Inference on impulse response functions in structural VAR models

Skepticism toward traditional identifying assumptions based on exclusion restrictions has led to a surge in the use of structural VAR models in which structural shocks are identified by restricting the sign of the responses of selected macroeconomic aggregates to these shocks. Researchers commonly report the vector of pointwise posterior medians of the impulse responses as a measure of central tendency of the estimated response functions, along with pointwise 68% posterior error bands. It can be shown that this approach cannot be used to characterize the central tendency of the structural impulse response functions. We propose an alternative method of summarizing the evidence from sign-identified VAR models designed to enhance their practical usefulness. Our objective is to characterize the most likely admissible model(s) within the set of structural VAR models that satisfy the sign restrictions. We show how the set of most likely structural response functions can be computed from the posterior mode of the joint distribution of admissible models both in the fully identified and in the partially identified case, and we propose a highest-posterior density credible set that characterizes the joint uncertainty about this set. Our approach can also be used to resolve the long-standing problem of how to conduct joint inference on sets of structural impulse response functions in exactly identified VAR models. We illustrate the differences between our approach and the traditional approach for the analysis of the effects of monetary policy shocks and of the effects of oil demand and oil supply shocks.     

Sharing health risk and income risk within households: evidence from Japanese data

The question of which household members should consume medical services, and in what quantities, is examined by using Japanese household-level data. Two key concepts are employed, health risk and income risk, and whether family heads or dependants bear these risks investigated. Health risk is the risk that a household member falls ill, while income risk is the risk that future household income decreases. It is found that both heads and dependants make fewer visits to doctors as household size increases. It is also found that only dependants visited doctors less frequently following the reform of the public health insurance system, which raised the co-payment rate of family heads from 10% to 20%. These findings imply that heads and dependants share health risk but dependants bear income risk.     

A theory of competitive industry dynamics with innovation and imitation

Empirical evidence on industry life-cycle reveals a pattern in which innovation rates remain fairly stable or are perhaps even higher at early stages, while patenting increases sharply as the industry matures. This increase in patenting in later stages is accompanied by net exit and lower rates of output growth and price decline. In this paper, we develop a dynamic model of a competitive industry with innovation and imitation that is consistent with these stylized facts. We derive an equilibrium growth path, along which leading firms invest in increasing the stock of technological knowledge and choose not to prevent imitation by other firms as long as the industry remains relatively small. As the industry expands including new entry, the leaders' optimal amount of investment gradually declines. We show that under some rather general conditions, there would exist a scale of the industry where innovating firms would choose to start preventing free imitation, bringing further expansion of the industry through new entry to a halt and causing net exit.     

The measurement of waste with nonconvex technology

The measurement of waste problem is reconsidered with the generalization that nonconvex production technologies are allowed. A general equilibrium measure of waste allowing for nonconvexity in production is derived by extending the contributions by Debreu (1954) and Diewert (1981, 1985).     

The Structure of Sunspot Equilibria: The Role of Multiplicity

This paper examines the structure of sunspot equilibria in a standard two period exchange economy with real assets. We show that for a generic choice of utility functions and endowments, there exists an open set of real asset structures whose payoffs are independent of sunspots such that the economy with this asset structure has a regular sunspot equilibrium. An important implication of our result is that the multiplicity of non-sunspot equilibria is not necessary for the existence of sunspot equilibria. Our technique is general and can be applied to show the existence of sunspot equilibria in other frameworks.     

The making of Beveridge's Unemployment (1909): three concepts blended

The aim of this paper is to re-examine William Henry Beveridge's (1879?–?1963) early ideas on unemployment. After developing through three phases (‘from the unemployable to the unemployed’, ‘from the unemployed to unemployment’, and ‘perfection of the labour market’), Beveridge finally accomplished a coherent package of remedies for unemployment: labour exchanges with National Insurance on the basis of the living wage principle (previously unexplored but evident through his work). These three concepts, perfectly blended, formed his original and unique standpoint. By analysing this development of ideas, we can position Beveridge's doctrine of unemployment more appropriately in the history of economic thought.     

Tests for the Poolability of Panel Data in the Presence of Unknown Heteroskedasticity: an Asymptotic Extension of ANOVA

This paper presents asymptotic tests for the poolability of panel data in the presence of heteroskedasticity. Also, the test statistic is compared with the well-known F -test statistic using simulation studies. The test statistic is regarded as an asymptotic extension of ANOVA in the sense that the statistic measures the distance between the null and the alternative models using the idea of ANOVA. Simulation studies show that the real size of the test statistic is in the neighbourhood of the nominal size, though that of the F -statistic is quite different. Even when the error term is independent and identically and normally distributed, its real size is near the nominal size and the power is not much inferior to that of the F -statistic when the sample size is large.
JEL Classification Numbers: C12, C23.