LSM: A DSGE model for Luxembourg

Luxembourg is a small open economy with a set of particular features, including rather limited competition in the domestic goods market, strong union power, and a segmented labor market for resident and non-resident workers. In this paper we develop a medium scale DSGE model that captures these features, calibrate it to mimic the actual behavior of the key macroeconomic aggregates, and use it to conduct policy experiments aimed at relaxing some of the existing rigidities in the goods and labor market.     

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.     

Parents’ Use of Subsidiaries to “Push Down” Earnings Management: Evidence from Italy

We find evidence consistent with Italian nonlisted subsidiaries engaging in accrual and real earnings management, so that their listed parents can meet or beat benchmarks. Thus, the parent firm drives the earnings management of the subsidiaries. We identify parents that are more likely to have managed earnings as the ones that avoid a small loss or meet or beat analyst forecast by a few cents. Cross‐sectional analysis reveals that Big 4 auditors mitigate accrual earnings management at the subsidiary level and that family‐owned firms use earnings management through nonlisted subsidiaries mainly to avoid reporting losses. Finally, we find that parent firms communicate earnings management strategies to their subsidiaries using board proximity. Our evidence shows that business groups manage earnings differently from single firms, pushing earnings management down to subsidiaries. It also supports the monitoring role of Big 4 auditors in a business group setting and contributes to understanding financial reporting decisions in family‐owned firms.     

The impact of faking on Cronbach’s alpha for dichotomous and ordered rating scores

In many psychological inventories (i.e., personnel selection surveys and diagnostic tests) the collected samples often include fraudulent records. This confronts the researcher with the crucial problem of biases yielded by the usage of standard statistical models. In this paper we applied a recent probabilistic perturbation procedure, called sample generation by replacement (SGR)—(Lombardi and Pastore, Multivar. Behav. Res 47:519–546, 2012), to study the sensitivity of Cronbach’s alpha index to fake perturbations in dichotomous and ordered data, respectively. We used SGR to perform two distinct SGR simulation studies involving two sample size conditions, three item set sizes, and twenty levels of faking perturbations. Moreover, in the second SGR simulation study we also evaluated an additional factor, type of faking model, to study sample reliability under different modulations of graded faking (uniform faking, average faking, slight faking, and extreme faking). To simulate these more complex faking models we proposed a novel extension of the SGR perturbation procedure based on a discrete version of the generalized beta density distribution. We also applied the new procedure to real behavioral data on emotional instability.     

A comparison of mixed frequency approaches for nowcasting Euro area macroeconomic aggregates

In this paper, we focus on the different methods which have been proposed in the literature to date for dealing with mixed-frequency and ragged-edge datasets: bridge equations, mixed-data sampling (MIDAS), and mixed-frequency VAR (MF-VAR) models. We discuss their performances for nowcasting the quarterly growth rate of the Euro area GDP and its components, using a very large set of monthly indicators. We investigate the behaviors of single indicator models, forecast combinations and factor models, in a pseudo real-time framework. MIDAS with an AR component performs quite well, and outperforms MF-VAR at most horizons. Bridge equations perform well overall. Forecast pooling is superior to most of the single indicator models overall. Pooling information using factor models gives even better results. The best results are obtained for the components for which more economically related monthly indicators are available. Nowcasts of GDP components can then be combined to obtain nowcasts for the total GDP growth.     

Scope and scale economies in multi-utilities: evidence from gas,water and electricity combinations

Within the recent debate on liberalization of local public services, the paper investigates the cost properties of a sample of Italian public utilities providing in combination gas, water and electricity. The estimates from a Composite Cost Function econometric model (Pulley and Braunstein, 1992 Pulley, LB and Braunstein, YM. 1992. A composite cost function for multiproduct firms with an application to economies of scope in banking. Review of Economics and Statistics, 74: 221–30.  ) are compared with the ones coming from other traditional functional forms such as the Standard Translog, the Generalized Translog, and the Separable Quadratic. The results highlight the presence of global scope and scale economies only for multi-utilities with output levels lower than the ones characterizing the ‘median’ firm. This indicates that relatively small specialized firms would benefit from cost reductions by evolving into multi-utilities providing similar network services such as gas, water and electricity. However, for larger-scale utilities the hypothesis of null cost advantages is not rejected. Thus, it is possible that the recent diversification waves of leading companies are explained by factors other than cost synergies, so that the welfare gains that can be reasonably expected from such examples of horizontal integration, if any, are likely to be very low.     

Municipal Waste Kuznets Curves: Evidence on Socio-Economic Drivers and Policy Effectiveness from the EU

Waste generation and waste disposal are becoming increasingly prominent in the environmental arena, from a policy perspective and in the context of delinking analysis. In general, waste generation is still increasing proportionally with income, and economic and environmental costs associated to landfilling are also increasing. This paper provides a comprehensive analysis of waste generation, incineration and landfill dynamics based on panel data for the EU₂₅, to assess the effects of different drivers (economic, structural, policy) and the eventual differences between Western and Eastern EU countries. We show that for waste generation there is still no Waste Kuznets Curve (WKC) trend, although elasticity to income drivers appears lower than in the past. Landfill and other policy effects do not seem to provide backward incentives for waste prevention, and in terms of landfill and incineration, as expected, they are respectively decreasing and increasing, with policy acting as a strong driver. Eastern countries appear to be performing generally quite well, thus benefiting from EU membership and related policies in terms of environmental performance. We can conclude that although absolute delinking is far from being achieved for waste generation, there are some first positive signs of an increasing relative delinking for waste generation and robust landfill diversion, and varying evidence of a significant role of the EU waste policies implemented in the late 1990s and early 2000s. Our evidence suggests that if while landfill diversion is currently associated to a delinking partly explained by EU policies, waste prevention must be the next objective of waste regulation efforts.