Estimating asymptotic standard errors and inconsistencies of impact multipliers in nonlinear econometric models

This paper presents and discusses an analytic simulation procedure which can be used to estimate the asymptotic standard errors of impact multipliers in a structural, nonlinear econometric model. A stochastic simulation approach is used to obtain an approximate estimate of the inconsistencies of multipliers when computed from simulated results. A numerical example for the nonlinear Klein-Goldberger model is provided.     

The 1974 increase in oil price: Optimum tariff or transfer problem?

Zusammenfassung Die ?lpreiserh?hung von 1974: Ein Problem des optimalen Zolltarifs oder ein Transfer-Problem ? —Mit diesem Aufsatz werden zwei Ziele verfolgt: Zun?chst werden die ?lpreisanpassungen von 1974 im Rahmen der traditionellen Handelstheorie erkl?rt. Sodann werden optimale Politiken analysiert, und zwar vom kosmopolitischen und vom nationalen Standpunkt aus. Dabei wird gezeigt, da\ es Arrangements gibt, die sowohl für die ?lexportierenden als auch für die ?limportierenden L?nder vorteilhafter sind als die Preisfestsetzung durch ein Kartell. Au\erdem wird gezeigt, da\ bestimmte unilaterale Politiken, wie die Herabsetzung der Besteuerung von ?limporten, die Wohlfahrt in diesen L?ndern verringern. Die Analyse weist auch darauf hin, da\ es nicht leicht sein dürfte, das ?lkartell und seine Preispolitik auf lange Sicht aufrechtzuerhalten. Zum Beispiel wird eine schnelle Anpassung der Ausgaben der ?lexportierenden L?nder an die neuen Terms of Trade ihre eigene optimale Tarifpolitik beeintr?chtigen.

---

Résumé L’accroissement de prix pétrolier en 1974: Un tarif optimal ou un problème de transfert? —Dans cet article on poursuit deux buts: Premièrement, on rationalise les ajustements de prix pétrolier de 1974 au dedans d’un cadre théorique traditionel de commerce. Deuxièmement, on analyse des politiques optimales du point de vue cosmopolite aussi bien que nationaliste. On montre qu’il y a des arrangements qui sont mieux que le cartel de prix pour les pays exportant le pétrole aussi bien que pour les pays important le pétrole. De plus on montre quelques politiques unilatérales qui réduisent le ?welfare? dans ces pays comme par exemple une taxe réduite sur le pétrole importé. Notre analyse montre aussi qu’on ne peut pas facilement maintenir le cartel de pétrole et sa politique de prix à long terme. Par exemple un ajustement prompt des dépenses des pays exportant le pétrole aux nouveaux termes des échanges vaincra leur propre optimale politique tarifaire.

---

Resumen El incremento del precio del petróleo del a?o 1974: ? un problema de transferencia o de tarifa óptima ? —En este artículo se persiguen dos fines. En primer lugar se racionalizan los ajustes de precios del petróleo del a?o 1974 dentro del marco teórico del comercio tradicional. En segundo lugar se analizan políticas óptimas desde el punto de vista cosmopolita y nacionalista respectivamente. Se muestra que existen arreglos que permiten una ganancia tanto para el pais exportador como importador de petróleo, en relación a una situación de carteles de precios. Aún más, se muestra que ciertas políticas unilaterales tales como la reducción de impuestos a la importación de petróleo pueden causar una reducción del bienestar en estos países. Nuestro anàlisis también indica que el cartel petrolero y su política de precios sera dificil de mantener en el largo plazo. Por ejemplo, un rápido ajuste de los gastos de los países exportadores de petróleo a los nuevos términos del intercambio derrotará la propia política de la tarifa óptima.

     

The changing structure of local credit markets: Are small businesses special?

In many countries consolidation in the banking industry has reduced the number of small banks and led to significant shifts in market shares; deregulation has fostered entry in local credit markets and the expansion of branch networks, increasing competition in local markets. Small businesses are believed to be more vulnerable to these changes, since they are more dependent on credit from local banks. In this paper we investigate the consequences of consolidation and entry for these borrowers compared with those for large firms. We employ a data set for Italy, which provides information on volumes of loans and bad loans by size of borrower with a detailed geographical partition. We find that mergers are followed by a temporary reduction in outstanding credit to all sizes of borrowers and by an increase in bad loans, most likely due to the reassessment of banks portfolios. Entry has a relatively persistent negative impact on credit supply to small and medium-sized firms. Our results also show that concentration, branch density and the share of branches of small banks affect the volumes of credit and bad loans of small borrowers.     

Did Okun’s law die after the Great Recession?

This paper estimates Okun’s law, focusing on piecewise non-linearity in the form of structural breaks and threshold dynamics, and obtains regime-dependent as well as threshold-dependent changes in the unemployment rate. We employ an autoregressive distributed lag version of Okun’s law in first differences, which allows for delayed reactions of the unemployment rate to output growth. Applied to U.S. data over 1949Q1–2015Q4, the empirical analysis characterizes Okun’s law as a three-regime relationship with the first structural break coinciding with the 1973 oil price shock, and the second structural break immediately following the end of the Great Recession. We find support for threshold dynamics in each regime, which suggests that Okun’s law follows complex non-linear dynamics. Okun’s law, as a linear and constant “rule of thumb,” breaks down in each of the three regimes. In each regime, the unemployment rate responds asymmetrically to changes in output. In sum, Okun’s law died during the Great Recession. Only time will tell whether resurrection is feasible.     

Age and firm growth: evidence from three European countries

This article provides new insights into the dependence of firm growth on age along the entire distribution of growth rates, and conditional on survival. Using data from the European firms in a global economy survey, and adopting a quantile regression approach, we uncover evidence for a sample of French, Italian and Spanish manufacturing firms with more than ten employees in the period from 2001 to 2008. We find that: (1) young firms grow faster than old firms, especially in the highest growth quantiles; (2) young firms face the same probability of declining as their older counterparts; (3) results are robust to the inclusion of other firms’ characteristics such as labor productivity, capital intensity and the financial structure; (4) high growth is associated with younger chief executive officers and other attributes that capture the attitude of the firm toward growth and change. The effect of age on firm growth is rather similar across countries.     

Informational Barriers to Entry into Credit Markets*

Economic theory suggests that asymmetric information between incumbents and entrants can generate barriers to entry into credit markets. Incumbents have superior information about their own customers and the overall economic conditions of the local credit market. This implies that entrants are likely to experience higher loan default rates than the incumbents. We test these theoretical predictions using a unique database of 7,275 observations on 729 individual banks’ lending in 95 Italian local markets. We find that informational asymmetries play a significant role in explaining entrants’ loan default rates. The default rate is significantly higher for those banks that entered local markets without opening a branch, suggesting that having a branch on site may help to reduce the informational disadvantage. We also uncover a positive correlation between banks’ loan default rates in individual local markets and the number of banks lending in that market. We argue that these informational barriers can help to explain why entry into many local credit markets by domestic and foreign banks was slow, even after substantial deregulation. * The views expressed in this article are those of the authors and do not involve the responsibility of the Bank of Italy. The authors thank Franklin Allen, Dario Focarelli, Andrea Generale, Luigi Guiso, Francesca Lotti, Marco Pagano, Alberto Franco Pozzolo, Paola Sapienza, Alessandro Secchi, two anonymous referees and seminar participants at the Bank of Italy, the Federal Reserve of Chicago, the 2003 BIS Workshop on Applied Banking Research, the 2003 EARIE Conference, the First Banca d’Italia/CEPR Conference on Money, Banking and Finance, the 2004 FIRS Conference on Banking, Insurance and Intermediation and the 2004 EEA Meeting for their comments. The usual disclaimer applies to all of them.     

A century of equity premium predictability and the consumption–wealth ratio: An international perspective

This paper re-examines the predictive ability of the consumption–wealth ratio (cay) on the equity premium using hand-collected annual data spanning one century for four major economies. In addition to statistical tests of out-of-sample forecast accuracy, we measure the economic value of the predictive information in cay in a stylized asset allocation strategy. We find that cay does not contain predictive power prior to World War II, when a structural break occurs for all countries. In the postwar period, while statistical tests provide mixed evidence, economic criteria uncover substantial predictive power in cay, further enhanced when allowing for economically meaningful restrictions.     

Rock around the clock: An agent-based model of low- and high-frequency trading

We build an agent-based model to study how the interplay between low- and high-frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates flash crashes. In the model, low-frequency agents adopt trading rules based on chronological time and can switch between fundamentalist and chartist strategies. By contrast, high-frequency traders activation is event-driven and depends on price fluctuations. High-frequency traders use directional strategies to exploit market information produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore, we find that the presence of high-frequency traders increases market volatility and plays a fundamental role in the generation of flash crashes. The emergence of flash crashes is explained by two salient characteristics of high-frequency traders, i.e., their ability to i. generate high bid-ask spreads and ii. synchronize on the sell side of the limit order book. Finally, we find that higher rates of order cancellation by high-frequency traders increase the incidence of flash crashes but reduce their duration.     

A switching ARCH (SWARCH) model of stock market volatility: some evidence from Latin America

We use the Markov regime-switching ARCH (SWARCH) model of Hamilton and Susmel (J Econometrics 64:307–333, 1994) to document the presence of high volatility regimes in six Latin American countries (Argentina, Brazil, Chile, Mexico, Peru, and Venezuela). We found four high volatility episodes, each associated to either a local (the Mexican crisis of 1994, the Brazilian crisis of 1998–1999, the Argentinean crisis of 2001–2002) or a worldwide financial crisis (the Asian financial crisis of 1997). However, we found that the effects of each financial crisis are short-lived and that between 2 and 4 months after each crisis, all markets return to low volatility regimes.