Estimation of TFP growth: a semiparametric smooth coefficient approach

This article uses a semiparametric smooth coefficient model (SPSCM) to estimate TFP growth and its components (scale and technical change). The SPSCM is derived from a nonparametric specification of the production technology represented by an input distance function (IDF), using a growth formulation. The functional coefficients of the SPSCM come naturally from the model and are fully flexible in the sense that no functional form of the underlying production technology is used to derive them. Another advantage of the SPSCM is that it can estimate bias (input and scale) in technical change in a fully flexible manner. We also used a translog IDF framework to estimate TFP growth components. A panel of U.S. electricity generating plants for the period 1986?C1998 is used for this purpose. Comparing estimated TFP growth results from both parametric and semiparametric models against the Divisia TFP growth, we conclude that the SPSCM performs the best in tracking the temporal behavior of TFP growth.     

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.     

The absolute health income hypothesis revisited: a semiparametric quantile regression approach

This paper uses the 1998–1999 Canadian National Population Health Survey data to examine the health–income relationship that underlies the absolute income hypothesis. To allow for nonlinearity and data heterogeneity, we use a partially linear semiparametric quantile regression model. The “absolute income hypothesis” is partially true; the negative aging effects appear more pronounced for the ill-healthy population than for the healthy population and when annual income is below 40,000 Canadian dollars. We would like to thank two anonymous referees and Baldev Raj, the editor, for useful and constructive comments and suggestions. The views expressed in this article are those of the authors and do not necessarily reflect the views of Statistics Canada. Both authors would also like to acknowledge financial support from SSHRC of Canada.     

Testing convergence of European regions: A semiparametric approach

We provide a reappraisal of income convergence across European regions over the last two decades by using a semiparametric partially linear model to approximate the relationship between the average growth rate of GDP per capita and the initial GDP per capita. Estimation results point out both country heterogeneity and non-linearity in the convergence process. The findings suggest that low income regions, in particular those from new adhesion countries, diverge while medium income regions converge and that there is no evidence of convergence for high income regions.     

Technology and health expenditures: a demand approach applied to a process innovation

There is controversy among economists as to whether the diffusion of new medical technologies has been a contributing factor to rising health expenditures. The economic literature is critically reviewed and another approach is advocated. This alternative approach rests on the distinction between product and process innovations. It is argued that the relationship between process innovations and health expenditures can be illuminated by determining if the process innovation and the original procedure are utilized as substitutes. The empirical results provide no indication that alternative technologies for diagnosing diseases/conditions of the upper gastrointestinal tract have been utilized as substitutes by Australian medical practitioners operating on a fee-for-service basis. This study finds no evidence to indicate that the process innovation of fibre optic endoscopy has reduced health expenditures associated with diagnosis of diseases/conditions of the upper gastrointestinal tract.     

Nonlinearity in monetary policy: A reconsideration of the opportunistic approach to disinflation

The proponents of the ‘opportunistic’ approach to disinflation suggest that, when inflation is close to the target, the central bank should not counteract inflationary pressures. Orphanides and Wilcox (2002) formalize this idea through a simple policy rule that prescribes a nonlinear adjustment to a history-dependent target for inflation. This embodies a regime change in monetary policy, which reacts to inflation only when this is far from the inflation target. Here we study the opportunistic approach in a New-Keynesian model with sizeable nominal and real rigidites in the form of a positive money demand and adjustment costs for investment. We find that the welfare gains delivered by the opportunistic rule arise from the time-varying inflation target, when welfare is measured by a quadratic approximation of household utility. The nonlinear zone of inaction on inflation improves welfare outcomes only when a central bank loss function with the absolute value of the output gap is used, as proposed by Orphanides and Wilcox (2002).     

Are labor markets segmented in developing countries? A semiparametric approach

We test the hypothesis that observably similar workers earn higher wages in the formal sector than in the informal sector in developing nations. Using data from Argentina's household survey and various definitions of informal employment, we find that on average, formal wages are higher than informal wages. Parametric tests suggest that a formal premium remains after controlling for individual and establishment characteristics. However, this approach suffers from several econometric problems, which we address with semiparametric methods. The resulting formal premium estimates prove either small and insignificant, or negative. Neither do we find significant differences in measures of job satisfaction between the two sectors. We invoke these results to question the mainstream view that labor markets are segmented along formal/informal lines in developing nations such as Argentina.     

Bayes prediction density and regression estimation — A semiparametric approach

This paper is concerned with the Bayes estimation of an arbitrary multivariate density,f(x), x ? R ^k. Such anf(x) may be represented as a mixture of a given parametric family of densities {h (x¦θ)} with support inR ^k, whereθ (inR ^d) is chosen according to a mixing distributionG. We consider the semiparametric Bayes approach in whichG, in turn, is chosen according to a Dirichlet process prior with given parameterα. We then specialize these results whenf is expressed as a mixture of multivariate normal densitiesΦ (x¦Μ, λ) whereΜ is the mean vector and λ is the precision matrix. The results are finally applied to estimating a regression parameter.     

Factors affecting agricultural land transfer-in in China: a semiparametric analysis

We use interview survey data collected randomly from 2677 farm households in nine provinces of China to understand the role of demographic, economic, land, and village characteristics on agricultural land transfer-in by farmers. Results show that variables such as borrowing from informal sources, household labour availability, percentage of total income from agricultural sources, and the household with village cadre have significant positive effects on land transfer-in. Low economic development and low transportation network availability in a county reduces land transfer-in. We also find that two variables (land holding and land idling) should be entered into the model nonparametrically. Land holding and land idling have U- and L-shaped impacts on land transfer-in, respectively. Land transfer-in has endowment equilibrium and provides Chinese households more opportunities to earn agricultural income, thereby reducing rural poverty.     

Interest rate risk estimation: a new duration-based approach

Duration is widely used by fixed income managers to proxy the interest rate risk of their assets and liabilities. However, it is well known that the convexity of the price-yield relationship introduces approximation errors that grow with changes in yield. In this article we suggest a new approach, ‘discrete duration’, which significantly improves upon the accuracy of traditional duration methods and achieves a level of accuracy close to the more complex ‘duration-plus-convexity’ measure. In particular, discrete duration performs particularly well for long dated and low coupon rate bonds where the estimation error is impressively close to zero.     

Lottery expenditures in Canada: a regional analysis of determinants and incidence

This article examines two issues; first, it evaluates the statistical significance of a number of socio-economic and demographic variables on the level of household lottery expenditures in the six regions of Canada. While some household characteristics vary in the extent to which they significantly affect the level of lottery expenditures across regions (wealth, age, occupation, mother tongue and urban location, for example), others are significant in every region. Regional consistency exists in the statistical significance of after tax household income, sex and education of the head of household – lottery expenditures increase as incomes increase; lottery expenditures are significantly lower for female heads of households than for their male counterparts; lottery expenditures decline as the education level of the head of household increases. Second, lottery expenditures are found to be regressive, although the degree of regressivity is less than for lotteries in the United States.     

Comparing new Keynesian models in the Euro area: a Bayesian approach

This paper estimates and compares four versions of the sticky price New Keynesian model for the Euro area using a Bayesian approach. We find that the average duration of price contracts is between two and four quarters, while the average duration of wage contracts is estimated to be below two quarters. Both mechanisms of price and wage indexation are not important when autocorrelated price markup shocks are introduced in the model. These results are in stark contrast to Smets and Wouters (2003): when we use their priors, our estimated posterior distributions are similar to theirs, but the models’ fit to the data is worse. We are thankful to the Econometric Modelling Unit at the European Central Bank for providing us with the Euro area data. We also thank two anonymous referees for helpful suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect the views of Caixa d’Estalvis i Pensions de Barcelona (“la Caixa”).     

Stability of stochastic optimal growth models: a new approach

The paper proposes an Euler equation technique for analyzing the stability of differentiable stochastic programs. The main innovation is to use marginal reward directly as a Foster-Lyapunov function. This allows us to extend known stability results for stochastic optimal growth models, both weakening hypotheses and strengthening conclusions.     

Labour migration in the enlarged EU: a new economic geography approach

This paper studies the impact of migration policy liberalisation on international labour migration in the enlarged European Union (EU) in a structural economic geography approach. The liberalisation of migration policy would induce an additional 1.80–2.98% of the total EU workforce to change their country of location, with most of migrant workers relocating from the East to the West. The average net migration rate is decreasing in the level of integration, suggesting that from an economic point of view no regulatory policy responses are necessary to labour migration in the enlarged EU.