ALTERNATIVE ESTIMATING AND TESTING EMPIRICAL STRATEGIES FOR FRACTIONAL REGRESSION MODELS

Abstract In many economic settings, the variable of interest is often a fraction or a proportion, being defined only on the unit interval. The bounded nature of such variables and, in some cases, the possibility of nontrivial probability mass accumulating at one or both boundaries raise some interesting estimation and inference issues. In this paper we (i) provide a comprehensive survey of the main alternative models and estimation methods suitable to deal with fractional response variables, (ii) propose a full testing methodology to assess the validity of the assumptions required by each alternative estimator and (iii) examine the finite‐sample properties of most of the estimators and tests discussed through an extensive Monte Carlo study. An application concerning corporate capital structure choices is also provided.     

ARCH MODELS: PROPERTIES, ESTIMATION AND TESTING

Abstract. The aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity (ARCH) model since its inception in a seminal paper by Engle (1982). This model takes account of many observed properties of asset prices, and therefore, various interpretations can be attributed to it. We start with the basic ARCH models and discuss their different interpretations. ARCH models have been generalized in different directions to accommodate more and more features of the real world. We provide a comprehensive treatment of many of the extensions of the original ARCH model. Next we discuss estimation and testing for ARCH models and note that these models lead to some interesting and unique problems. There have been numerous applications and we mention some of these as we present different models. The paper includes a glossary of the acronyms for the models we describe.     

EVALUATING ALTERNATIVE REPRESENTATIONS OF THE CHOICE SETS IN MODELS OF LABOR SUPPLY

Abstract.  During the last two decades, the discrete choice modeling of labor supply decisions has become increasingly popular. Within the literature adopting this approach, however, there are two potentially important issues that so far have not been given the attention they might deserve. A first issue concerns the procedure by which the discrete alternatives are selected to enter the choice set. Most authors choose (not probabilistically) a set of fixed points identical for every individual. Some authors adopt instead a sampling procedure and also assume that the choice set may differ across households. A second issue concerns the availability of the alternatives. Most authors assume all the values of hours of work within some range are equally available. At the other extreme, some authors assume only two or three alternatives (for example, nonparticipation, part-time and full-time) are available for everyone. Some studies account instead for the fact that not all the hour opportunities are equally available to everyone specifying a probability density function of opportunities for each individual. In this paper we explore by simulation the implications of (i) the procedure used to build the choice set (fixed alternatives versus sampled alternatives); (ii) accounting or not accounting for a different availability of alternatives. The results of the evaluation performed in this paper show that the way the choice set is represented has little impact on the fitting of observed values, but a more significant and important impact on the out-of-sample prediction performance. Thus, the treatment of the choice sets might have a crucial effect on the result of policy evaluations.     

STRATEGIC PROBLEM FORMULATION: BIASES AND ASSUMPTIONS EMBEDDED IN ALTERNATIVE DECISION-MAKING MODELS

This article reviews the major theoretical approaches to strategic decision-making and identifies how each treats the process of problem formulation. Five models of strategic decision-making are analysed to determine the assumptions and biases made about strategic problem formulation. Successful strategic problem formulation is described and proposed as a beginning point for future research. Some constructs for further theory development are addressed.     

DETERMINANTS OF CITY GROWTH AND OUTPUT IN INDIA

To investigate what determines urban population and economic growth, the determinants of urban population growth and economic output in India are examined empirically. City growth and economic output regressions are estimated using several approaches. Since only growing areas are usually designated as towns, the urban population of districts that are larger geographical areas than cities are estimated. It is found that, at the district level, manufacturing has a positive impact on city size, and proximity to large cities causes nearby cities to be larger, reflecting agglomeration effects.     

THE DISTRIBUTION OF WEALTH: MEASUREMENT AND MODELS

Abstract. Analysts debating the consequences of a policy change for the wealth distribution may come to different conclusions because of different views about how the distribution should be defined and measured, or about the processes determining the distribution. The aim of this survey is to provide an analytical framework within which such conflicts may be assessed. The first part of the paper discusses conceptual issues in the definition of 'wealth', and compares methods of deriving estimates of wealth distribution. The second, and larger, part of the paper surveys lifecycle and intergenerational models of the distribution of wealth, including a discussion of the role played by inheritance. The presentation is largely theoretical. Indeed, one of the paper's conclusions is that empirical modelling of the wealth distribution is under-developed, at least for the purposes of addressing many topical policy issues.     

MODELS OF REGIONAL GROWTH: PAST,PRESENT AND FUTURE

Abstract This paper presents an overview of various models of regional growth that have appeared in the literature in the last 40 years. It considers the past, and therefore supply‐side models, such as the standard neoclassical, juxtaposed against essentially demand‐side approaches such as the export‐base and cumulative causation models (as integrated into the Kaldorian approach); before moving on to the ‘present’ and more recent versions of the neoclassical model involving spatial weights and ‘convergence clubs’, as well as new economic geography core–periphery models, and the ‘innovation systems’ approach. A key feature of the more recent literature is an attempt to explicitly include spatial factors into the model, and thus there is a renewed emphasis on agglomeration economies and spillovers. Discussing ‘present’ and ‘future’ approaches to regional growth overlaps with the current emphasis in the literature on the importance of more intangible factors such as the role of ‘knowledge’ and its influence on growth. Finally, there is a discussion of the greater emphasis that needs to be placed at the ‘micro‐level’ when considering what drives growth, and thus factors such as inter alia firm heterogeneity, entrepreneurship and absorptive capacity.     

MACROECONOMIC POLICY EVALUATION AND OPTIMAL CONTROL THEORY: A CRITICAL REVIEW OF SOME RECENT DEVELOPMENTS

Abstract. This survey addresses the recent literature on the application of optimal control theory and game theory to macroeconomic policy evaluation and design. This literature focuses on strategic interactions between governments and private agents engaged in dynamic non-cooperative games and emphasizes such issues as precommitment, credibility and reputation as important and endemic aspects of optimal policy design. A dominant theme is the problem of dynamic inconsistency and the inferiority of an equilibrium in single-stage full-information games without commitment. This may be alleviated in repeated games involving reputation effects and threat strategies designed to coerce rivals into pursuing particular strategies and to sustain a sequential equilibrium. The type and characteristics of a sequential equilibrium also depend importantly upon the information structure conditioning players'beliefs under uncertainty. Included here are separating and pooling equilibria, involving notions of learning, signalling and information revelation. Additional dimensions exist in stochastic systems which introduce other forms of uncertainty. Optimal control and game theory have also been applied to international macroeconomic policy design, with emphasis on the potential costs and benefits of non-cooperative and cooperative behaviour between countries and problems of international policy coordination.     

INTERTEMPORAL OPTIMIZING MODELS OF TRADE AND CURRENT ACCOUNT BALANCE: A SURVEY

Abstract.  This study surveys the intertemporal optimizing models of trade and current account balance that were developed, calibrated and empirically tested since they came into vogue in the 1980s. The implications of these models often differ from those of static and dynamic conventional non-optimizing models. The literature on optimizing models has not only grown reasonably fast, but has also witnessed significant advances in methodology, and these models have culminated into a distinct strand of new open-economy macroeconomics. The studies conducted until the late 1980s have used deterministic perfect-foresight models, while several studies conducted since the 1990s relax the perfect-foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents. The future research needs to explore the possibility of tracing any preferred specification of household preferences, model the effect of time-varying discount factor on household utility function and intertemporal budget constraint, examine the role of costs in international trade, place a parallel emphasis on the empirical verifications of theoretical propositions, examine the relative performance of optimizing vis-à-vis non-optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts.     

TEMPORAL AGGREGATION OF UNIVARIATE AND MULTIVARIATE TIME SERIES MODELS: A SURVEY

Abstract.  We present a unified and up-to-date overview of temporal aggregation techniques for univariate and multivariate time series models explaining in detail, although intuitively, the technical machinery behind the results. Some empirical applications illustrate the main issues.     

LEARNING TO WALK BEFORE WE CAN PRICE: THE COSTS AND BENEFITS OF ROAD PRICING POLICIES

The introduction of widespread road pricing is being considered in the UK and abroad as a means to allocate scarce road space. By looking at the economic costs and benefits of both national and local road pricing schemes, this paper seeks to examine how widely charging should be implemented.     

THE DEVELOPMENT AND USE OF INTERREGIONAL INPUT-OUTPUT MODELS FOR INDONESIA UNDER CONDITIONS OF LIMITED INFORMATION*

Spatial development planning in developing economies has created the need for analytical frameworks that are capable of providing assessment of alternative strategies. This paper reports on the methods used to construct a set of interregional input-output tables for a five-region division of Indonesia under conditions of limited information for 1980 and 1985. The tables were constructed as a prelude to the development of a comparable set of interregional social accounts and the eventual construction of an interregional computable general equilibrium model. The structure of the Indonesian economy is explored and described; the fine structure is revealed through an examination of the fields of influence of some of the analytically important coefficients. Finally, a brief examination of the use of the model in an export promotion strategy is reported. The dominant positions of Sumatera and Java are revealed as is the concomitant difficulties attendant upon development strategies that attempt to encourage growth in other regions.     

MULTIPLE REGRESSION ANALYSIS OF THE OCCUPATIONAL STATUS OF TWINS: A COMPARISON OF ECONOMIC AND BEHAVIOURAL GENETICS MODELS

ABSTRACT The purpose of this note is to compare the performance of the model of DeFries and Fulker [hereafter ‘the DFF model’] with the conventional fixed effects model in the analysis of data on twins in the study of economic well-being. Unlike the fixed-effects model that has traditionally been estimated in the economics literature, the DFF model provides explicit controls for genetic and shared environmental factors. The weight of the evidence from estimation of the two models considered is that the impact of education in Australia, holding constant genetic and shared environmental factors, is of the same order of magnitude as that estimated in studies that do not take account of these factors: at most ability and shared environmental factors contribute 1 to 2 percentage points to the gross return to education. The similarity of the results computed for the different models employed is reassuring, and suggests that reliable controls for the omitted genetic and shared environment variables are obtained through these indirect methods.     

ORGANIZATIONAL STRUCTURING: AN EMPIRICAL ANALYSIS OF THE RELATIONSHIPS AND DIMENSIONS OF STRUCTURES IN CERTAIN FINNISH COMPANIES

The relationships of structure and structural factors at a general level are examined on the basis of data from a Finnish sample of mostly small and medium-sized industrial organizations. the sample, which consists of shoe and clothing firms, is homogeneous in terms of basic technology and industrial environment. the structural relationships are analysed from the point of view of size so that the interaction or concurrence of size and specialization is seen as a primary determinant of the systems of structural relationships. Some additional contextual variables are included in the analysis. Further, the factors or dimensions of structure reported are built on the basic variables of coordination and control. the factors are managerial supervision, the administrative component in general, including the clerical component, which is of particular importance, and impersonal mechanisms.     

THE RELATIVE IMPORTANCE OF EXPORTS IN DETERMINING LEVELS OF REGIONAL OUTPUT AND INCOME: A Model and Empirical Evidence from Kenya

Exports have long been assumed by many to be the most important variable in driving regional growth, although factors such as government expenditure, investment demand, and remittances, among others, have also been recognized as significant. In addition, supply-side constraints to the promotion of regional growth and development have recently received increased attention in the literature. This paper evaluates the relative importance of exports, investment demand, and remittances, as well as supply-constrained agricultural production, in determining levels of regional output, value added, and household income in a single region in Kenya. The analysis is based on a mixed endogenous/ exogenous model derived from a social accounting matrix (SAM) which allows for incorporation of both demand and supply-side considerations. The paper finds that exports are, in fact, the most important factor in explaining regional output and wage income in the region studied, although not overwhelmingly so. In addition, the analysis demonstrates the importance of supply-constrained agricultural production as a determinant of income at the household level.     

AUTOREGRESSIVE CONDITIONAL DURATION MODELS IN FINANCE: A SURVEY OF THE THEORETICAL AND EMPIRICAL LITERATURE

Abstract.  This paper provides an up-to-date survey of the main theoretical developments in autoregressive conditional duration (ACD) modeling and empirical studies using financial data. First, we discuss the properties of the standard ACD specification and its extensions, existing diagnostic tests, and joint models for the arrival times of events and some market characteristics. Then, we present the empirical applications of ACD models to different types of events, and identify possible directions for future research.