Multivariate contemporaneous-threshold autoregressive models

This paper proposes a contemporaneous-threshold multivariate smooth transition autoregressive (C-MSTAR) model in which the regime weights depend on the ex-ante probabilities that latent regime-specific variables exceed certain threshold values. A key feature of the model is that the transition function depends on all the parameters of the model as well as on the data. Since the mixing weights are also a function of the regime-specific noise covariance matrix, the model can account for contemporaneous regime-specific co-movements of the variables. The stability and distributional properties of the proposed model are discussed, as well as issues of estimation, testing and forecasting. The practical usefulness of the C-MSTAR model is illustrated by examining the relationship between US stock prices and interest rates.     

Moment-based estimation of smooth transition regression models with endogenous variables

Nonlinear regression models have been widely used in practice for a variety of time series and cross-section datasets. For purposes of analyzing univariate and multivariate time series data, in particular, smooth transition regression (STR) models have been shown to be very useful for representing and capturing asymmetric behavior. Most STR models have been applied to univariate processes, and have made a variety of assumptions, including stationary or cointegrated processes, uncorrelated, homoskedastic or conditionally heteroskedastic errors, and weakly exogenous regressors. Under the assumption of exogeneity, the standard method of estimation is nonlinear least squares. The primary purpose of this paper is to relax the assumption of weakly exogenous regressors and to discuss moment-based methods for estimating STR models. The paper analyzes the properties of the STR model with endogenous variables by providing a diagnostic test of linearity of the underlying process under endogeneity, developing an estimation procedure and a misspecification test for the STR model, presenting the results of Monte Carlo simulations to show the usefulness of the model and estimation method, and providing an empirical application for inflation rate targeting in Brazil. We show that STR models with endogenous variables can be specified and estimated by a straightforward application of existing results in the literature.     

Parental job loss and the education enrollment of youth

Parental job loss from layoffs and business failures that occur when youth complete high school are found to be negatively related with enrollment at university and community college. Estimates using longitudinal data on Canadian youth and their parents are employed to identify both immediate and lagged effects of parental job loss on education enrollment. Parental job losses are also followed by significant falls in parental income. If the main pathway by which parental job loss affects youth education outcomes is via these income reductions, it that implies financial constraints on post-secondary education enrollment are important.     

The art of tourism-driven development: economic and artistic well-being of artists in three Balinese communities

One route from coastal to inland Bali traverses three communities with different types of art, from mass-produced art for beachside tourists in Sanur, through the village of Mas, home to mask and wood carving workshops, to several high-end galleries and renowned museums in Ubud, known for painting. This comparative case study, based on our interviews with artists, museum directors, collectors, community activists and leaders, arts entrepreneurs, and civil servants, focuses on the economic and artistic well-being of artists in three communities. This well-being approach overcomes a preoccupation with ‘authenticity’ characteristic of older scholarship on tourism and the arts in Southeast Asia. We conclude that the impact of tourism-driven development on artists' well-being varies tremendously even within one region in Bali and that ‘slow’, purposeful arts tourism and forward-looking, hybrid approaches offer the most artistic and economic benefits to local artists. Examples, both positive and negative, provide lessons or strategies for other communities that have distinctive artistic heritages and increasing numbers of tourists.     

Profitability, Ownership Structure and Technical Efficiency of Enterprises in the People's Republic of China: A Case of Manufacturing Industries in Shanghai

This paper studies the relationship between accounting profits and technical efficiency of manufacturing enterprises in Shanghai during the period 1989–1992 and examines which factors affect the profitability of manufacturing enterprises. We first estimate the average technical efficiency of four major manufacturing industries in Shanghai. Then, we test for the presence of ownership effects of technical efficiency on profits of those enterprises in these four industries.     

Bank Efficiency, Risk-Based Capital, and Real Estate Exposure: The Credit Crunch Revisited

The turbulent real estate market during the early 1990s coincided with the implementation of risk-based capital standards for commercial banks. In this study we use non-parametric linear programming techniques to identify the lost real estate lending due to bank inefficiency. Inefficiency may arise from one of three sources: risk-based capital standards which constrain bank real estate lending, inefficiency stemming from managerial oversight of real estate lending, and scale inefficiency which arises from banks not operating at constant returns to scale. The results indicate that the lost real estate lending associated with risk-based capital standards averaged 2.7% of total bank assets. However, banks could compensate by exercising better managerial oversight of real estate lending and by operating at constant returns to scale.     

Compliance Costs for Employers: UK PAYE and National Insurance, 1995–96

This paper, based upon research financed by the Inland Revenue and the Contributions Agency of the DSS, presents calculations of the compliance costs for employers of PAYE and National Insurance in 1995–96. Total costs are estimated to have been of the order of £1.3 billion. The costs are very unequally spread across employers, whether measured per employee or per pound of tax raised. They are particularly high for small new employers. For the largest employers, these costs may be offset by the cash-flow benefits of acting as tax collectors. The composition of labour and other costs is calculated and estimates are made of compliance costs under various payroll ‘technologies’. The main determinants of compliance costs, for an employer, are analysed using weighted least-squares regression analysis. Finally, some policy implications are considered.     

Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information

The arrival of public information in the U.S. Treasury market sets off a two-stage adjustment process for prices, trading volume, and bid-ask spreads. In a brief first stage, the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume, demonstrating that price reactions to public information do not require trading. The spread widens dramatically at announcement, evidently driven by inventory control concerns. In a prolonged second stage, trading volume surges, price volatility persists, and spreads remain moderately wide as investors trade to reconcile residual differences in their private views.     

Evaluating the Financial Performance of Pension Funds: An Individual Investor's Perspective

Pension funds require the managerial expertise of financial intermediaries, who must be paid a fee or spread. The spread significantly reduces the value of the pension fund over longer holding periods, and implies significantly greater incentive conflicts for defined contribution-funded pension funds than for defined benefit-funded pension funds. The magnitude of the intermediary spread and those factors affecting the demand for financial intermediary reputation and the marginal fee for this reputation are examined for a sample of 66 defined contribution and 54 defined benefit Australian pension funds during 1991–93. The intermediary spread significantly reduces the average net return provided to individual investors, particularly for defined contribution pension funds. Agency-related factors affecting the demand for financial intermediary reputation and its marginal fee reflect underlying contract-based differences between these types of fund.