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Central banks and house prices in the run-up to the crisis
Get PDFThe financial crisis and the role played within it by fluctuations in house prices has reopened the debate about whether monetary policy should respond to asset prices. This paper investigates how the central banks of the euro area, the UK and the US considered, understood and responded to the trends in house prices in the six or seven years preceding the crisis, and how they have analysed those developments since the crisis. It suggests that these central banks, particularly the Anglo-Saxon ones, might have been able to take some useful action if they had devoted more intellectual resources to analysing the possible misalignments of house prices and been willing to act on them
An Analysis of the Electoral Use of Policy on Law and Order by New Labour
Get PDFThere has been much debate regarding the electoral strategy adopted by New Labour in the lead-up to and then during their time in government. This paper addresses the issue from the perspective of left/right and libertarian/authoritarian considerations by examining data on individual attitudes from the British Social Attitudes survey between 1986 and 2009. The
analysis indicates that New Labour’s move towards the right on economic and public policy was the main driver towards attracting new centrist voters and could thus be labelled
‘broadly’ populist. The move towards a tougher stance on law and order was more ‘narrowly’ populist in that it was used more to minimise the reduction in support from Labour’s
traditional base on the left than to attract new votes
The Difference, System and ‘Double-D’ GMM Panel Estimators in the Presence of Structural Breaks
Get PDFThe effects of structural breaks in dynamic panels are more complicated than in time series models as the bias can be either negative or positive.
This paper focuses on the effects of mean shifts in otherwise stationary
processes within an instrumental variable panel estimation framework. We show the sources of the bias and a Monte Carlo analysis calibrated on United States bank lending data demonstrates the size of the bias for a
range of auto-regressive parameters. We also propose additional moment conditions that can be used to reduce the biases caused by shifts in the mean of the data
Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation
Get PDF‘Modern’ Phillips curve theories predict inflation is an integrated, or near
integrated, process. However, inflation appears bounded above and below in
developed economies and so cannot be ‘truly’ integrated and more likely
stationary around a shifting mean. If agents believe inflation is integrated as
in the ‘modern’ theories then they are making systematic errors concerning
the statistical process of inflation. An alternative theory of the Phillips curve
is developed that is consistent with the ‘true’ statistical process of inflation.
It is demonstrated that United States inflation data is consistent with the
alternative theory but not with the existing ‘modern’ theories
Large Time-Varying Parameter VARs
Get PDFIn this paper we develop methods for estimation and forecasting in large timevarying parameter vector autoregressive models (TVP-VARs). To overcome computational
constraints with likelihood-based estimation of large systems, we rely on Kalman
filter estimation with forgetting factors. We also draw on ideas from the dynamic model
averaging literature and extend the TVP-VAR so that its dimension can change over
time. A final extension lies in the development of a new method for estimating, in a time-varying manner, the parameter(s) of the shrinkage priors commonly-used with
large VARs. These extensions are operationalized through the use of forgetting factor methods and are, thus, computationally simple. An empirical application involving forecasting inflation, real output, and interest rates demonstrates the feasibility and usefulness of our approach
Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates
Get PDFThis paper reports on one of the first empirical attempts to investigate small
firm growth and survival, and their determinants, in the Peoples’ Republic of China.
The work is based on field work evidence gathered from a sample of 83 Chinese
private firms (mainly SMEs) collected initially by face-to-face interviews, and
subsequently by follow-up telephone interviews a year later. We extend the models
of Gibrat (1931) and Jovanovic (1982), which traditionally focus on size and age
alone (e.g. Brock and Evans, 1986), to a ‘comprehensive’ growth model with two
types of additional explanatory variables: firm-specific (e.g. business planning); and environmental (e.g. choice of location). We estimate two econometric models: a ‘basic’ age-size-growth model; and a ‘comprehensive’ growth model, using Heckman’s two-step regression procedure. Estimation is by log-linear regression on cross-section data, with corrections for sample selection bias and heteroskedasticity. Our results refute a pure Gibrat model (but support a more general variant) and support the learning model, as regards the consequences of size and age for growth; and our extension to a comprehensive model highlights the importance of location choice and customer orientation for the growth of Chinese private firms. In the latter
model, growth is explained by variables like planning, R&D orientation, market
competition, elasticity of demand etc. as well as by control variables. Our work on small firm growth achieves two things. First, it upholds the validity of ‘basic’ size-age-growth models, and successfully applies them to the Chinese economy. Second, it extends the compass of such models to a ‘comprehensive’ growth model incorporating firm-specific and environmental variables
Rebellion against Reason? A Study of Expressive Choice and Strikes
Get PDFIn this paper we challenge the conventional view that strikes are caused by asymmetric
information regarding rm profitability such that union members are uninformed. Instead,
we build an expressive model of strikes where the perception of unfairness provides the
expressive benefi t of voting for a strike. The model predicts that larger union size increases both wage offers and the incidence of strikes. Furthermore, while asymmetric information is still important in causing strikes, we find that it is the employer who is not fully informed about the level of emotionality within the union, thereby contributing to strike incidence.
An empirical test using UK data provides support for the predictions. In particular, union size has a positive effect on the incidence of strikes and other industrial actions even when asymmetric information regarding profitability is controlled for
Time Horizons And Smoothing In The Bank Of England’s Reaction Function: The Contrast Between The Standard GMM And Ex Ante Forecast Approaches
Get PDFThe monetary policy reaction function of the Bank of England is estimated by the standard GMM approach and the ex-ante forecast method developed by Goodhart (2005), with particular attention to the horizons for inflation and output at which each approach gives the best fit. The horizons for the ex-ante approach are much closer to what is implied by the Bank’s view of the transmission mechanism, while the GMM approach produces an implausibly slow adjustment of the interest rate, and suffers from a weak instruments problem. These findings suggest a strong preference for the ex-ante approach
Bayesian forecasting with highly correlated predictors
Get PDFThis paper considers Bayesian variable selection in regressions with a large
number of possibly highly correlated macroeconomic predictors. I show that by
acknowledging the correlation structure in the predictors can improve forecasts
over existing popular Bayesian variable selection algorithms
Native language, spoken language, translation and trade
Get PDFWe construct new series for common native language and common spoken language for 195 countries, which we use together with series for common official language and linguis-tic proximity in order to draw inferences about (1) the aggregate impact of all linguistic factors on bilateral trade, (2) whether the linguistic influences come from ethnicity and trust or ease of communication, and (3) in so far they come from ease of communication, to what extent trans-lation and interpreters play a role. The results show that the impact of linguistic factors, all together, is at least twice as great as the usual dummy variable for common language, resting on official language, would say. In addition, ease of communication is far more important than ethnicity and trust. Further, so far as ease of communication is at work, translation and inter-preters are extremely important. Finally, ethnicity and trust come into play largely because of immigrants and their influence is otherwise difficult to detect