The performance of unit root tests under level-dependent heteroskedasticity

Several financial variables exhibit level-dependent conditional heteroskedasticity. This may cause severe distortions in conventional unit root tests. Given the absence of theoretical results, we conduct Monte Carlo investigation to assess the performance of the standard Dickey–Fuller tests, a nonparametric alternative, and a heteroskedastic-robust extension of the Dickey–Fuller t-test. While these procedures have approximately correct size, we find strong distortions in the power of the standard Dickey–Fuller tests.     

A note on non-parametric tests of consumer behaviour

This note extends the Afriat-Diewert-Varian conditions for consistency of demand data with the maximization hypothesis to the case where the choice set is a finite union of convex sets. Applications include models with discrete goods, regressive taxes, decreasing block prices and fixed costs.     

A cautionary note on tests of overidentifying restrictions

In this note, we argue that tests of overidentifying restrictions give little information on the validity of the moment conditions implied by the underlying economic model, and therefore are mute about the possibility of identifying the parameters of interest.     

Multivariate cointegration and causality tests of Wagner's hypothesis: evidence from the UK

The purpose of this paper is to examine the issue of omitted variables in testing the long run validity of Wagner's hypothesis. Using UK data for the period 1948 to 1997, this paper first investigates the secular relationship between public spending and economic development in a bivariate system. In all cases considered, our bivariate cointegration tests indicate the absence of a long run equilibrium condition. However, the introduction of a third variable (money supply) re-establishes a cointegrating relationship between public expenditure and economic development variables. In addition, the results of the Granger's multivariate causality test indicate a unidirectional causality from income and money supply to public spending in the long run, thus providing support for Wagner's hypothesis.     

A note on the Wald,LR and LM tests and misspecification

In this note, we investigate sensitivity of the Wald, LR and LM tests to specification error. It is shown that these three tests are very sensitive to specification error, but the LM test is relatively superior to other two tests under certain situations.     

A note on the effect of rate-of-return regulation under uncertainty

This paper corrects the errors of Peles and Stein's capital-setting (i.e., capital is ex-ante) model and Das' quantity-setting (i.e., all inputs are ex-ante) model. It also shows that rate-of-return regulated firms always overcapitalize in the quantity-setting case, but may overcapitalize, undercapitalize or produce efficiently in the capital-setting case.     

A note on the taxation of exhaustible resources under oligopoly

The paper shows that when exhaustible resources are exploited under oligopoly, the optimal tax designed to capture quasi-rents is a sales tax, which also induces competitive behaviour.     

A note on variable addition tests for linear and log-linear models

Results on variable addition tests for linear and log-linear models are unified using an instrumental variables framework, which allows the identification of the specific alternatives for which well-known tests are optimal.     

The investment effects of price caps under imperfect competition: A note

We examine the impact of price cap regulation on the capacity investments of oligopolistic suppliers facing time-varying demand. We find that binding price caps set above long-run marginal cost increase (rather than decrease) aggregate capacity investment.     

Investment under uncertainty and the state of confidence — A note

Zusammenfassung Bei echter Unsicherheit ist die Verteilung der erwarteten Nachfrage nicht bekannt, sondern muß erst aus vergangenen Erfahrungen, neuen Informationen und subjektiven Einschätzungen abgeleitet werden. Die vorliegende Arbeit konzentriert sich auf Unsicherheitssituationen, in denen das Vertrauen in die vergangenen Erfahrungen schwach ist und neue Informationen kaum verfügbar sind. Es wird gezeigt, daß in solchen Situationen (z. B. nach Trendbrüchen, in dünnen Märkten, bei innovativen Investitionen) der Einfluß der Profitabilität an Bedeutung gewinnt. Gleichzeitig stellt die Arbeit einen rigorosen Modellierungsversuch des state of confidence von Keynes dar.     

Sraffa numeraire and reswitching: A note A note

The paper demonstrates that changing the numeraire from Hicks' to Sraffa's does not affect the location and, a fortiori, the number of switch points between two given techniques. This negates some recent claims to the contrary, and supports the earlier general position that the choice of numeraire has no bearing on reswitching, even though it does have a bearing on capital reversal. In the process the paper shows that the rate of growth of the economy and the marginal propensity to save also do not affect the switch points, which may thus be regarded as depending essentially on technical factors alone.     

A note on the specification of the fisher equation under inflation uncertainty

The effect of uncertainty on the relationship between the nominal interest rate and the expected rate of inflation, the Fisher equation, is examined both theoretically and empirically. It is found that the coefficient of the expected rate of inflation is significantly below unity. Variable rates of inflation tend to effect the nominal rate of interest positively, but real yields are apparently effected only by expected inflation, but not its variance.     

A note on budget balance under interim participation constraints: the case of independent types

We provide a simple proof of the equivalence between ex ante and ex post budget balance constraints in Bayesian mechanism design with independent types when participation decisions are made at the interim stage. The result is given an interpretation in terms of efficient allocation of risk.     

A note on free entry under uncertainty: The role of asymmetric information

In a model of competing managerial firms I show that the equilibrium number of firms decreases with uncertainty if entry is relatively more costly than monitoring. The result adds to the earlier contributions and is consistent with the available evidence.     

Tests for additive heteroskedasticity: Goldfeld and Quandt revisited

A number of new tests for heteroskedasticity have recently become available. Using Monte Carlo methods this paper explores the small sample properties of some of these tests in the context of additive heteroskedasticity. Lagrange multiplier and Wald tests (and variants thereof) are found to be inferior to the likelihood ratio and Goldfeld and QuandtF tests. This is a reconfirmation of the conclusions obtained byGoldfeld/Quandt [1972] in their study of additive heteroskedasticity. The paper also contains some new results onAmemiya's GLS estimator of the additive heteroskedastic structure.     

A note on dynamic monopoly pricing under consumption externalities

We analyze dynamic monopoly pricing under consumption externalities, focusing on pricing under negative externalities. We also attempt to generalize models in the previous literature, which encompass both negative and positive externalities, by incorporating a consumer’s discount factor for past sales as a parameter. Analyzing our model reveals oscillation as the optimal price path in the presence of negative externalities.     

A note on tests of sphericity and cross-sectional dependence for fixed effects panel model

This paper theoretically explains why bias correction appears in two statistics recently developed by Baltagi et al. (2011, 2012), which are designed to test the sphericity and cross-sectional dependence of the errors in the fixed effects panel model respectively. Our explanation shows that the bias correction is in fact avoidable, which is demonstrated by two corresponding statistics that are newly constructed in this paper. Simulation suggests that our statistics perform as well as the two in Baltagi et al. (2011, 2012). In addition, according to the theories underlying our explanation, we extend a new sphericity test proposed by Fisher et al. (2010) to the fixed effects model. Simulation finds that the test behaves well only if both the cross-sectional and the time series dimension are large.     

Global Determinants of the Gold Price: A Multivariate Cointegration Analysis

The present paper follows publications which have investigated the influence of global liquidity developments on commodity prices and asset price indices. It contributes to the literature by analyzing how global developments in money, output, and inflation can be related to developments in gold prices in a long‐run perspective. Applying a multivariate cointegration (CVAR) analysis, this study investigates long‐run relationships between these variables. The results suggest a significant influence of excess global liquidity on real gold prices and a co‐movement of real gold prices and global inflation.