire” under their control. The biological principle of plenitude is best implemented with employee‐owned or cooperative firms (e.g., as in the Mondragon cooperative group). Inspired by ideas first proposed by Henry George and Jane Jacobs, this article explores the social benefits of applying the biological principle of plenitude by encouraging the proliferation of enterprises. This poses a conundrum for societies organized around the private business model: How can the social benefits of spin‐offs be realized when managers do not have an incentive to foster new businesses? We conclude with ways to address this problem.     

Flexible Sojourning in the Era of Globalization: Cross‐border Population Mobility in the Hong Kong–Guangdong Border Region

This study of cross‐border population mobility in the Hong Kong–Guangdong region adopts a humanistic and disaggregate approach to analyzing how ordinary and sometimes underrepresented people, such as housewives, workers, low‐income households and elderly retirees, have engaged in border‐crossing as a personal strategy to actively negotiate with the reproduction of regional asymmetry in the era of uneven globalization. Flexible sojourning across the border has long been pursued by the local population in this region as a means of survival during natural catastrophes, economic downturns, wars and political turmoil. Cross‐border population mobility has acquired a new momentum in recent years subsequent to the uneven economic and social changes on the two sides of the border. The border‐crossers are, seemingly, a uniform group of people whose travel behavior does not deviate from the expectation of conventional wisdom. However, a closer analysis reveals significant differences among the border‐crossers. Four main types of border‐crossers are identified: shoppers, workers, homebuyers and elderly retirees. Each type demonstrates distinct patterns of border‐crossing and makes the trip out of different considerations. Border‐crossing has different meanings to people of different social identities. Cross‐border mobility can be and has been used by different kinds of people in different ways as a personal strategy to take on the challenges of structural changes at home and across the border. The article calls for an extension of border studies beyond the existing emphasis on border functioning, nation‐states and regional development toward examining more seriously and carefully the ordinary people who are involved in border‐crossing as a practice of their everyday life. D’approche humaniste et décomposée, cette étude sur la mobilité transfrontalière des populations dans la région de Hong‐Kong et de Guangdong analyse comment des populations ordinaires, et parfois sous‐représentées (femmes au foyer, ouvriers, ménages à faible revenu et retraités âgés, par exemple), ont entrepris de passer la frontière comme stratégie personnelle d’adaptation active à la reproduction de l’asymétrie régionale parallèlement à une mondialisation inégale. La population locale pratique des séjours transfrontaliers souples depuis longtemps, pour sa survie en cas de catastrophes naturelles, revers économiques, guerres et agitation politique. La mobilité transfrontalière s’est accélérée récemment après les évolutions économiques et sociales inégales des deux côtés de la frontière. Les transfrontaliers forment, parait‐il, un groupe uniforme de personnes dont le comportement de voyageur respecte les attentes de la prudence classique. Pourtant, une analyse plus poussée révèle d’importantes différences entre eux. Quatre grands types de transfrontaliers sont identifiés: consommateurs, travailleurs, acquéreurs de logement et retraités âgés. Chaque type suit un modèle transfrontalier distinct et fait le déplacement pour des motifs différents. La signification de ce déplacement diverge selon les identités sociales. Ainsi, la mobilité transfrontalière peut servir et a servi à différents types de personne de manières différentes comme stratégie personnelle pour affronter les difficultés nées des changements structurels des deux côtés de la frontière. Les études sur les frontières sont à prolonger au‐delà de l’intérêt actuel pour le fonctionnement aux frontières et pour l’évolution de régions ou d’États‐nations, afin d’examiner de façon plus sérieuse et minutieuse les populations ordinaires qui traversent les frontières dans leur pratique quotidienne.     

Board Antecedents of CEO Duality and the Moderating Role of Country‐level Managerial Discretion: A Meta‐analytic Investigation

CEO duality reduces boards’ monitoring capacity. But governance substitution theory holds that boards of directors who can effectively monitor their CEOs are more likely to adopt the CEO duality governance structure. By examining relationships between board characteristics underlying their monitoring capacity and CEO duality, we bring evidence to bear on governance substitution theory. Further, by applying a managerial discretion theory lens to CEO duality, we extend governance substitution theory to the cross‐country context where institutional features vary in their constraints on managerial discretion. Meta‐analytic results from a dataset of 297 studies across 32 countries/regions provided support for the majority of our predictions. As predicted, board independence and certain types of board human capital were positively related to CEO duality. Unexpectedly, board ownership was negatively related to CEO duality. Additionally, country‐level managerial discretion significantly moderated the board independence‐ and human capital‐duality relationships (but not the board‐ownership‐duality relationship) as predicted.     

Through the Looking‐Glass: The Impact of Regional Institutional Logics and Knowledge Pool Characteristics on Opportunity Recognition and Market Entry

This study investigates how regional variations in institutions and knowledge pools impact new firm entry into emerging industry sectors. Using the cleantech industry sector as a research context, we hypothesize and find that supportive regional institutional logics – shared meaning systems in a community that confer legitimacy upon particular goals and practices – generate cognitive schemas (mental models) that facilitate opportunity recognition and increase new firm entry rates. Drawing from research on socially situated cognition, we demonstrate that supportive institutional logics have a greater impact on new firm entry when a regional knowledge pool is larger, but a reduced impact on new firm entry when the knowledge pool is more specialized. These findings integrate previously distinct perspectives from institutional theory and knowledge economics, while contributing to research on how new industry sectors emerge.