Determinants of long-term growth: New results applying robust estimation and extreme bounds analysis

Two important problems exist in cross-country growth studies: outliers and model uncertainty. Employing Sala-i-Martin’s (1997a,b) data set, we first use robust estimation and analyze to what extent outliers influence OLS regressions. We then use both OLS and robust estimation techniques in applying the Extreme Bounds Analysis (EBA) to deal with the problem of model uncertainty. We find that the use of robust estimation affects the list of variables that are significant determinants of economic growth. Also the magnitude of the impact of these variables differs sometimes under the various approaches.First version received: March 2003 / Final version received: June 2004We like to thank two referees for their very helpful comments on a previous version of this paper. The usual disclaimer applies.     

Assessing the accuracy of the aggregate law of motion in models with heterogeneous agents

This paper shows that the R² and the standard error have fatal flaws and are inadequate accuracy tests. Using data from a Krusell–Smith economy, I show that approximations for the law of motion of aggregate capital, for which the true standard deviation of aggregate capital is up to 14% (119%) higher than the implied value and which are thus clearly inaccurate, can have an R² as high as 0.9999 (0.99). Key in generating a more powerful test is that predictions of the aggregate law of motion are not updated with the aggregated simulated individual data.     

Banking risk and regulation: Does one size fit all?

Using data for more than 200 banks from 21 OECD countries for the period 2002–2008, we examine the impact of bank regulation and supervision on banking risk using quantile regressions. In contrast to most previous research, we find that banking regulation and supervision has an effect on the risks of high-risk banks. However, most measures for bank regulation and supervision do not have a significant effect on low-risk banks. As banking risk and bank regulation and supervision are multi-faceted concepts, our measures for both concepts are constructed using factor analysis.     

On the relationship between Dutch and German interest rates

Summary In this paper the relationship between Dutch and German short-term and long-term interest rates is examined. Using cointegration techniques, it is found that the covered interest parity hypothesis holds for short-term interest rates. This evidence supports the recent shift of emphasis of Dutch monetary policy. It appears that the uncovered short-term interest differential is stationary. The long-term interest differential is stationary with a shift in mean. This does not imply that the uncovered interest parity (UIP) holds. Using the indirect approach suggested by Fama (1984), we show that a risk premium exists and that, therefore, UIP does not hold.The authors would like to thank H. Garretsen, L.H. Hoogduin, J. Jacobs, C.A. de Kam and two anonymous referees for their helpful comments on a previous version of this paper.Economic Bureau NMB-Postbank.     

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Price Anomalies in the Used Car Market

Summary Using two different samples – one based on newspaper advertisements, the other Internet-based – we identify some price anomalies in the used car market in the Netherlands. First, prices of used cars depend on their age in calendar years rather than months. Second, there is some evidence that crossing 100,000 km induces a sudden additional price reduction. Third, a new license plate format, something with no intrinsic value whatsoever, increases a car’s price by about 4%. We discuss possible explanations for these results.