Interest differentials and extreme support for uncovered interest rate parity

This paper addresses two findings from the empirical literature testing uncovered interest parity (UIP): (i) more favorable results when interest differentials (IDs) are large and (ii) instability across samples. Simulations demonstrate that explanations of the results using large IDs based on the hypothesis of a “zone of speculative inactivity” are inconsistent with empirical evidence. Furthermore, it is shown that, if agents forecast IDs based on long-run values, coefficient estimates will be unstable if rates of decay in IDs vary significantly and, for ex post UIP to hold, IDs must decay in absolute value. This is consistent with OECD country data.     

Is real per capita state personal income stationary? New nonlinear,asymmetric panel-data evidence

This paper re-examines the stochastic properties of U.S. state real per capita personal income, using new panel unit-root procedures. The new developments incorporate non-linearity, asymmetry, and cross-sectional correlation within panel-data estimation. Including nonlinearity and asymmetry finds that 43 states exhibit stationary real per capita personal income whereas including only nonlinearity produces 42 states that exhibit stationarity. Stated differently, we find that two states exhibit nonstationary real per capita personal income when considering nonlinearity, asymmetry, and cross-sectional dependence.     

CAPITAL AGGREGATION IN THE PRESENCE OF OBSOLESCENCE-INDUCING TECHNICAL CHANGE

The major question addressed is the treatment of capital embodied technical progress. Should Obsolescence be deducted to calculate a net stock, or should quality adjustments be made in each vintage of new capital, or both, or neither? In order to estimate the contribution of new investment to growth it is necessary to use a capital stock where different vintages are weighted in proportion to their marginal products. The commonly used gross capital measures do not do this, because they do not allow for the higher marginal product of more modern capital. Such an allowance for capital embodied technical progress can be made either by quality adjusting new capital or by incorporating obsolescence into the valuation of the old capital (but not both). However, even if new capital incorporates an allowance for improved quality, it will still be necessary to revalue the old capital. Frequently, a reasonable approximation to the net capital stock results from a linear decline in quasi-rents and can be approximated by published estimates of the stock of capital net of straight line depreciation. Steady technical progress will not lead to the commonly used exponential service decline functions. To avoid overestimating the return to investment when technology changes it will be necessary to use information on capital embodied technical change to revalue old capital, rather than to change the price indices for new capital.     

Modelling the spatiotemporal distribution of the incidence of resident foreign population

Many European countries have recently experienced a substantial increase in the proportion of immigrants in their populations. The incidence of resident foreigners calculated at a national level does not provide information on the local spatial and temporal distribution of the phenomenon. This information may be of crucial importance for planning local policies. In this article, we suggest a tool for practitioners to provide spatiotemporal maps representing the local distribution of the incidence of resident foreigners in the territory, and changes in spatial trends over time. We illustrate this with Italian data at a municipal level, for the period 2003–2008. To account for spatiotemporal interactions in the data, we propose using a generalized additive model incorporating a smoother of the time and space dimensions. Specifically, we set up a tensor product smoother combining a cubic regression spline basis for time and a soap film spline basis for space. This approach provides a consistent framework to produce spatiotemporal maps which could be effectively used by policy makers to decide the allocation of economic resources at a local level.     

The relationship between population growth and standard-of-living growth over 1870–2013: evidence from a bootstrapped panel Granger causality test

This paper examines the linkages between population growth and standard-of-living growth in 21 countries over the period of 1870–2013. We apply the bootstrap panel causality test proposed by Kónya (Econ Model 23:978–992, 2006), which accounts for both dependency and heterogeneity across countries. We find one-way Granger causality running from population growth to standard-of-living growth for Finland, France, Portugal, and Sweden, one-way Granger causality running from standard-of-living growth to population growth for Canada, Germany, Japan, Norway and Switzerland, two-way causality for Austria and Italy, and no causal relationship for Belgium, Brazil, Denmark, Netherlands, New Zealand, Spain, Sri Lanka, the UK, the USA, and Uruguay. Dividing the sample into two subsamples due to a structural break yields different results over the two periods of 1871–1951 and 1952–2013. Our empirical results suggest important policy implications for these 21 countries as the directions of causality differ across countries and time period.     

An Evaluation of Inertia Models of Unemployment

Two approaches have been used to model unemployment. The first, conventional, approach involves linking the unemployment outcome to observed indices of productivity, structural factors and discrimination such as educational attainment, location and birthplace. The second approach, the inertia model, involves using a person's labour market history as a way of including in unemployment models information on the 'unobservables' that influence employability. This paper evaluates the performance of both models of unemployment. The results provide unambiguous support for the inertia model when modelling unemployment. The inertia model has higher explanatory power, higher within-sample prediction rate success and fewer out-of-sample forecasting errors than the conventional model. The estimates from the inertia model can be used to provide quite accurate predictions of the risk of becoming unemployed. This is important if individuals at high risk of becoming unemployed are to be targeted for labour market assistance.     

Effects of birth spacing and timing on mothers' labor force participation

Data from the March 1991Current Population Survey [Bureau of the Census, 1992] were used to investigate the effects of children on single and married mothers' labor force participation decisions. Logit results indicated that for both single and married mothers, an increase in education and market experience increases the probability of market participation while an increase in income has a negative effect on the likelihood of mothers' labor market participation. The number of children present in the household negatively affected participation while an increase in the age of children positively influenced the mother's labor market participation. The spacing effect in the married group and the timing effect in the single group were significant. Furthermore, an increase in the number of older children in the household (between the ages of 12 and 17 years) increased the probability of labor market participation by single mothers but decreased that of married mothers.     

The Effects of Norms on Investor Reactions to Derivative Use

Prior research indicates that a firm's use of derivatives to manage business risks is viewed favorably by investors. However, these studies do not consider a potentially key factor in this setting—namely, the typical behavior (or norms) regarding derivatives by other firms in the industry or the firm itself. In this paper, we report the results of multiple experiments that test whether norms are influential in affecting investors’ evaluations of firms’ derivatives choices. Our results show that the generally favorable reactions to derivative use actually reverse and become unfavorable when firms’ derivative decisions are inconsistent with industry or firm norms. Somewhat surprisingly, though, we find that industry and firm norms are not viewed similarly by investors. These results expand our understanding of how investors respond to firm's derivative use decisions and demonstrate the role of norms as factors that influence investors’ judgments in financial reporting settings. Our results have implications for firm managers making decisions about derivative use.