Dynamic specification and misspecification in systems of demand equations: a testing strategy for model selection

The purpose of this study is to describe a misspecification testing strategy that is designed to ensure the appropriateness of the statistical assumptions underlying a system of equations. A systemwise test approach is used to test the statistical assumptions. The systemwise tests take into account information in, and interaction between, all equations in the system and can be used in a wide variety of applications where systems of equations are estimated. If the systemwise test leads to rejection, single equation F-test will then be used to help identify specific problems. The systemwise testing approach is illustrated by modelling Swedish consumer demand for milk. The example illustrates how the approach can be used to solve issues regarding dynamic specification of models, structural change and other forms of model misspecification.     

THE PRESENT STATE OF NATIONAL ACCOUNTS IN LATIN AMERICA

This document attempts to give an overall review of the present situation of national accounts in Latin America, and deals essentially with the statistical basis and procedures used in their preparation. The purpose of these comments is to place the main problems common to all countries in order of priority and, in view of the need to advance and in the face of the task of establishing the present SNA, to discuss briefly the main lines which future work might follow. The stage of development so far reached by national accounts in Latin America is unsatisfactory if compared with the former system recommended by the United Nations two decades ago, and their recent evolution indicates that the rate of progress has fallen behind the advances made in the theoretical field in this connexion, and in relation to the increasing requirements of macroeconomic information for economic planning and policy. This whole picture becomes more meaningful if the objectives, structure and content of the present SNA, that has already been in force for five years, are compared with the present state of national accounts estimates in the region, which reveals the long road that lies ahead and the magnitude of the effort required if the present situation is to show a change for the better. Clearly, little progress can be made unless the basic statistics are expanded in scope and improved. This is the crux of the problem, towards which the greatest efforts and resources should primarily be channeled. It is necessary to adopt a critical approach and concerted action with respect to four aspects which characterize the national statistical systems in Latin America:

• (a) organizational problems and the shortage of human and financial resources;
• (b) the lack of co-ordinated programmes of basic statistics;
• (c) the limited use of efficient methods of collecting data; and
• (d) the insufficient recourse to administrative records.

     

Constructing Clinical Use: An Activity-Theoretical Perspective on Implementing New Technology

Abstract

The paper presents recent insights from the ongoing FORLEARN project, which aims to develop Foresight theory and practise by supporting the sharing of experience (‘mutual learning’) in Europe. Six functions of Foresight for policy-making are elaborated on:

• (1)?Informing policy: generating insights regarding the dynamics of change, future challenges and options, along with new ideas, and transmitting them to policymakers as an input to policy conceptualisation and design.

• (2)?Facilitating policy implementation: enhancing the capacity for change within a given policy field by building a common awareness of the current situation and future challenges, as well as new networks and visions among stakeholders.

• (3)?Embedding participation in policy-making: facilitating the participation of civil society in the policy-making process, thereby improving its transparency and legitimacy.

• (4)?Supporting policy definition: jointly translating outcomes from the collective process into specific options for policy definition and implementation.

• (5)?Reconfiguring the policy system: in a way that makes it more apt to address long-term challenges.

• (6)?Symbolic function: indicating to the public that policy is based on rational information.

The relationship between these functions and the tensions that can arise when a Foresight exercise attempts to address more than one function are discussed. Possible approaches for Foresight practice to better achieve the targeted impact on policy-making are outlined and emerging guidelines for improving Foresight practice are presented.     

The bioeconomics of tritrophic systems: applications to invasive species

Adapted species in nature are assumed to have solved renewable resource management problems, and this is examined here using a physiologically based model of energy acquisition and allocation. Newly established invasive species are merely in an early phase of this process in their new environment. Analogies between the economies of humans and other species are used to develop an objective function for individual utility of energy allocation. The objective function includes the physiologically based population dynamics models of the consumer and resource species in a food chain as constraints. The model applies to all trophic levels in a food chain including human harvesting of renewable resources (see also Regev et al. (Regev, U., Gutierrez, A.P., Schreiber, S., Zilberman, D., 1998. Biological and Economic Foundation of Renewable Resource Exploitation. Ecological Economics. 26 (3), 227-242.)).Specifically, the analysis:

• (1)Attempts to combine ecological and economic theory;
• (2)Points out the importance of time frame in the two economies (evolutionary vs. market time);
• (3)Examines the effects of expected uncertainty due to environmental hazards in defining energy acquisition and allocation strategies in two invasive aphid species at the extremes of so called r- and K-strategies and the well adapted Central American cotton–cotton bollweevil system;
• (4)Evaluates the effects of changes in behavioral and physiological parameters and environmental degradation on the abundance of resource and consumer species.

     

Can you do the wrong thing and still be right? Hypothesis testing in I(2) and near-I(2) cointegrated VARs

In this paper, we investigate the small-sample performance of LR tests on long-run coefficients in the I(2) model; we focus on a comparison between I(2) and near-I(2) data, i.e. I(1) data with a second root very close to unity, and report the results of some Monte Carlo experiments. With near-I(2) data, the finite-sample properties of the tests are (i) similar to those found with genuine I(2) data, (ii) systematically superior to those of the analogous tests constructed in the I(1) model, even if the latter is, in principle, correctly specified and the former is not. Therefore, there seems to be strong support to the idea that, in practice, modelling near-I(2) data using the I(2) model may be a good idea, despite the inherent misspecification.     

The forecasting approach to efficiency in the wool market

This paper develops and presents estimates of a simultaneous equations model of the Australian wool market, the world's largest producer and exporter of fine wool. The model contains functional relationships for unhedged inventories, consumption of raw wool, and the activities of both hedgers and speculators in wool futures. Expectations are represented by the adaptive hypothesis. This model extends the work of Leuthold and Hartmann (1979) and Leuthold and Garcia (1988) by including expectations in the spot-futures model, and that of Goss and Giles (1986) by including composite equations for hedger-speculators, extending the expectations hypothesis to the consumption equation, and by using the model to test the efficient markets hypothesis. Wald tests and likelihood ratio tests for unit roots in wool cash prices are conducted and in no case can the hypothesis of a single unit root be rejected. Estimation is by three stage least squares, with correction for first order serial correlation. The model provides good intra- and post-sample forecasts of most variables, especially of unhedged inventories and consumption of wool, both important spot market relationships. The model-derived forecast of the spot price is inferior to the forecast implicit in the futures price, although a compositive predictor clearly outperforms the futures price as an anticipation of subsequent cash prices. Nevertheless, it is suggested that the efficient markets hypothesis should not be rejected, because there is evidence that futures market agents are learning to use the information contained in the model.     

TESTING FOR STATIONARITY IN HETEROGENEOUS PANEL DATA IN THE CASE OF MODEL MISSPECIFICATION

This paper investigates the performance of the tests proposed by Hadri and by Hadri and Larsson for testing for stationarity in heterogeneous panel data under model misspecification. The panel tests are based on the well known KPSS test (cf. Kwiatkowski et al.) which considers two models: stationarity around a deterministic level and stationarity around a deterministic trend. There is no study, as far as we know, on the statistical properties of the test when the wrong model is used. We also consider the case of the simultaneous presence of the two types of models in a panel. We employ two asymptotics: joint asymptotic, T, N →∞ simultaneously, and T fixed and N allowed to grow indefinitely. We use Monte Carlo experiments to investigate the effects of misspecification in sample sizes usually used in practice. The results indicate that the assumption that T is fixed rather than asymptotic leads to tests that have less size distortions, particularly for relatively small T with large N panels (micro‐panels) than the tests derived under the joint asymptotics. We also find that choosing a deterministic trend when a deterministic level is true does not significantly affect the properties of the test. But, choosing a deterministic level when a deterministic trend is true leads to extreme over‐rejections. Therefore, when unsure about which model has generated the data, it is suggested to use the model with a trend. We also propose a new statistic for testing for stationarity in mixed panel data where the mixture is known. The performance of this new test is very good for both cases of T asymptotic and T fixed. The statistic for T asymptotic is slightly undersized when T is very small (≤10).     

USE OF NATIONAL ACCOUNTS FOR A SHORT-TERM ECONOMETRIC MODEL: 1954–1966

A quarterly macro-econometric model of Japan's postwar economy has been constructed for the period 1954–1965 FY on the basis of standardized quarterly national income accounts. The model is designed for facilitating short-term economic forecasting and formulating adequate fiscal and monetary policy. Longer-term factors such as labor mobility, technical progress, etc., were also considered in the model.
The model consists of fifty-three equations related to most of the macroeconomic variables in both money and real terms, and the equations were estimated in principle by the limited information maximum likelihood method. Principal exogenous variables related to policy instruments are government expenditures including transfers, parameters of tax functions, interest rate, and prices and fares controlled by the government, etc. In formulating the model, non-linear specifications were used whenever found necessary.
Results of our testing on its predictive capability indicated fairly satisfactory performances for our observation period and also for 1966 FY. Multipliers related to fiscal and monetary policy were also obtained, indicating the dynamic characteristics of the Japanese economy, in particular, represented by dynamic business fixed investment, as compared with corresponding multipliers of the U.S. models.
Although the model is exploratory and to serve as a core for a more disaggregated "Master Model," the usefulness of the model for our purposes and the workability of our quarterly national accounts data for model-building have been recognized. The quarterly data, however, still remain to be improved especially in regard to consistency between income and expenditure and integration with flow-of-funds accounts.     

Propensity score matching and variations on the balancing test

Balancing tests are diagnostics designed for use with propensity score methods, a widely used non-experimental approach in the evaluation literature. Such tests provide useful information on whether plausible counterfactuals have been created. Currently, multiple balancing tests exist in the literature but it is unclear which is the most useful. This article highlights the poor size properties of commonly employed balancing tests and attempts to shed some light on the link between the results of balancing tests and bias of the evaluation estimator. The simulation results suggest that in scenarios where the conditional independence assumption holds, a permutation version of the balancing test described in Dehejia and Wahba (Rev Econ Stat 84:151–161, 2002) can be useful in applied study. The proposed test has good size properties. In addition, the test appears to have good power for detecting a misspecification in the link function and some power for detecting an omission of relevant non-linear terms involving variables that are included at a lower order.     

A note on spurious significance in regressions involving <Emphasis Type="BoldItalic">I</Emphasis>(0) and <Emphasis Type="BoldItalic">I</Emphasis>(1) variables

We demonstrate that t ratios (the F statistic) for I(1) regressors in a model with an I(0) dependent variable will generally be oversized. This indicates that spurious significance occurs in a situation where it was not previously identified. We also compare the asymptotic rejection rates of t ratios for various combinations of I(1) and I(0) variables in the two-variable linear regression model. These rejection rates systematically increase with the degree of autocorrelation, yielding spurious significance, when both variables are either positively or negatively autocorrelated. In contrast, when one variable is negatively autocorrelated and the other is positively autocorrelated the rejection rates systematically fall and are undersized.     

Choosing propensity score matching over regression adjustment for causal inference: when,why and how it makes sense

Summary

This study identified when regression adjustment fails to adjust adequately for differences in observed covariates and where propensity score matching is the only alternative.

Multivariate analysis might fail to adjust for observed confounders if:

• 1. The means of the propensity scores in the two groups are more than one-half a standard deviation apart unless distributions of the covariates in both groups are nearly symmetric, sample sizes of the two groups are approximately the same and distributions of the covariates in the two groups have similar variances;

• 2. The ratio of the propensity score variances in the two groups is significantly different from one;

• 3. The ratio of residual variances in the two groups after adjusting for the propensity score is significantly different from one.

Conducted retrospective analysis showed that the treatment effect would be an estimated $305 (or 26%) less if the misspecified outcome model had been chosen.     

Empirical Regularities of Financial Market Volatility and Good Modelling Process: Developing Countries’ Exchange Rate Markets Perspective

A survey of contemporary literature suggests that empirical studies on developing economies are few or almost non-existent. Engle and Patton (2001, What good is a volatility model. Quantitative Finance, 1, 237–245) as well as Poon (2005, A Practical Guide to Forecasting Financial Market Volatility. New Jersey: Wiley.) suggest that a good volatility model is one that utilizes the empirical regularities of financial market volatility (of which most were observed on industrialized economies markets). This paper uses exchange rate series from Ghana, Mozambique and Tanzania to show that;

1. they are not different from other financial markets as they exhibit most of the empirical regularities including volatility sign asymmetry, non-normal distribution and volatility clustering. It is however observed that the three exchange rate series are very volatile, with induced volatile shocks highly persistent and asymmetric, and extreme prices commonplace;

2. the ARCH technique (which has been well documented to capture these empirical regularities and produce good forecasts) generally produced a good fit to the three exchange rate series when compared with volatility forecasts generated using the EWMA technique. In the simple analysis of a day-ahead volatility forecast abilities of estimated models, it was observed that best fit does not necessarily ensure best forecast.

     

Cost effectiveness and impact on quality of life of abobotulinumtoxinA and onabotulinumtoxinA in the treatment of children with lower limb spasticity in Canada

Abstract

Background: Injectable botulinum neurotoxins are a mainstay of treatment for pediatric spasticity. AbobotulinumtoxinA and onabotulinumtoxinA are both injectable toxin therapies used to treat pediatric lower limb (PLL) spasticity in Canada. The objective of this study was to assess the cost-effectiveness of abobotulinumtoxinA vs. onabotulinumtoxinA in the treatment of PLL spasticity in Canada.

Methods: A probabilistic Markov cohort model with a 2-year time horizon was developed, with health states defined by response to therapy, as characterized by the goal attainment scale (GAS). Based on randomized controlled trial evidence, response to therapy was similar or higher for abobotulinumtoxinA relative to onabotulinumtoxinA; uncertainty was incorporated into model parameters, however, as the two therapies have not been compared head-to-head. Canadian resource use and cost data were incorporated.

Results: In the base case, abobotulinumtoxinA generated 1.48 quality-adjusted life years over the model time horizon, compared to 1.47 for onabotulinumtoxinA. AbobotulinumtoxinA was associated with cost savings of $123 CAD, reflecting lower costs in both medication acquisition and health services. The estimated improvement to quality of life and reduced costs result in an estimate of economic dominance for abobotulinumtoxinA over onabotulinumtoxinA. This dominant result persisted across probabilistic and scenario analyses.

• Key points for decision makers

• Based on a review of available clinical evidence, abobotulinumtoxinA was found to have significant and/or numerical efficacy benefits to onabotulinumtoxinA on functional outcomes (Goal Attainment Scale) and tone (Modified Ashworth Scale) and in the treatment of pediatric lower limb spasticity

• In this cost-effectiveness analysis, abobotulinumtoxinA was found to be associated with greater quality-adjusted life years and lower costs than onabotulinumtoxinA (economically dominant)

• A limitation of this analysis was the uncertainty around key parameters. Specifically, the lack of head-to-head comparison data for the two therapies, and variable data regarding likely onabotulinumtoxinA dosing in PLL in clinical practice. However, across a range of plausible scenarios, the economic dominant result remained.

     

MODELLING TIME SERIES DATA OF MONETARY AGGREGATES USING I(2) AND I(1) COINTEGRATION ANALYSIS

The objective of this paper is to consider methodology for modelling time series data of monetary aggregates such as monetary base and broad money. A brief review is made with regard to the likelihood‐based cointegration analysis of I(2) (integrated of order 2) data and I(2)‐to‐I(1) transformations. The paper then investigates procedures for econometric modelling of monetary aggregates, which are in general deemed to be I(2) variables analogous to price indices. It is shown that I(2)‐to‐I(1) transformations centering on a money multiplier play an important role in the modelling procedures. Finally, the study presents an empirical illustration of the proposed methodology using monetary aggregate data from Japan.     

Informational efficiency: ranking markets

Summary. The paper studies informational properties of three types of imperfectly competitive markets: a one-signal speculative market (OSS market) in which agents have only private information about the fundamental value (v) of the risky asset traded, a two-signal speculative market (TSS market) in which agents have private information about both v and the asset supply, and a market in which agents are endowed with both information about v and shares of the risky asset traded. In this last market (JA market), agents have joint activities: they trade for both speculative and hedging purposes. It is shown that (i) the JA market and the OSS market are the most and the least efficient, respectively, and (ii) the levels of informational efficiency in the three markets are inversely correlated with the intensities with which traders use their private information about the fundamental value of the asset. Received May 28, 1999; revised version: May 28, 1999     

Testing poolability in a system of dynamic regressions with nonspherical disturbances

This study analyzes the testing of cross-equation restrictions within a set of regression equations. Through Monte Carlo experiments we examine the actual size of various asymptotic procedures for testing the poolability hypothesis, i.e., equal slope vectors across individual equations. Regression models with both lagged dependent variable regressors and nonspherical disturbances are considered. In these models we find that the performance in finite samples of classical asymptotic test procedures using critical values from either or ² approximations is often rather poor. However, employing the original test statistics with bootstrapped critical values leads to much more accurate inference in finite samples. In an empirical analysis of panel data on GDP growth and unemployment rates in OECD countries it is shown that classical asymptotic tests and bootstrap procedures may lead to conflicting test outcomes. I am indebted to Peter Boswijk, Jan Kiviet, Peter Vlaar, the associate editor and 2 anonymous referees for their constructive comments. I want to thank Geoffrey Garrett for kindly making available his data.     

Social learning and costly information acquisition

Summary. Short-lived agents want to predict a random variable q\theta and have to decide how much effort to devote to collect private information and consequently how much to rely on public information. The latter is just a noisy average of past predictions. It is shown that costly information acquisition prevents an unbounded accumulation of public information if (and only if) the marginal cost to acquire information is positive at zero (C￠(0) > 0)(C^\prime (0) > 0). When C￠(0) = 0C^\prime (0) = 0 public precision at period n, _boxclose_boxclose\tau_n, tends to infinity with n but the rate of convergence of public information to q\theta is slowed down with respect to the exogenous information case. At the market outcome agents acquire too little private information. This happens either with respect to a (decentralized) first best benchmark or, for n large, with respect to a (decentralized) second best benchmark. For high discount factors the limit point of market public precision always falls short of the welfare benchmarks whenever C￠(0) > 0C^\prime (0) > 0. In the extreme, as the discount factor tends to one public precision tends to infinity in the welfare-optimal programs while it remains bounded at the market solution. Otherwise, if C￠(0) = 0C^\prime (0) = 0 public precision accumulates in an unbounded way both at the first and second best solutions. More public information may hurt at either the market or second best solutions.     

Procedural volume,cost, and reimbursement of outpatient incisional hernia repair: implications for payers and providers

Objective: This analysis aimed to evaluate trends in volumes and costs of primary elective incisional ventral hernia repairs (IVHRs) and investigated potential cost implications of moving procedures from inpatient to outpatient settings.

Methods: A time series study was conducted using the Premier Hospital Perspective^® Database (Premier database) for elective IVHR identified by International Classification of Diseases, Ninth revision, Clinical Modification codes. IVHR procedure volumes and costs were determined for inpatient, outpatient, minimally invasive surgery (MIS), and open procedures from January 2008–June 2015. Initial visit costs were inflation-adjusted to 2015?US dollars. Median costs were used to analyze variation by site of care and payer. Quantile regression on median costs was conducted in covariate-adjusted models. Cost impact of potential outpatient migration was estimated from a Medicare perspective.

Results: During the study period, the trend for outpatient procedures in obese and non-obese populations increased. Inpatient and outpatient MIS procedures experienced a steady growth in adoption over their open counterparts. Overall median costs increased over time, and inpatient costs were often double outpatient costs. An economic model demonstrated that a 5% shift of inpatient procedures to outpatient MIS procedures can have a cost surplus of?～?US $1.8 million for provider or a cost-saving impact of US $1.7 million from the Centers for Medicare &; Medicaid Services perspective.

Limitations: The study was limited by information in the Premier database. No data were available for IVHR cases performed in free-standing ambulatory surgery centers or federal healthcare facilities.

Conclusion: Volumes and costs of outpatient IVHRs and MIS procedures increased from January 2008–June 2015. Median costs were significantly higher for inpatients than outpatients, and the difference was particularly evident for obese patients. A substantial cost difference between inpatient and outpatient MIS cases indicated a financial benefit for shifting from inpatient to outpatient MIS.     

WHY IS CASH (STILL) SO ENTRENCHED? INSIGHTS FROM CANADIAN SHOPPING DIARIES

One similarity among many developed economies is the predominance of cash over electronic payments in terms of payment frequency, especially for the low‐value transactions that are the bulk of retail payments. We use the Bank of Canada's 2009 Methods‐of‐Payment Survey, which collected information on consumers' payment choices through shopping diaries, to estimate a simple model of choice between cash and other payment methods. Results suggest that the main reasons cash is still a popular payment instrument in Canada, especially for low‐value transactions, are its wide acceptance among merchants compared with other alternatives, speed and ease of use, and low marginal cost when on hand. (JEL E41, D12, L81)