The legal theory of finance and the financial instability hypothesis: Convergences and possible integration

This article presents the legal theory of finance (LTF) and compares it with the financial instability hypothesis (FIH), identifying points of convergence and divergence. The study aims to contribute to the literature by connecting these theories and provides the following main conclusions. First, the LTF incorporates aspects of the FIH, as the theories share several key elements, particularly the presence of fundamental uncertainty, the constraint of liquidity, and the necessity for governments to act as lenders of last resort. Second, the liquidity concept used in the LTF can be better comprehended with the use of Keynesian and post Keynesian literature on the topic. Third, the LTF aims to advance and update certain aspects of Minsky’s theory, particularly with regard to the globalization of markets, power relations, and the interdependencies of the political economy of finance. The study concludes that the theories are more complementary than divergent and future studies should create an analytical framework that integrates the theories’ most insightful aspects.     

Tests for structural change,aggregation, and homogeneity

Structural change can be considered by breaking up a sample into subsets and asking if these can be aggregated or pooled. Strategies for constructing tests for aggregation and structural change in this setting have not received sufficient attention in the literature. Our methodology for testing generalizes to multiple regimes a discussion of Pesaran et al. (1985) for the case of two regimes. This treatment permits a unified approach to a large number of testing problems discussed separately in the literature, as special cases or as parts of a test of homogeneity. We also provide a simple alternative to much more complex testing strategies currently being researched and developed in testing for structural change.     

Political risk and the expectations hypothesis

This paper develops and empirically supports, using 3 and 6 month interest rates, a theory that political risk can explain the shifting term premia found in U.S. data. We find that incorporating these political regime shifts yield results that support the expectations hypothesis.     

土地利用变化研究进展述评及展望

通过近年来对土地利用变化理论、模型方法和驱动机制等方面的研究成果,总结出土地利用变化自身理论建设滞后,驱动力传导机制研究不足,微观行为影响因素关注不足等现存问题,而土地利用变化自身理论建设是未来的研究方向,结合高新仿真技术模拟将是研究重点,关注人类微观行为作用机制是研究的重要着眼点。     

Re-examination of convergence hypothesis among Indian states in panel stationarity testing framework with structural breaks

This article examines the conditional income convergence hypothesis for 17 major states in India for the period of 1960–2012. Univariate stationarity tests without structural breaks provide evidence against the convergence hypothesis. However, when two or more structural breaks are applied in per capita income series, the incomes of around 11–13 states are found to stochastically converge to the national average. This finding supports the convergence hypothesis for the panel as a whole after accounting for two data features, cross-sectional dependence and structural breaks in incomes, using a unified panel stationarity testing framework.     

Privatization Effects in Central and Eastern Europe

MOCT-MOST: Economic Policy in Transitional Economies -     

The co-evolution of innovation,demand and growth

In order to explain long-run economic development, we analyse in this paper the interplay between supply-side and demand-side processes. On the supply side, three different innovation processes are observed and interact: (i) growing productive efficiency, (ii) the emergence of new sectors and (iii) the increasing quality and differentiation of existing products. On the demand side, we analyse the meaning of disposable income and varying preference systems. The analysis is undertaken with the help of a numerical model of economic growth by the emergence of new industries. Our results show that the time path of economic development which we observe could not have been generated by taking into account a supply-side-based view on innovations alone. Without making reference to the formation of an adequate demand, development processes cannot be explained. The three processes need to be combined because each one individually would not suffice to generate long-run economic development. However, only with the formation of an adequate demand long-run economic development becomes sustainable.     

Testing for structural change in the dynamic adjustment model with autoregressive errors

The dynamic CUSUM test for structural change proposed by Kr?mer, Ploberger and Alt (1988) is investigated when the errors are serially correlated in a linear dynamic model. We show that the dynamic CUSUM test can be modified to allow for serial correlation in the disturbance using the same procedure as in Kao and Ross (1995), and that the modified dynamic CUSUM test retains its asymptotic significance levels. Monte Carlo results suggest that the empirical size of the dynamic CUSUM test is highly distorted while the empirical size of the modified dynamic CUSUM test is fairly robust to the change on the degree of autocorrelation. We also find that the power of the modified test essentially depends on the angle between the mean regressors and the structural shift. First version received: April 1997/Final version received: January 1998     

Analysis on structural changes in the macroeconomic data series with the empirical evidence from China

Analysis on structural changes in macroeconomic data series has been the key issue for studying data quality. This paper studies the structural changes in China’s 36 macroeconomic time series using joint estimation model, and we find out the characteristics and movement pattern for the outliers. Our results show that most outliers show up more or less in groups, indicating that there is a significant correlation between them. The isolated outliers are not the main characteristic of China’s macroeconomic time series. Nearly all the original series contain the obvious skewness and kurtosis; hence, the hypothesis of normality is significantly rejected. Most original and outlier correction series show the non-autoregressive conditional heteroskedasticity (ARCH) characteristic, but the p value for ARCH2, ARCH4, and ARCH8 is very different. __________ Translated from Economic Research Journal (经济研究), 2005, (1) (in Chinese)     

Regulatory reform in telecommunications in Central and Eastern Europe

In this paper we discuss public policy towards the telecommunications sector in Central and Eastern Europe (CEE), focusing primarily on the need to ensure adequate capital investment. The analysis falls into two main parts: the regulation of monopoly, and policy on liberalization. Concerning regulation, we discuss how policy credibility is likely to be a problem in the region, and how reputational considerations, the design of regulatory institutions, and methods of price control can help to ameliorate this problem. Concerning liberalization, we consider the effects of potential competition on investment incentives, and construct a simple model to analyse the different effects of liberalization and regulatory risk on investment. Some preliminary policy conclusions are drawn, and we argue that in the CEE region – in contrast to more well developed countries – a reasonable case can be made for allowing a temporary period of monopoly for basic services.     

The political economy of land reform choices in Central and Eastern Europe

In all Central and Eastern European countries (CEECs) land reform has been a key part of the overall agrarian reforms and land reform procedures differ significantly among CEECs. This paper, by focusing on distributional effects and political economy implications, explains why thirteen CEEC governments chose particular reform procedures. Key factors in their choices are the history of the land ownership, including the post-collectivization ownership status, length of Communist rule, the ethnicity of pre-collectivization owners, and the equality of pre-collectivization asset distribution. These factors influence the distributional consequences of the land reform, including the (potential) conflicts between efficiency, social equity, and historical justice, and thus the political economy equilibrium.     

Exchange rate volatility and the mixture of distribution hypothesis

This study sheds new light on the mixture of distribution hypothesis by means of a study of the weekly exchange rate volatility of the Norwegian krone. In line with other studies we find that the impact of information arrival on exchange rate volatility is positive and statistically significant, and that the hypothesis that an increase in the number of traders reduces exchange rate volatility is not supported. The novelties of our study consist in documenting that the positive impact of information arrival on volatility is relatively stable across three different exchange rate regimes, and in that the impact is relatively similar for both weekly volatility and weekly realised volatility. It is not given that the former should be the case since exchange rate stabilisation was actively pursued by the central bank in parts of the study period. We also report a case in which undesirable residual properties attained within traditional frameworks are easily removed by applying the log-transformation on volatilities.

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.     

Purchasing power parity with flexible Fourier stationary test for Central and Eastern European countries

This study applies stationary test with a Fourier function proposed by Enders and Lee (2004, 2009) to test the validity of long-run Purchasing Power Parity (PPP) to assess the nonstationary properties of the Real Exchange Rate (RER) for seven Central and Eastern European Countries (CEECs). We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary nonlinear process. We examine the validity of PPP from the nonlinear point of view and provide robust evidence clearly indicating that the PPP holds true for all CEECs. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way.     

Constitutional moments in Eastern Europe and subjectivist political economy

This article provides epistemic foundations for traditional rational-choice political science, to explain when and how ideas matter. Operational codes, epistemic communities and the structural patterns of ideas demonstrates the constitutional moments that occur during crises, and how ideas can underpin and direct the formation of interest groups. The implications for policy reform are discussed, along with an application to the Constitutional Moments during the transition of Central and Eastern Europe.