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Solovian and New Growth Theory from the Perspective of Allyn Young on Macroeconomic Increasing Returns
Get PDFThis paper evaluates, from an Allyn Youngian perspective, the neoclassical Solow
model of growth and the associated empirical estimates of the sources of growth
based on it. It attempts to clarify Young’s particular concept of generalised or
macroeconomic “increasing returns” to show the limitations of a model of growth
based on an assumption that the aggregate production function is characterised by
constant returns to scale but “augmented” by exogenous technical progress. Young’s
concept of endogenous, self-sustaining growth is also shown to differ in important
respects (including in its policy implications) from modern endogenous growth
theory
Optimal Martingales and American Option Pricing
Get PDFPricing American options is an interesting research topic since there is no analytical solution to value these derivatives. Different numerical methods have been
proposed in the literature with some, if not all, either limited to a specific payoff
or not applicable to multidimensional cases. Applications of Monte Carlo methods to price American options is a relatively new area that started with Longstaff and Schwartz (2001). Since then, few variations of that methodology have been proposed. The general conclusion is that Monte Carlo estimators tend to underestimate the true option price. The present paper follows Glasserman and Yu (2004b) and proposes a novel Monte Carlo approach, based on designing "optimal martingales" to determine stopping times. We show that our martingale approach can also be
used to compute the dual as described in Rogers (2002)
Structural Interactions in Spatial Panels
Get PDFUntil recently, much effort has been devoted to the estimation of panel data regression models without adequate attention being paid to the drivers of diffusion and interaction across cross section and spatial units. We discuss some new methodologies in this emerging area and demonstrate their use in measurement and inferences on cross section and spatial interactions. Specifically, we
highlight the important distinction between spatial dependence driven by unobserved common factors and those based on a spatial weights matrix. We argue that, purely factor driven models of spatial dependence may be somewhat inadequate because of their connection with the exchangeability assumption.
Limitations and potential enhancements of the existing methods are discussed, and several directions for new research are highlighted
Both Sides of the Story: Skill-biased Technological Change, Labour Market Frictions, and Endogenous Two-Sided Heterogeneity
Get PDFThis paper presents a stylised framework to examine how skill-biased technological
change and labour market frictions affect the relationship between economic
expansion and unskilled unemployment. The first part of the analysis focuses on the
investment decisions in skill-acquisition and technology adoption activities faced by
workers and firms in response to the introduction of an innovative technology. The
second part examines how endogenous two-sided heterogeneity in the labour market
affects the macroeconomic outcomes in terms of unemployment, technological diffusion, and economic expansion. To conclude, the framework is used to discuss the effects of alternative forms of policy intervention on agents' investment decisions and on
the macroeconomic outcomes
Understanding Interactions in Social Networks and Committees
Get PDFWhile much of the literature on cross section dependence has focused mainly
on estimation of the regression coefficients in the underlying model, estimation and inferences on the magnitude and strength of spill-overs and interactions has been largely ignored. At the same time, such inferences are important in many applications, not least because they have structural interpretations and provide useful interpretation and structural explanation for the strength of any
interactions. In this paper we propose GMM methods designed to uncover underlying (hidden) interactions in social networks and committees. Special attention is paid to the interval censored regression model. Our methods are applied to a study of committee decision making within the Bank of
England’s monetary policy committee
Short-Run Strategies For Attracting Foreign Direct Investment
Get PDFThis paper empirically investigates the effectiveness and feasibility of two FDI policies, fiscal incentives and deregulation, aimed at improving the attractiveness of a country in the short run. Using disaggregated data on sales by US MNEs’ foreign affiliates in 43 developed and developing countries over the 1982-1994 period, results show that the provision of fiscal incentives or the deregulation
of the labour market would exert a positive impact on total FDI. Given the drawbacks frequently associated with the use of incentive packages, economy-wide policies which ease firing procedures
and reduce severance payments would certainly be the best policy option. This paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and
provides some support to recent theoretical models of FDI by showing that third country effects and spatial interdependence influence respectively the location of export-platform FDI and vertical FDI
Expressive Political Behaviour: Foundations, Scope and Implications
Get PDFA growing literature has focussed attention on ‘expressive’ rather than ‘instrumental’
behaviour in political settings - particularly voting A common criticism of the
expressive idea is that its myriad possibilities make it rather ad hoc and lacking in both predictive and normative bite. We agree that no single clear definition of expressive
behaviour has emerged to date, and no detailed foundations of specific expressive
motivations have been provided, so that there are rather few specific implications drawn from the analysis of expressive behaviour. In response, we provide a foundational discussion and definition of expressive behaviour that accounts for a range of factors.
We also discuss the content of expressive choice distinguishing between moral, social
and emotional cases, and relate this more general account to the specific theories of
expressive choice in the literature. Finally, we discuss the normative and institutional implications of expressive behaviour
Stochastic Search Variable Selection in Vector Error Correction Models with an Application to a Model of the UK Macroeconomy
Get PDFThis paper develops methods for Stochastic Search Variable Selection (currently popular with regression and Vector Autoregressive models) for Vector Error Correction models where there are many possible restrictions
on the cointegration space. We show how this allows the researcher to begin with a single unrestricted model and either do model
selection or model averaging in an automatic and computationally efficient manner. We apply our methods to a large UK macroeconomic
model
What Belongs Where? Variable Selection for Zero-Inflated Count Models with an Application to the Demand for Health Care
Get PDFThis paper develops stochastic search variable selection (SSVS) for zero-inflated
count models which are commonly used in health economics. This allows for either model averaging or model selection in situations with many potential
regressors. The proposed techniques are applied to a data set from Germany
considering the demand for health care. A package for the free statistical software environment R is provided
The Prospects for Activity in the UK Continental Shelf to 2040: the 2009 Perspective
Get PDFNORTH SEA STUDY OCCASIONAL PAPER
No. 11