From real estate to consumption: the role of credit markets in the USA

The aim of this article is to test whether the credit market conditions affect the strength of transmission of real estate wealth effects on household consumption in the US economy. Although many different works have dealt with the analysis of the existence of a real estate wealth effect, most of them as a reaction to the dramatic increase of housing prices in several OECD countries, there are only few papers analysing whether the consumption response depends on the positive or negative sign of the wealth shock and, as far as we know, none of them takes the effects of credit market conditions on that asymmetric response into account. This article tries to fill the existing gap in the literature on this matter. From an econometric perspective, we estimate the asymmetries in the consumption response within the momentum threshold autoregressive model (M-TAR) proposed by Enders and Siklos (2001), but following Stevans (2004), it is applied to a multivariate framework. The main results show that the credit market conditions play a significant role in the transmission of changes in real estate wealth to consumption. In addition, we find that there exists an asymmetric behaviour in the US aggregate consumption spending responses to real estate wealth and credit market shocks, which is only significant when a negative shock takes place.     

The effects of domestic rice market interventions outside business-as-usual conditions for imported rice prices

The Philippine government intervenes in the domestic rice market through the imposition of import tariffs and the provision of producer and consumer subsidies. While policymakers are aware that these programmes come with allocative efficiency costs, they justify the programmes on the grounds that they insulate the domestic economy from unexpected price spikes in the international rice market. An interesting matter for policy evaluation is to quantify the insulation benefit that the programmes provide in circumstances of sudden severe import price spikes. To examine this question, we undertake a dynamic computable general equilibrium (CGE) simulation in which the Philippines is subject to an external rice price shock. We find that the insulation benefit of the support programmes under a 2008-like event is worth approximately 0.10% of real consumption. However, the cost of insuring against these price spikes is significant. We estimate the annual cost of the rice market interventions at approximately 0.40% of real consumption.     

A spatial model of corporate tax incidence

Using a unique, self-compiled data-set on international tax rates, we explore the link between taxes and manufacturing wages for a panel of 66 countries over 25 years. We find, controlling for other macroeconomic variables, that wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages. Using spatial modelling techniques, we also find that tax characteristics of neighbouring countries, whether geographic or economic, have a significant effect on domestic wages. We test for, and reject, spatial autocorrelation in our model using a modification of the Moran-I test statistic that accounts for country-specific fixed effects in a panel data setting. Our article fits in with the new economic geography literature as well as the urban economics literature which attempt to explain the spatial distribution of wages.     

Pricing fx forwards in OTC markets – new evidence for the pricing mechanism when faced with counterparty risk

By using daily foreign exchange (fx) market data for five major currency pairs, this article shows that, especially since the beginning of the financial crisis, pricing of fx forwards has not matched the pricing formula derived from the covered interest rate parity (CIP). This corresponds to previous empirical results. Therefore, the CIP leads to systematic over- or underpricing. Overall, four statistically significant explanatory factors for this systematic over- or underpricing have been identified – the volatility in the difference between the interest rate levels, the spot price, the fx forward spread and the counterparty risk. In particular, the high significance of the counterparty risk demonstrates that pricing models for fx forwards should be reviewed.     

Compulsory schooling laws and school crime

Extensive literature demonstrates that compulsory schooling laws improve educational attainment, well-being, civic involvement, and labour market outcomes. However, at-risk youth incapacitated to schools may impact the learning environment and school safety. The purpose of this article is to study whether raising the minimum dropout age (MDA) requirement above 16 increases crime committed within US public high schools. A difference-in-difference estimation exploits changes in state-level MDA laws over time and indicates that schools in states that raise their MDA requirement to 18 incur more overall crime relative to schools in states that do not, while no effect on overall crime is identified when the MDA requirement is raised to 17. Furthermore, these effects persist for 4 years after passage and more intensely in metropolitan areas. Coupling this research with existing literature suggests that when the MDA requirement is raised to 18, only a small portion of the observed reduction in juvenile crime is displaced to schools. Analysis by category of crime reveals schools incur more physical attacks, no change in illegal drug and property crimes, and fewer violent crimes in states that raise their MDA requirement to 18, while illegal drug crimes increase in states that raise their MDA requirement to 17.     

Measuring persistence in Croatian tourism: evidence from the Adriatic region

This study examines the degree of persistence in foreign tourist arrivals and overnight stays for seven Croatian coastal counties over the period January 1998 to December 2013 using fractional integration techniques. Our findings reveal that the respective regional tourism indicators exhibit seasonal unit roots which require seasonal first differences to render the respective time series stationary. With respect to the long-run evolution of the respective time series, both the parametric and semi-parametric fractional integration approaches show the degree of persistence is greater than zero, but significantly less than one for the majority of the coastal counties. Impulse response analysis reveals indeed shocks to the deseasonalized time series, either foreign tourist arrivals or foreign tourist overnight stays, appear short-lived with the exception of Istria and Primorje-Gorski kotar counties. Policy implications of the results are also discussed.     

Evaluating the impact of the American Recovery and Reinvestment Act’s BTOP on broadband adoption

The American Recovery and Reinvestment Act’s Broadband Technology Opportunities Program (BTOP) spent $4.7 billion during 2009–2013 to, inter alia, increase broadband adoption in underserved communities. We characterize the BTOP grants and examine the impact of the awards on broadband adoption. Econometric specifications controlling for award endogeneity related to observed and unobserved county-level factors find that spending is apparently associated with increased broadband adoption. Further investigation, however, reveals that the impacts of spending are nonlinear and even nonmonotonic over the range of county-level BTOP spending in the data. Controlling for trends to reduce the potential for spurious correlation between spending and outcomes removes most of the significance of the results. We conclude with three lessons for policymakers derived from the uncertain outcomes of BTOP spending found in our exploration.     

How does FDI affect domestic firms’ wages? theory and evidence from Vietnam

This paper explores the role of inward foreign direct investment (FDI) as a determinant of domestic firms’ wages, namely wage spillovers. We first construct a theoretical model to demonstrate that the presence of FDI firms affects domestic firms’ expected average wages via productivity spillovers and a cut-off capability. We then estimate FDI-induced wage spillovers by employing IV-GMM estimator with a five-year panel dataset of a growing service industry in Vietnam. Despite FDI firms on average pay 2.25 times that of domestic firms, they put a downward pressure on domestic firms’ wages. A one percent increase in FDI presence causes domestic firms to cut average wages by 2.03 percent. The estimations also find that firm-specific features are attributable to significant differences in their wages as well as FDI-linked wage spillovers.     

Forecasting livestock prices with individual and composite methods

We investigate the incentives of private firms to adopt new technologies. Econometric investigation is performed on a pooled sample of individual US airline firms over the period 1971 to 1986 for which extensive information on available jet aircraft technology and fleet choice have been recorded. Given the incidence of successive commercial aircraft innovations and variation in production attributes across firms, we are able to consider a wider array of ‘time-dependent’ and ‘time-independent’ adoption influences than in previous firm-level studies. To the extent that our study provides useful general insights into adoption decisions by firms, the results have implications for US global competitiveness policy. One key finding is that firms subject to increased product market competition exhibit a higher propensity to adopt technological innovations.