Forecasting development outcomes under alternative surplus labour assumptions

Economic forecasts are useful to policymakers both as aids to planning, and as baselines against which counterfactual scenarios can be compared. However, policy makers should be aware that assumptions relating to model structure can influence forecast results. We explore the sensitivity of forecasts to one aspect of model structure important in modelling developing economies: surplus agricultural labour. We outline a framework for modelling surplus agricultural labour that relies on average product remuneration. We embed this within a model of a developing economy (the Philippines) characterized by surplus agricultural labour. We compare the results of two forecasts that differ in their treatment of the agricultural labour market. In the first, the surplus labour theory is activated, establishing average product remuneration in agriculture. In the second, the surplus labour theory is not activated, creating a failure to recognize average product remuneration in agriculture. By comparing the two simulations, we show that failure to model the presence of average product remuneration, when it would be appropriate to do so, has an impact that would be material to economic planners, leading them to: under-estimate agricultural employment; over-estimate GDP growth; and, over-estimate important policy variables (like tax revenue) that are related to GDP growth.     

A fuel surcharge policy for reducing road traffic greenhouse gas emissions

This paper proposes a car pricing policy based on fuel surcharges in substitution of car ownership taxes for reducing greenhouse gas emissions by cars. The aim of the proposed policy is to change some (fixed) costs of car use that are not perceived at each trip into (variable) costs. The amount of fuel surcharges and the effects of their application on fuel consumption and on GHG emissions are estimated by a model that is able to relate gasoline and diesel consumption with fuel prices. The effects of the proposed policy on fuel consumption and on GHG emissions are estimated for Italy. The results show that car users prefer to shift towards more efficient fuel vehicles than to public transport, producing a significant, but less than expected, reduction of GHG emissions.     

Lending technologies,banking relationships,and firms’ access to credit in Italy: the role of firm size

This paper analyses the role of lending technologies and banking relationships on firms’ credit access in Italy. Using EFIGE firm-level data, we show that the depth and strength of firm–bank relationships have heterogeneous effects on credit demand and rationing probabilities depending on the size of the borrower. Multiple banking relationships alleviate financial constraints for small firms, while borrowing from a large number of lenders hinders access to credit for large companies. Small and medium-sized enterprises with a higher share of debt with the main bank have a lower probability of being credit denied, as debt concentration contributes to overcome the opacity problems typical of the SMEs. Long-lasting relationships, by reducing information asymmetries, significantly improve access to credit for small and large firms. Conversely, we find that medium-sized enterprises are more exposed to financing constraints as relationship duration increases, due to possible lock-in effects. Finally, firms maintaining banking relationships based on transactional technologies are more likely to be credit denied, while the use of relationship lending technologies improves credit availability for both small and large enterprises.     

As times goes by. A dynamic impact assessment of the innovation policy and the Matthew effect on Argentinean firms

ABSTRACT

The objective of this paper is to analyse the impact of public funds for innovation on firm’s capabilities, innovative dynamics and economic performance. A large stream of literature about the evaluation of public funds is focused on testing the existence of additionality effects on investments and results. This paper aims to provide evidence about other dimensions of the firm that public policy can alter, with focus on the time window between the treatment and the impact, and the role of the Matthew effect (recurrence) in this process. The empirical exercise is based on a dynamic panel data made of 1465 firms (3337 observations) that applied to the Argentinean Technological Fund (FONTAR), which is the main public fund for innovation in Argentina, between 2007 and 2016. Results show short-term effects of accessing to FONTAR on firms’ capabilities, medium-term effects on innovation efforts and long-term effects on productivity. Even though the effect on productivity is larger among recurrent firms, the differences among recurrent and non-recurrent firms are not conclusive in case of capabilities and innovation efforts. All in all, this research provides evidence about the ‘when’ of public policy and the need to look beyond input additionality effects when analysing its impact.     

The effects of domestic rice market interventions outside business-as-usual conditions for imported rice prices

The Philippine government intervenes in the domestic rice market through the imposition of import tariffs and the provision of producer and consumer subsidies. While policymakers are aware that these programmes come with allocative efficiency costs, they justify the programmes on the grounds that they insulate the domestic economy from unexpected price spikes in the international rice market. An interesting matter for policy evaluation is to quantify the insulation benefit that the programmes provide in circumstances of sudden severe import price spikes. To examine this question, we undertake a dynamic computable general equilibrium (CGE) simulation in which the Philippines is subject to an external rice price shock. We find that the insulation benefit of the support programmes under a 2008-like event is worth approximately 0.10% of real consumption. However, the cost of insuring against these price spikes is significant. We estimate the annual cost of the rice market interventions at approximately 0.40% of real consumption.     

Statistical tests for multiple forecast comparison

We consider a multivariate version of the Diebold–Mariano test for equal predictive ability of three or more forecasting models. The Wald-type test, $S$, which has a null distribution that is asymptotically chi-squared, is shown to be generally invariant with respect to the ordering of the models being compared. Finite-sample corrections for the test are also developed. Monte Carlo simulations indicate that $S$ has reasonable size properties in large samples but tends to be oversized in moderate samples. The finite-sample correction succeeds in correcting for size, but only partially. For the size-adjusted tests, power increases with sample size, as expected. It is speculated that further finite-sample improvements can be achieved using Hotelling’s $T^2$ or bootstrap critical values.     

Long-term interest rates,risk premia and unconventional monetary policy

We study two kinds of unconventional monetary policies: announcements about the future path of the short-term rate and long-term nominal interest rates as operating instruments of monetary policy. We do so in a model where the risk premium on long-term debt is, in part, endogenously determined. We find that both policies are consistent with unique equilibria, that, at the zero lower bound, announcements about the future path of the short-term rate can lower long-term interest rates through their impact both on expectations and on the risk premium and that long-term interest rate rules perform as well as, and at times better than, conventional Taylor rules. With simulations, we show that long-term interest rate rules generate sensible dynamics both when in operation and when expected to be applied.     

Changing Patterns of Precipitation at the Sooke Reservoir in British Columbia

The paper is a parametric and nonparametric analysis of past precipitation data. We analyze 90 years of daily precipitation data at the Sooke Reservoir in British Columbia, Canada, for evidence of climate change. We fit probability density functions (PDFs) to the data and find evidence of a structural break in the data generating process by using the Andrews-Ploberger test. To confirm this finding, we analyze higher moments of the distribution of precipitation and show that the PDFs have become more leptokurtic. The results show how the pattern of precipitation has changed.     

Prediction,filtering and smoothing in non-linear and non-normal cases using Monte Carlo integration

A simulation-based non-linear filter is developed for prediction and smoothing in non-linear and/or non-normal structural time-series models. Recursive algorithms of weighting functions are derived by applying Monte Carlo integration. Through Monte Carlo experiments, it is shown that (1) for a small number of random draws (or nodes) our simulation-based density estimator using Monte Carlo integration (SDE) performs better than Kitagawa's numerical integration procedure (KNI), and (2) SDE and KNI give less biased parameter estimates than the extended Kalman filter (EKF). Finally, an estimation of per capita final consumption data is taken as an application to the non-linear filtering problem.