Practical guidelines for the estimation and inference of a dynamic logistic model with fixed-effects

This paper shows how to simply compute one of the estimators proposed by Honoré and Kyriazidou (2000), as well as its variance, through a reshaping of the original dataset that is then used in a weighted logistic regression with clustering.     

Fractionalization

We provide new measures of ethnic, linguistic, and religious fractionalization for about 190 countries. These measures are more comprehensive than those previously used in the economics literature and we compare our new variables with those previously used. We also revisit the question of the effects of ethnic, linguistic, and religious heterogeneity on the quality of institutions and growth. We partly confirm and partly modify previous results. The patterns of cross-correlations between potential explanatory variables and their different degree of endogeneity makes it hard to make unqualified statements about competing explanations for economic growth and the quality of government. Our new data, which features the underlying group structure of ethnicities, religions and languages, also allows the computation of alternative measures of heterogeneity, and we turn to measures of polarization as an alternative to the commonly used index of fractionalization.     

Do Investors Pay Sufficient Attention to Banks’ Unrealized Gains and Losses on Available-for-sale Securities?

Abstract

Unrealized gains and losses on available-for-sale securities (AFSGL) are included in Other Comprehensive Income (OCI) and directly affect shareholders’ equity but are not included in earnings. We investigate whether unrealized AFSGL help predict future earnings and whether analysts and investors incorporate the information conveyed by unrealized AFSGL in a timely manner. We conduct our investigation on a sample of banks because unrealized AFSGL are material in the banking industry. First, we show that unrealized AFSGL are material and help in predicting next period realized AFSGL and future earnings change. Second, we document that financial analysts are slow to react to unrealized AFSGL and update their forecasts after AFSGL are realized in earnings. Third, we find that investors are also slow to react to unrealized AFSGL and do so only after AFSGL are included (realized) in earnings and after financial analysts update their forecasts. We document an annual difference of 5% in future abnormal returns between banks in the top and bottom quintiles of past unrealized AFSGL. A zero-cost trading strategy that relies on public information about unrealized AFSGL generates a sizeable monthly alpha that ranges between 1.8% and 1.9%.     

What Do We Know About Long–run Equilibrium Real Exchange Rates? PPPs vs Macroeconomic Approaches

Despite the fact that the presence of non tradable goods is one of the most frequently advanced reasons for the failure of PPP, the empirical analysis conducted in this paper shows that it explains only a very small portion of the long run behaviour of real exchange rates (RERs) in developed countries: in most cases, there appears to be a very strong long run relationship between RERs calculated on price indexes for tradables and non tradables. As a consequence, deviations from PPP usually appear to be as large for both kinds of goods. To a certain extent, this stylised fact is also verified in the case of the yen/dollar RER, yet formerly known as a typical illustration of the so–called Balassa–Samuelson effect. In this context, so–called macroeconomic approaches of ERERs may be viewed as an alternative to all versions of PPP. We develop a model which combines the contributions of the most fruitful dynamic approaches, namely the NATREX and the BEER. An estimate of this model shows that the main long run determinants of the dollar/euro RER are the rate of consumption and the level of technical progress of the euro area relative to the US.     

A Monte Carlo study of growth regressions

Using Monte Carlo simulations, this paper evaluates the bias properties of estimators commonly used to estimate growth regressions derived from the Solow model. We explicitly allow for measurement error, country-specific fixed effects and regressor endogeneity. An OLS estimator applied to a single cross-section of variables averaged over time (the between estimator) performs best in terms of the extent of bias on each of the estimated coefficients. Fixed-effects and the Arellano–Bond GMM estimator overstate the speed of convergence under a wide variety of assumptions, while the between estimator understates it. Finally, fixed effects and Arellano–Bond bias towards zero the slope estimates on the human and physical capital accumulation variables, while the between estimator and the Blundell–Bond system GMM estimator bias these coefficients upwards.      

Macroeconomic Volatility and Welfare in Developing Countries: An Introduction

Macroeconomic volatility, both a source and a reflection ofunderdevelopment, is a fundamental concern for developing countries.Their high aggregate instability results from a combinationof large external shocks, volatile macroeconomic policies, microeconomicrigidities, and weak institutions. Volatility entails a directwelfare cost for risk-averse individuals, as well as an indirectone through its adverse effect on income growth and development.This article provides a brief overview of the recent literatureon macroeconomic volatility in developing countries, highlightingits causes, consequences, and possible remedies. It then introducesthe contributions of a recent conference on the subject, sponsoredby the World Bank and Pompeu Fabra University, Barcelona.     

Online advertising and privacy

An online platform auctions an advertising slot. Several advertisers compete in the auction, and consumers differ in their preferences. Prior to the auction, the platform decides whether to allow advertisers to access information about consumers (disclosure) or not (privacy). Disclosure improves the match between advertisers and consumers but increases product prices, even without price‐discrimination. We provide conditions under which disclosure or privacy is privately and/or socially optimal. When advertisers compete on the downstream market, disclosure can lead to an increase or a decrease in product prices depending on the nature of the information.