Life Cycle Price Trends and Product Replacement: Implications for the Measurement of Inflation

The paper explores the extent to which products follow systematic pricing patterns over their life cycle and the impact this has on the measurement of inflation. Using a large U.S. scanner data set on supermarket products and applying flexible regression methods, we find that on average prices decline as items age. This life cycle price change is often attributed to quality difference in the construction of CPI as items are replaced due to disappearance or during sample rotations. This introduces a systematic bias in the measurement of inflation. For our data we find that the life cycle bias leads to the underestimation of inflation by around 0.30 percentage points each year for the products examined.     

Correcting for the Missing Rich: An Application to Wealth Survey Data

It is a well‐known criticism that if the distribution of wealth is highly concentrated, survey data are hardly reliable when it comes to analyzing the richest parts of society. This paper addresses this criticism by providing a general rationale of the underlying methodological problem as well as by proposing a specific methodological approach tailored to correcting the arising bias. We illustrate the latter approach by using Austrian data from the Household Finance and Consumption Survey. Specifically, we identify suitable parameter combinations by using a series of maximum‐likelihood estimates and appropriate goodness‐of‐fit tests to avoid arbitrariness with respect to the fitting of the Pareto distribution. Our results suggest that the alleged non‐observation bias is considerable, accounting for about one quarter of total net wealth in the case of Austria. The method developed in this paper can easily be applied to other countries where survey data on wealth are available.     

Wage Inequality and Wage Mobility in Europe

Using data from the European Union Statistics on Income and Living Conditions, this paper investigates wage inequality and wage mobility in Europe. Decomposing inequality into within‐ and between‐group inequality, we analyze to what extent wage inequality and mobility can be explained by observable characteristics. Furthermore, we investigate which individual and household characteristics determine transitions within the wage distribution. We find that overall, mobility reduces wage inequality. While a large part of wage inequality is due to unobservable characteristics, the equalizing effect of mobility mainly occurs within groups. Furthermore, both personal and household characteristics play an important role for wage transitions. Finally, our findings reveal large cross‐country differences across Europe.     

Philippine Infrastructure and Connectivity: Challenges and Reforms

The Philippines has performed creditably well in the past few years. Ensuring better infrastructure and connectivity is crucial in attaining inclusive growth. This will require substantial investments in infrastructure. Various reforms to address the infrastructure lack were implemented but there is scope for more reforms: improving fiscal space, reforming budgetary processes, improving public‐private partnerships (PPPs) and the regulatory environment, and better policy coordination to address problems of connectivity and infrastructure. The Philippines has to continuously improve the governance framework, ensure stability and predictability of policies and regulations. Better coordination among a diverse set of governmental infrastructure bodies, and also between government and the private sector is needed to address infrastructure bottlenecks.     

Explaining Foreign Holdings of Asia's Debt Securities: The Feldstein–Horioka Paradox Revisited*

In this paper, we find that home bias is still present in all economies and regions, especially in the case of short‐term debt securities, but that there are substantial variations among economies and regions in the strength of home bias, with the eurozone economies, the USA and developing Asia showing relatively weak home bias and advanced Asia, especially Japan, showing relatively strong home bias. We then examine trends over time in foreign holdings of debt securities and find that capital has been flowing from the USA and the eurozone economies to both advanced Asia (especially Japan) and developing Asia, and that foreign holdings of debt securities have been increasing in advanced as well as developing Asia but for different reasons. The main reason in the case of advanced Asia (especially Japan) appears to be higher risk‐adjusted returns, whereas the main reason in the case of developing Asia appears to be the growth of debt securities markets combined with relatively weak home bias and (in the case of short‐term securities) lower exchange rate volatility. Finally, we find that since the global financial crisis, foreign holdings of debt securities have declined (i.e. that home bias has strengthened) in all economies and regions except developing Asia, where they have increased (except for a temporary decline in 2008) but where their share is still much lower than the optimal share warranted by the capital asset pricing market model.     

South African Exporters and the Global Crisis: Intensive Margin Shock,Extensive Margin Hangover

This paper examines how changes at the intensive (established exporters exporting existing products to established markets) and the extensive (new exporters, products or markets) margins contribute to South African export growth and how this was affected by the global financial crisis. We find that the intensive margin is the more important contributor to export growth, contributing more than three quarters of observed growth. The intensive margin contracted significantly during the global financial crisis of 2009 but bounced back to pre‐crisis levels quickly. However, the impacts on the extensive margin persisted after the crisis with lower levels of entry of firms, new products and new destinations. The short‐term impact of the crisis was mitigated by the concentration of South African exports among larger, more productive super‐exporters. However, the fall in entry of new firms, products and destinations as a result of the crisis may mean that this concentration persists, and, at least over the next few years, South Africa does not diversify and broaden its exports.     

How does a Change in the Excise Tax on Beer Impact Beer Retail Prices in South Africa?

This article uses price data, collected by Statistics South Africa, to estimate the effect of a change in the excise tax on the retail price of beer. We find strong evidence that the excise tax on beer is overshifted to consumers. The pass‐through coefficient is estimated at 4.83 (95% CI: 4.02; 5.64) for lager, and at 4.77 (95% CI: 4.04; 5.50) for all beer (which includes dark beer). This implies that for every R1/unit increase in the excise tax, the retail price increases by about R4.80/unit. Of the 23 brand‐packaging combinations considered, the pass‐through coefficients vary between 2.39 and 10.05 (median = 5.30). The majority of the price change in response to a tax change occurs immediately, and prices have fully adjusted two months after the excise tax increase becomes effective. Pass‐through differs substantially across packaging types. The pass‐through coefficient on 750 ml bottles is substantially lower than that of 330 ml (or 340 ml) cans and 6 × 330 ml (or 6 × 340 ml) “six‐packs.” The overshifting of the excise tax has positive implications for public health policy, since they increase the effectiveness of alcohol taxes as a tool to reduce the (excessive) consumption of beer.     

Short‐selling constraints and corporate payout policy

This study shows that managers adjust corporate payout policies to counteract intensified short‐selling pressures following the removal of a short‐selling constraint. We use a controlled experiment, the Regulation SHO pilot program, to find that changing the short‐selling rule brings small companies to increase cash dividends, but not to repurchase more shares. Because paying dividends is costly, it is acknowledged as a more reliable signal of stock undervaluation than share repurchase. While our evidence suggests that companies select this payout strategy to deter predatory short sellers, it also shows that a short‐selling activity has a causal effect on corporate payout decisions.     

How Much Are Car Purchases Driven by Home Equity Withdrawal?

Previous research indicates that changes in housing wealth affect consumer spending on cars. We find that home equity extraction plays only a small role in this relationship. Consumers rarely use funds from equity extraction to purchase a car directly, even during the mid‐2000s’ housing boom; this finding holds across three nationally representative household surveys. We find in credit bureau data that equity extraction does lead to a statistically significant increase in auto loan originations, consistent with equity extraction easing borrowing constraints in the auto loan market. This channel, though, accounts for only a tiny share of overall car purchases.