Polychoric versus Pearson correlations in exploratory and confirmatory factor analysis of ordinal variables

Given that the use of Likert scales is increasingly common in the field of social research it is necessary to determine which methodology is the most suitable for analysing the data obtained; although, given the categorization of these scales, the results should be treated as ordinal data it is often the case that they are analysed using techniques designed for cardinal measures. One of the most widely used techniques for studying the construct validity of data is factor analysis, whether exploratory or confirmatory, and this method uses correlation matrices (generally Pearson) to obtain factor solutions. In this context, and by means of simulation studies, we aim to illustrate the advantages of using polychoric rather than Pearson correlations, taking into account that the latter require quantitative variables measured in intervals, and that the relationship between these variables has to be monotonic. The results show that the solutions obtained using polychoric correlations provide a more accurate reproduction of the measurement model used to generate the data.     

Fiscal Consolidations and Economic Growth

The aim of this paper is to deepen the understanding of the macroeconomic consequences of fiscal consolidations. In particular, there is evidence in the literature of fiscal consolidation episodes producing (non‐Keynesian) expansionary effects in the short run. We replicate this result for a panel of OECD countries under exogeneity of the fiscal consolidation. However, we provide some evidence that output growth might affect the fiscal tightening process so that fiscal consolidations are not exogenous to economic growth. Once we allow for feedback effects from economic growth to fiscal adjustments, we find that expansionary effects disappear and recover the typical Keynesian effect of fiscal adjustments. This finding points to the need to take these short‐term negative implications into account in the design of fiscal consolidations.     

Macroeconomic stability and the optimal degree of capital mobility

This paper examines the relationship between capital mobility and the short-term stability of employment and of prices. It looks at the optimal degree of capital mobility to stabilize income. The sources of instability considered are fluctuations of domestic expenditure or absorption, net exports and international interest rate. In this latter case, loans at fixed nominal interest rates and floating rates are analyzed. Fixed and flexible exchange rate regimes are studied.     

What causes violent crime?

This study uses panel data of intentional homicide and robbery rates for a sample of developed and developing countries for the period 1970-1994, based on information from the United Nations World Crime Surveys, to analyze the determinants of national crime rates both across countries and over time. A simple model of the incentives to commit crimes is proposed, which explicitly considers possible causes of the persistence of crime over time (criminal inertia). A panel-data based GMM methodology is used to estimate a dynamic model of national crime rates. This estimator controls for unobserved country-specific effects, the joint endogeneity of some of the explanatory variables, and the existence of some types of measurement errors afflicting the crime data. The results show that increases in income inequality raise crime rates, crime tends to be counter-cyclical, and criminal inertia is significant.     

General equilibrium in CLO markets

We address a two-period equilibrium model with securitization of collateral-backed promises. Borrowers may suffer extra-economic default penalties and debts are pooled into collateralized loans obligations (CLO), allowing different seniority levels among tranches in a same CLO.     

Evaluating land administration systems: A comparative method with an application to Peru and Honduras

This article develops a comparative methodology for the evaluation of national land administration systems. We propose a set of quantitative and qualitative indicators with benchmarks for each one of them that signal possible venues to improve the administration's structure and budgetary/management arrangements, in order to bring about the following goals: (1) to contribute to public sector financing through taxes; (2) to encourage the productive and sustainable use of land, and (3) to facilitate access to land for low-income citizens. This methodology was applied to the cases of Honduras and Peru in order to refine our draft evaluation indicators, while evaluating the systems of both countries. Here we present the final refined indicators and benchmarks, and the conclusions from both case studies.     

Spot price modeling and the valuation of electricity forward contracts: The role of demand and capacity

We propose a model where wholesale electricity prices are explained by two state variables: demand and capacity. We derive analytical expressions to price forward contracts and to calculate the forward premium. We apply our model to the PJM, England and Wales, and Nord Pool markets. Our empirical findings indicate that volatility of demand is seasonal and that the market price of demand risk is also seasonal and positive, both of which exert an upward (seasonal) pressure on the price of forward contracts. We assume that both volatility of capacity and the market price of capacity risk are constant and find that, depending on the market and period under study, it could either exert an upward or downward pressure on forward prices. In all markets we find that the forward premium exhibits a seasonal pattern. During the months of high volatility of demand, forward contracts trade at a premium. During months of low volatility of demand, forwards can either trade at a relatively small premium or, even in some cases, at a discount, i.e. they exhibit a negative forward premium.     

Relative prices, income distribution and stabilization plans : The Argentine experience, 1967–1970

The objective of this paper is to analyze the anti-inflationary plan applied in Argentina in 1967, a plan which did not eliminate inflation. With respect to the failure of this plan, two different explanations have been offered: one according to which the problems were essentially political, and another, which maintained the program contained basic technical flaws. From the analysis of this paper it is clear that the truth lies much closer to the second explanation. In the last section of the paper, economic policy recommendations relevant for future anti-inflationary plans, be they implemented in Argentina or in other inflationary economies, are presented.