Principal components at work: the empirical analysis of monetary policy with large data sets

The empirical analysis of monetary policy requires the construction of instruments for future expected inflation. Dynamic factor models have been applied rather successfully to inflation forecasting. In fact, two competing methods have recently been developed to estimate large‐scale dynamic factor models based, respectively, on static and dynamic principal components. This paper combines the econometric literature on dynamic principal components and the empirical analysis of monetary policy. We assess the two competing methods for extracting factors on the basis of their success in instrumenting future expected inflation in the empirical analysis of monetary policy. We use two large data sets of macroeconomic variables for the USA and for the Euro area. Our results show that estimated factors do provide a useful parsimonious summary of the information used in designing monetary policy. Copyright © 2005 John Wiley & Sons, Ltd.     

Harmonizing public sector accounting in Europe: thinking out of the box

A broad debate about the harmonization of public sector accounting standards in Europe is underway. The authors provide arguments in favour of harmonization, but they also acknowledge the existing pluralism and diversity by taking stock of the state of play in 14 European countries. The paper makes a proposal for a way forward for policy-makers and standard-setters, in which the benefits of harmonization can be obtained without obliging EU member countries to necessarily abandon their current public sector accounting systems.     

Reimbursing Preventive Care

The paper focuses on secondary prevention, such as diagnostic screening, medical examinations and checks-up, which refers to the early detection of disease. Secondary prevention is analyzed as a self-insurance activity reducing the negative shock of illness and can be either complement or substitute to illness treatment. This paper analyses the optimal reimbursement scheme for both prevention and treatment when each activity receives either a linear subsidy (i.e. cost sharing) or tax. Although optimal reimbursement systematically encourages treatment, it positively affects prevention if and only if prevention reduces the cost of treatment, that is in the case the two activities are substitutes.     

Decomposing seasonality in an urban destination: the case of Milan

ABSTRACT

This paper analyses demand fluctuations in the field of urban destinations, decomposing Milan’s hotel seasonality. Four different seasonal periods are identified and two research questions are explored. The first aims to verify how seasonality evolved over the period 2004–2015 and the effectiveness of analysing tourism flow in an urban destination using daily data. The second aim explores the effects generated by the Milan Expo 2015 on seasonality. Using Smith Travel Research data, a longitudinal analysis (2004–2015) is carried out, decomposing the annual Theil index. Evidence is reported and discussed.     

Why leaders don't learn from success

What causes so many companies that once dominated their industries to slide into decline? In this article, two Harvard Business School professors argue that such firms lose their touch because success breeds failure by impeding learning at both the individual and organizational levels. When we succeed, we assume that we know what we are doing, but it could be that we just got lucky. We make what psychologists call fundamental attribution errors, giving too much credit to our talents and strategy and too tittle to environmental factors and random events. We develop an overconfidence bias, becoming so self-assured that we think we don't need to change anything. We also experience the failure-to-ask-why syndrome and neglect to investigate the causes of good performance. To overcome these three learning impediments, executives should examine successes with the same scrutiny they apply to failures. Companies should implement systematic after-action reviews to understand all the factors that led to a win, and test their theories by conducting experiments even if "it ain't broke."     

Dynamics of Agricultural Productivity and Technical Efficiency in Togo: The Role of Technological Change

In the search for ways to boost agricultural productivity for the take‐off of the so‐advocated agricultural transformation, we investigate in this paper whether there is room under current technologies to boost agricultural productivity through technical efficiency, focusing on the five administrative regions of Togo. We use a regional stochastic frontier model, which assumes that farmers maximize return to the outlay in order to account for potential endogeneity and regional heterogeneities to a panel data for the period 2000–2014. The findings reveal that technical efficiency in agriculture varies considerably across regions and over time. In addition, our results indicate that the country can rely on irrigation intensification to sustain its move towards higher agricultural technical efficiency, while higher rainfall variability puts additional pressure on the achievement of such objective. The policy message drawn from this study supports policy strategies designed to promote irrigation and increased rainfall variability management tools, such as weather insurance, as sound agricultural technical efficiency driven options.     

Gender and Ethnicity--Married Immigrants in Britain

In this paper we investigate the economic activity of marriedor cohabiting female immigrants in Britain. We distinguish betweentwo immigrant groups: foreign-born females who belong to anethnic-minority group and their husbands, and foreign-born whitefemales and their husbands. We compare these to native-bornwhite women and their husbands. Our analysis deviates from theusual mean analysis and investigates employment, hours workedand earnings for males and females, as well as their combinedfamily earnings, along the distribution of husbands' economicpotential. We analyse the extent to which economic disadvantagemay be reinforced at the household level and investigate theextent to which it can be explained by differences in observablecharacteristics. We find that white female immigrants and theirhusbands have an overall advantage in earnings over white nativeborn, both individually and at the household level. Minorityimmigrants do less well, in particular at the lower end of thehusbands' economic potential distribution. This is mainly dueto the low employment of both genders, which leads to a disadvantagein earnings, intensified at the household level. Only part ofthis differential can be explained by observable characteristics. Footnotes ¹ E-mail addresses: c.dustmann{at}ucl.ac.uk; francesca.fabbri{at}lrz.uni-muenchen.de     

Consolidation in the public sector: a cross-country comparison

This article analyses consolidated annual accounts in the public sector in six countries (Sweden, the UK, the USA, Canada, New Zealand and Australia) highlighting the differences and similarities in approaches. The authors also examine international trends and take an in-depth look at the International Public Sector Accounting Standards Board (IPSASB).     

Removing Homeownership Bias in Taxation: The Distributional Effects of Including Net Imputed Rent in Taxable Income

The income tax systems of most countries entail a favourable treatment of homeownership, compared to rental‐occupied housing. Such ‘homeownership bias’ and its consequences for a wide range of economic outcomes have long been recognised in the economic literature. Although a removal of the homeownership bias is generally advocated on efficiency grounds, its distributional implications are often neglected, especially in a cross‐country perspective. In this paper, we aim to fill this gap by investigating the first‐order effects, in terms of distribution of income and work incentives, of removing the income tax provisions favouring homeownership. We consider six European countries – Belgium, Germany, Greece, Italy, the Netherlands and the UK – that exhibit important variation in terms of income tax treatment of homeowners. Using the multi‐country tax benefit model EUROMOD, we analyse the distributional consequences of including net imputed rent in the taxable income definition that applies in each country, together with the removal of existing special tax treatments of incomes or expenses related to the main residence; thus, we provide a measure of the homeownership bias. We implement three tax policy scenarios. In the first, imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In the two further revenue‐neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, through either a tax rate reduction or a tax exemption increase. The results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality‐increasing side effects.     

Bookbuilding and Strategic Allocation

In the bookbuilding procedure, an investment banker solicits bids for shares from institutional investors prior to pricing an equity issue. The banker then prices the issue and allocates shares at his discretion to the investors. We examine the books for 39 international equity issues. We find that the investment banker awards more shares to bidders who provide information in their bids. Regular investors receive favorable allocations, especially when the issue is heavily oversubscribed. The investment banker also favors revised bids and domestic investors.