A neural network demand system with heteroskedastic errors

In this paper we consider estimation of demand systems with flexible functional forms, allowing an error term with a general conditional heteroskedasticity function that depends on observed covariates, such as demographic variables. We propose a general model that can be estimated either by quasi-maximum likelihood (in the case of exogenous regressors) or generalized method of moments (GMM) if the covariates are endogenous. The specification proposed in the paper nests several demand functions in the literature and the results can be applied to the recently proposed Exact Affine Stone Index (EASI) demand system of [Lewbel, A., Pendakur, K., 2008. Tricks with Hicks: The EASI implicit Marshallian demand system for unobserved heterogeneity and flexible Engel curves. American Economic Review (in press)]. Furthermore, flexible nonlinear expenditure elasticities can be estimated.     

Skilled labor, unskilled labor, and economic growth

We study a growth model in which workers with different skill levels are imperfect substitutes. We show that economies with high substitutability between skilled and unskilled workers have high levels of capital, output, and a high proportion of skilled workers.     

Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization

The proliferation of preferential trade liberalization overthe last 20 years has raised the question of whether it slowsmultilateral trade liberalization. Recent theoretical and empiricalevidence indicates that this is the case even for unilateralpreferences that developed countries provide to small and poorcountries, but there is no estimate of the resulting welfarecosts. This stumbling block effect can be avoided by replacingthe unilateral preferences with a fixed import subsidy, whichgenerates a Pareto improvement. More importantly, this paperpresents the first estimates of the welfare cost of preferentialliberalization as a stumbling block to multilateral liberalization.Recent estimates of the stumbling block effect of preferenceswith data for 170 countries and more than 5,000 products areused to calculate the welfare effects of the European Union,Japan, and the United States switching from unilateral preferencesfor least developed countries to an import subsidy scheme. Ina model with no dynamic gains to trade, the switch producesan annual net welfare gain for the 170 countries that adds about10 percent to the estimated trade liberalization gains in theDoha Round. It also generates gains for each group: the EuropeanUnion, Japan, and the United States ($2,934 million), leastdeveloped countries ($520 million), and the rest of the world($900 million).     

On the performance of the tick test

In financial research, the sign of a trade (or identity of trade aggressor) is not always available in the transaction dataset and it can be estimated using a simple set of rules called the tick test. In this paper we investigate the accuracy of the tick test from an analytical perspective by providing a closed formula for the performance of the prediction algorithm. By analyzing the derived equation, we provide formal arguments for the use of the tick test by proving that it is bounded to perform better than chance (50/50) and that the set of rules from the tick test provides an unbiased estimator of the trade signs. On the empirical side of the research, we compare the values from the analytical formula against the empirical performance of the tick test for fifteen heavily traded stocks in the Brazilian equity market. The results show that the formula is quite realistic in assessing the accuracy of the prediction algorithm in a real data situation.     

Modeling and forecasting short‐term interest rates: The benefits of smooth regimes,macroeconomic variables,and bagging

In this paper we propose a smooth transition tree model for both the conditional mean and variance of the short‐term interest rate process. The estimation of such models is addressed and the asymptotic properties of the quasi‐maximum likelihood estimator are derived. Model specification is also discussed. When the model is applied to the US short‐term interest rate we find: (1) leading indicators for inflation and real activity are the most relevant predictors in characterizing the multiple regimes' structure; (2) the optimal model has three limiting regimes. Moreover, we provide empirical evidence of the power of the model in forecasting the first two conditional moments when it is used in connection with bootstrap aggregation (bagging). Copyright © 2010 John Wiley & Sons, Ltd.     

Housing, credit, and real activity cycles: Characteristics and comovement

This paper describes the characteristics and comovement of cycles in house prices, residential investment, credit, interest rates, and real activity in advanced economies during the past 25 years. Stylized facts and regularities are uncovered using a dynamic generalized factor model and spectral techniques. House price cycles are found to lead credit and real activity over the long term, while in the short to medium term the relationship varies across countries. Interest rates tend to lag other cycles at all time horizons. Although global factors are important, the US business cycle, housing cycle and interest rate cycle generally lead the respective cycles in other countries over all time horizons, while the US credit cycle leads mainly over the long term.     

Regional versus global production networks: where does Latin America stand?

This article quantifies the effects of the Latin American Integration Association (LAIA) and the Southern Common Market (Mercosur) on the trade of intermediate goods and also on the trade of final goods. It is the first article to investigate whether increasing imports of intermediate goods from different regions to Latin America have led to higher exports of final and intermediate goods. The article uses sectoral data for trade in goods between 11 LAIA members over the period 1991–2008. The main results indicate evidence of increasing regional production networks, which have strengthened in the 2000s. Moreover, the findings show evidence of the emergence of global production networks, especially with respect to intermediate imports from China.     

Segmentation of low-cost flights users at secondary airports

Low-cost carrier services are important for many tourist destinations. However, there is little information about the characteristics of travellers using low-cost airlines, and their flight preferences. The typical segmentation of air travellers is business versus leisure travellers; and business versus tourist fares. We use segmentation analysis focusing on low-cost travellers’ valuations of various flight attributes and trip-related characteristics, most notably those related to destinations, based on a sample of foreign travellers who used Girona Airport, Spain.