Re-examining the “twin deficits” hypothesis: evidence from Australia

This paper re-examines the relationship between fiscal imbalances and net foreign borrowing. A general analytical approach is first developed which suggests that, other things equal, a rise (fall) in any advanced economy’s fiscal deficit should be fully matched by a rise (fall) in its net foreign borrowing, in accordance with the so-called twin deficits hypothesis. In the case of Australia, one of the world’s largest foreign borrower economies for its size, empirical estimation yields the novel result that Australia’s consolidated budget imbalance and its foreign borrowing were approximately twinned on the basis of quarterly data for 1983–2009, when Australia’s exchange rate floated and international capital mobility was high. This result is consistent with the conceptual framework and suggests that fiscal policy is likely to be ineffective as an instrument for influencing the real economy.     

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Fama and French (FF, 2015) propose a five-factor asset pricing model that captures size, value, profitability and investment patterns. The primary purpose here is to further investigate this new model using an improved GMM-based robust instrumental variables technique. A further purpose is to explore the relationship among the FF factors and the Pástor–Stambaugh (PS, 2003) liquidity factor. We conclude that except for the market factor, all of the factors including liquidity are not significant at even the 5% level using our GMM approach for almost all of the FF 12 sectors.     

Stabilität und Fortschritt: Das Problem der ärmeren Länder

Ohne ZusammenfassungAus dem Englischen übersetzt von Dr. F. Redl, Wien     

Stabilität und Fortschritt: Das Problem der reicheren Länder

Ohne ZusammenfassungAus dem Englischen übersetzt von Vally Rothschild, Wien     

Testing Böhm-Bawerk’s theory of capital: Some evidence from the Finnish economy

This paper considers the pure labour theory of value and Böhm-Bawerk’s theory of capital as approximations of Sraffa’s model of single production, and tests them with data from the Symmetric Input-output Tables of the Finnish economy. The results show that (i) in comparison with the labour values, the actual Böhm-Bawerkian production prices are ‘equally’ good or even better approximations of the actual Sraffian production prices and market prices; and (ii) the Sraffian production price-profit rate relationship is, by and large, governed by the differences in the Böhm-Bawerkian average periods of production.     

Farmer education and the weather: evidence from Taiwan (1976–1992)

This paper uses farm household and weather data from 1976 to 1992 in Taiwan to measure the role of unusual weather conditions in explaining time and geographical variation of the return to education in farming. Based on a farm household model, we show that the effect of education measured from an income function is both technical and allocative. For a set of schooling variables, this effect is found to increase with adverse weather. It implies that education provides a higher relative advantage—and therefore has a higher economic value—when the environment is more unstable and more difficult to deal with. This gives empirical support to the notion that education improves the capacity to adapt to change and disequilibria, on top of its static technical effects.     

Twin deficits: new evidence from a developing (oil vs. non-oil) countries’ perspective

We test the relationship between the current account and fiscal policy for a group of small open developing economies with fixed exchange rates some of which are oil exporters. Specifically, we test the viewpoint of a Ricardian infinite-horizon representative agent model in which lower public savings are met by equal increases in private savings, and as a result the current account does not respond to the changes in government spending, against a Keynesian’s conventional viewpoint in which a fall in public savings has an adverse effect on the current account balance. Unlike the evidence from flexible exchange rate economies provided by many authors such as Rosensweig and Tallman (Econ Inq 31(4):580–594, 1993), Erceg et al. (Int Finance 8(3):363–397, 2005) and Saleh et al. (South Asia Econ J 6(2):221–239, 2005), the evidence from a panel data analysis and Granger-causality test of these fixed exchange-based countries supports the conventional theory of positive relationship between fiscal and external balances, with causality running from the former to the latter, in oil countries, whereas it supports the Ricardian view for non-oil countries.     

Re-testing Prebisch–Singer hypothesis: new evidence using Fourier quantile unit root test

The Prebisch–Singer hypothesis in economics asserts that over time the relative price of primary goods relative to manufactured goods should experience a downward trend. To test the hypothesis, we must first establish the unit root properties of the relative price term and then regress the stationary series on a trend term. We use the quantile unit root test which allows for both smooth unknown numbers and the form of breaks in the trend function through a Fourier function to show that the relative price of 23 out of 24 primary goods is stationary. However, the Prebisch–Singer hypothesis is supported only in half of the primary commodities.     

Regime switching and the (in)stability of the price–rent relationship: evidence from the US

Present value models of house prices assert that in the absence of self-fulfilling bubbles, a house price is equal to the present discount value of all future rents, which implies a linear relationship between house price and rent, and hence a stable price-to-rent ratio. Using a Markov switching error correction model, we re-examine this relationship in the US housing market and find two distinctive regimes: one with a long-run relation between house price and rent predicted by the present value models and the other in which the relation is nonlinear. Furthermore, we find evidence that deviations of house prices from the present value models’ predictions are caused by the overreaction of house prices to movements in rents rather than speculative bubbles attributable to extraneous factors.     

Testing for a unit root under the alternative hypothesis of ARIMA (0, 2, 1)

Showing a dual relationship between ARIMA (0,?2,?1) with parameter θ?=??1 and the random walk, a new alternative hypothesis in the form of ARIMA (0,?2,?1) is established in this article for evaluating unit root tests. The power of four methods of testing for a unit root is investigated under the new alternative, using Monte Carlo simulations. The first method testing θ?=??1 in second differences and using a new set of critical values suggested by the two authors in finite samples, is the most appropriate from the integration order point of view. The other three methods refer to tests based on t and?φ?statistics introduced by Dickey and Fuller, as well as, the nonparametric Phillips–Perron test. Additionally, for cases where for the first method a low power is met, we studied the validity of prediction interval for a future value of ARIMA (0,?2,?1) with θ close but greater of ?1, using the prediction equation and the error variance of the random walk. Keeping the forecasting horizon short, the coverage of the interval ranged at expected levels, but its average half-length ranged up to four times more than its true value.     

Impulse response analysis and Orcutt’s hypothesis in trade: evidence from developing countries

Orcutt’s hypothesis in international economics implies that trade flows respond to exchange rate changes faster than to changes in relative prices. Most previous studies used import and export demand models and tested the hypothesis by imposing and comparing lag lengths on the exchange rate and relative prices. One recent study, however, employed impulse response of trade flows to one SD shock to the nominal exchange rate and one SD shock to relative prices and tested the Orcutt’s hypothesis for several industrial countries. In this article we follow this study and test the hypothesis for six developing countries using impulse response analysis. Like the other study for industrial countries, we do not find much support for the hypothesis.     

Natural disasters and university enrolment: evidence from L’Aquila earthquake

Although there are several studies looking at the effect of natural disasters on economic growth, less attention has been dedicated to their impact on educational outcomes, especially in more developed countries. We use the synthetic control method to examine how the L’Aquila earthquake affected subsequent enrolment at the local university. This issue has wide economic implications as the University of L’Aquila made a large contribution to the local economy before the earthquake. Our results indicate that the earthquake had no statistically significant effect on first-year enrolment at the University of L’Aquila in the three academic years after the disaster. This natural disaster, however, caused a compositional change in the first-year student population, with a substantial increase in the number of students aged 21 or above. This is likely to have been driven by post-disaster measures adopted in order to mitigate the expected negative effects on enrolment triggered by the earthquake.     

Comparing evidence on Wagner's hypothesis from conventional and ‘real’ data

Conventional and internationally comparable data for 34 countries are utilized to assess the relationship between general government expenditure and income. While the conventional data can be deemed as mildly supportive of Wagner's hypothesis, evidence from the ICP data suggests a decline in the share of general government as income per capita rises.     

Reconsidering Wagner’s law: evidence from the functions of the government

We revisit Wagner’s law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure–income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner’s law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.     

Are human rights and economic well-being substitutes? The evidence from migration patterns across the Indian states

The objective of this paper is to study the relationship between the demand for human rights and the demand for economic prosperity from the “exit” perspective, looking at migration patterns. We investigate intra-national migration in India, which is a federation of various states that feature significant economic and political differences. The paper finds that the quality of human rights protection and the economic well-being in the target state are substitutes with respect to determining patterns of migration. These results depend on framing effects; human rights complaints appear to be interpreted differently by migrants, depending on the trust in the government in the target state.     

On the incentive effects of monitoring: evidence from the lab and the field

Several experimental studies have shown that the crowding-out effect of monitoring may outweigh its disciplining effect through intrinsic motivation destruction, thereby reducing effort. However, most of these experiments use numeric effort tasks that subjects may not be intrinsically motivated to complete. This paper aims to analyze the incentive effects of monitoring using a real-effort task for which intrinsic motivation is more likely to exist. We conducted two similar experiments, in the lab in Montreal and in the field in Ouagadougou. In contrast to the lab, subjects in the field are unaware they are taking part in an experiment.     

Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)

The purpose of this study is two-fold: firstly, to analyze the long run relationship between household saving and various socio-economic and demographic variables and secondly, to determine the short run and the long run impact of various socio-economic and demographic variables on the household saving rate in Pakistan. The relationship between household saving and various socio-economic and demographic variables is analyzed by applying Johansen cointegration analysis. Furthermore, Error Correction Model is also estimated in order to find out the convergence of the model towards equilibrium. The results show that there exists a long run relationship between household saving and the variables used in the study, while the result of Error Correction Model reveals that about 45% convergence towards equilibrium takes place every year.     

Are real exchanges rate series really persistent?: evidence from three commonwealth of independent states countries

This article sets out to examine the degree of persistence in the real exchange rates of Kazakhstan, Kyrgyzstan and Russia, and tests the validity of Purchasing power parity (PPP) using monthly data covering 1995:01–2013:12 period. The sum of autoregressive (AR) coefficients is used in order to examine persistence of the real exchange rate series and grid-bootstrap method is employed for the confidence intervals. The tests performed suggest two results: (1) Covering the full sample and sub-sample periods, excluding Kyrgyzstan in 1995:01–1998:07 and Russia in 2008:09–2013:12 periods, disregarding the structural breaks in the data generating process, there is high persistency in real exchange rates; (2) there is evidence in support of PPP covering the full sample for every country except for Kyrgyzstan in 1995:01–1998:07 and Russia in 2008:09–2013:12 periods.     

External debt and real exchange rates’ adjustment in the euro area: new evidence from a nonlinear NATREX model

In this article, we revisit medium- to long-run real exchange rate determination within the euro area, focusing on the role of external debt. Accordingly, we rely on the NATural Real EXchange rate (NATREX) approach which provides an explicit framework of the external debt–real exchange rates nexus. In particular, given the indebtedness levels reached by the euro area economies, we investigate potential nonlinearity in real exchange rates dynamics, according to the level of the external debt. Our results evidence that during the monetary union, gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area. Moreover, we find that, beyond a threshold reached by the external debt, euro area countries are found to be in a vulnerable position, leading to an unavoidable adjustment process. Nevertheless, the adjustment process, while effective, is found to be low and occurs slowly.     

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.