Published Articles

2004 | 2005 | 2006 | 2010


Optimal regulation fo cooperative R&D under incomplete information
Isabelle Brocas
Entrepreneurial Boldness and Excessive Investment
Juan Carillo and Isabelle Brocas
Commitment Devices under Self-Control Problems: an Overview
Juan Carillo, Isabelle Brocas, and Mathias Dewatripont
Financing Consumption in an Aging Japan: The Role of Foreign Capital Inflows and Immigration
Robert Dekle
An Empirical and Institutional Examination of Post-Crisis Capital Flows--Thailand Case
Robert Dekle with Pongsak Hoontrakul
Exchange Rate Passthrough to Export Prices
Robert Dekle with Cathy Karchansai
The Economics of Happiness
Richard A. Easterlin
Life Satisfaction: Can We Produce It?
Richard A. Easterlin
A Puzzle for Adaptive Theory
Richard A. Easterlin
Randomization, endogeneity and laboratory experiments: the role of cash balances in private value auctions
John C. Ham, John H. Kagel, and Steven F. Lehrer
Robust estimation of generalized linear models with measurement errors
Tong Li and Cheng Hsiao
Demography and the Long-run Predictability of the Stock Market
Michael Magill
Maximum Score Estimation of a Nonstationary Binary Choice Model
Roger Hyungsik Moon
Efficient Estimation of the Seemingly Unrelated Regression Cointegration Model and Testing for Purchasing Power Parity
Roger Hyungsik Moon and Benoit Perron
Testing for a Unit Root in Panels with Dynamic Factors
Roger Hyungsik Moon and Benoit Perron
GMM Estimation of Autoregressive Roots Near Unity with Panel Data
Roger Hyungsik Moon and Peter C. B. Phillips
Leading Indicators, Institutions and the Development of Financial Markets in the MENA Region
Jeff Nugent with Ayman Kandeel
How Costly is it to Ignore Breaks When Forecasting the Direction of a Time Series?
Hashem M. Pesaran and Allan Timmermann
Modelling Regional Interdepencies using a Global Error-Correcting Macroeconometric Model
Hashem M. Pesaran and Scott Weiner



Brocas, Isabelle (2004). "Optimal regulation fo cooperative R&D under incomplete information", Journal of Industrial Economics, 52(1), pp. 81-119

Abstract: A regulator offers a cooperation contract to two firms to develop a research project. The contract provides incentives to encourage skill-sharing and coordinate subsequent efforts. Innovators must get informational rents to disclose their privately known skills, which results in distorting R&D efforts with respect to the first-best level. When efforts are strategic complements, both efforts are distorted downwards. By contrast, when efforts are strategic substitutes, the effort of the firm with most valuable skills is distorted downwards (to decrease rents) and the effort of the other firm is distorted upwards (to compensate the previous efficiency loss).


Carillo, Juan with Brocas, Isabelle (2004). "Entrepreneurial Boldness and Excessive Investment", Journal of Economics & Management Strategy, Vol. 13, pp. 321-350

Abstract: We analyze investment by a population of hyperbolic discounting entrepreneurs. In order to avoid inefficient procrastination, agents with good prospects about their chances of success may choose to forego free information and to invest boldly. This explains an excessive level of investment in the economy. Building on this observation, we show that low risk-free interest rates favor bold entrepreneurship and entry mistakes. Furthermore, public intervention can be socially desirable: Forcing agents to acquire information before deciding whether to invest may reduce competitive interest rates and may be beneficial for all individuals in the economy.


Carillo, Juan, Brocas, Isabelle, and Dewatripont, Mathias (2004). "Commitment Devices under Self-Control Problems: an Overview", The Psychology of Economic Decisions. Vol. 2: Reasons and Choices, chapter 4, Oxford University Press


Dekle, Robert (2004). "Financing Consumption in an Aging Japan: The Role of Foreign Capital Inflows and Immigration", Journal of Japanese and International Economies, 18, pp. 506-527

Abstract: We project the impact of demographic change on Japanese capital flows by simulating the impact of population aging on Japanese saving and investment rates. As aging depresses saving rates, in our baseline projections, we show that by 2015, foreign capital inflows will comprise about 15 percent of Japanese output. A distinguishing feature of this paper is that we compare the capital flows that occur without immigration to the capital inflows that would occur with immigration of 400,000 people annually. With the larger labor force from immigration and the large induced capital accumulation, output will be 22 percent higher by 2020, and 50 percent higher by 2040. The higher output means that less capital needs to be imported; by 2015, Japan will be importing only 8 percent of its output.
Keywords: Japan; Aging; Immigration; Capital inflows


Dekle, Robert with Hoontrakul, Pongsak (2004). "An Empirical and Institutional Examination of Post-Crisis Capital Flows--Thailand Case", Research in International Business and Finance

Abstract: In this paper, we developed and estimated a model of the Thai firm during the crisis. Our results indicate that firms with the highest debt-equity ratios suffered the steepest declines in earnings per share during the crisis from the financial distressed costs. We take this result as strong evidence for the credit channel. Surprisingly, firms with the largest market capitalizations suffered more than the smaller firms owing to their capital structure and financial leverage effect. We also witness asymmetric impact between the industries-exporters, importers and intermediate. We take this as evidence of different scale-effects on different industries, a feature that we do not explicitly model. In other words, the production effect is more pronouncing in import related industries than the export-oriented one. Note that firms that import intermediate goods also suffered greatly from the crisis from both credit and production channels. Taken together, our overall results indicate that the crisis damaged the earnings per share of firms more on credit channels than the production channels. There exists a peculiar tradeoff between benefits from currency devaluation to promote exports and severe adverse impact on both credit channel and asymmetric impact on production channel.
Keywords: Capital; Debt-equity ratios; Credit channel


Dekle, Robert with Karchansai, Cathy (2004). "Exchange Rate Passthrough to Export Prices" in Gordon De Brouwer and Masahiro Kawai, edited., Exchange Rate Regimes in East Asia


Easterlin, Richard A. (2004). "The Economics of Happiness", Daedalus, 133, Issue 2, 26-33

Abstract: Most of us, I think it is safe to say, would like to be happier, would like, indeed, to hold the 'keys to happiness.' For centuries the contemplation of this desire was the exclusive preserve of philosophers and theologians, who speculated and offered prescriptions on 'the good life.' Only fairly recently has it come into the domain of social science- first in psychiatry, where depression had been the object of concern, and then, since around 1950, in the mainstream social sciences. The impetus for social science research in this area during the last half century has been the development of population surveys inquiring into people's feelings of well-being. A very simple survey question, for example, might ask a respondent, "In general, how happy would you say you are-very happy, pretty happy, or not so happy?" Another question might be, "How satis- fied are you with your life as a whole- very, somewhat, so-so, not very, or not at all?"


Easterlin, Richard A. (2004). "Life Satisfaction: Can We Produce It?", in Wolfgang Glatzer, Susanne von Below, Matthias Stoffregen, eds., Challenges for Quality of Life in the Contemporary World, pp. 347-357, Kluwer Academic Publishers: Netherlands

Abstract: What do social survey data tell us about the determinants of life satisfaction? First, that the psychologists' setpoint model is questionable. Life events in the nonpecuniary domain, such as marriage, divorce, and serious disability, have a lasting effect on life satisfaction, and do not simply deflect the average person temporarily above or below a setpoint given by genetics and personality. Second, the assumption by economists that in the pecuniary domain "more is better", is problematic. An increase in income, and thus in the goods at one's disposal, does not bring with it a lasting increases in life satisfaction because of the negative effects of adaptation and social comparison on feelings of well-being.
Because individuals fail to anticipate the extent to which adaptation and social comparison undermine expected life satisfaction in the pecuniary domain, they allocate an excessive amount of time to monetary goals, and shortchange nonpecuniary ends such as family life and health, reducing their life satisfaction. Most people could increase their life satisfaction by devoting more time to family life and health, and less, to making money.


Easterlin, Richard A. (2004). "A Puzzle for Adaptive Theory", Journal of Economic Behavior & Organization, Vol 56, Issue 4, pp. 513-521

Abstract: Over the life cycle aspirations for material goods grow commensurately with consumer wealth. But aspirations for marriage and the number and "quality" of children do not change much. The puzzle is why there is this difference between life domains in the extent to which aspirations adapt to actual circumstances. The findings come from a cohort analysis of 1978 and 1994 survey responses on the good life.
Keywords: Aspirations; Adaptation; Good life
JEL Classification: D60


Ham, John C., Kagel, John H., and Lehrer, Steven F. (2004). "Randomization, endogeneity and laboratory experiments: the role of cash balances in private value auctions", Journal of Econometrics, 125, pp. 175-205

Abstract: From a theoretical perspective, cash balances are thought to play a role in common value auctions because of limited liability. However, they have also been found to be important in common value auctions where limited liability is not an issue. This paper investigates whether this effect carries over to private value auctions, since limited liability issues do not arise in private value auctions. We address the issue that cash balances are likely to be endogenous. We show that additional randomization can be used to reduce endogeneity problems and to improve the performance of our estimators. Further, we find that standard panel data econometric techniques are very useful in the analysis of data from laboratory experiments. Finally, we find that the cash balance effect does indeed carry over from common value auctions to private value auctions.


Li, Tong and Hsiao, Cheng (2004). "Robust estimation of generalized linear models with measurement errors", Journal of Econometrics, 118, pp. 51-65

Abstract: This paper considers consistent estimation of generalized linear models with covariate measurement errors. In contrast to the previous approach of assuming that measurement errors are normally distributed, we make no distributional assumptions on the latent variables or the measurement errors. Using the result of Li (J. Econometrics 110 (2002) 1) on the nonparametric identification and estimation of the distribution of the latent variables when replicate measurements are available, we propose to maximize the criterion based on an asymptotically corrected likelihood. We show that such an estimator is consistent. We also evaluate the finite sample performance of our estimator through a Monte Carlo study.


Magill, Michael, with Geanakoplos, J.D., and Quinzii, M. (2004). "Demography and the Long-run Predictability of the Stock Market", Brookings Papers on Economic Activity, 1, pp. 241-307


Moon, Roger Hyungsik (2004). "Maximum Score Estimation of a Nonstationary Binary Choice Model", Journal of Econometrics, Vol. 122, Issue 2, pp. 385-403

Abstract: This paper studies the estimation of a simple binary choice model in which explanatory variables include nonstationary variables and the distribution of the model is not known. We find a set of conditions under which the coefficients of the nonstationary variables are identified. We show that the maximum score estimator of the nonstationary coefficients is consistent.
JEL Classifications: C22, C25
Keywords: Maximum score estimation; Binary choice; Nonstationary explanatory variables


Moon, Roger Hyungsik and Perron, Benoit (2004). "Efficient Estimation of the Seemingly Unrelated Regression Cointegration Model and Testing for Purchasing Power Parity", Taylor & Francis, Vol. 23, No. 4, pp. 293-323

Abstract: This paper studies the efficient estimation of seemingly unrelated linear models with integrated regressors and stationary errors. We consider two cases. The first one has no common regressor among the equations. In this case, we show that by adding leads and lags of the first differences of the regressors and estimating this augmented dynamic regression model by generalized least squares using the long-run covariance matrix, we obtain an efficient estimator of the cointegrating vector that has a limiting mixed normal distribution. In the second case we consider, there is a common regressor to all equations, and we discuss efficient minimum distance estimation in this context. Simulation results suggests that our new estimator compares favorably with others already proposed in the literature. We apply these new estimators to the testing of the proportionality and symmetry conditions implied by purchasing power parity (PPP) among the G-7 countries. The tests based on the effi cient estimates easily reject the joint hypotheses of proportionality and symmetry for all countries with either the United States or Germany as numeraire. Based on individual tests, our results suggest that Canada and Germany are the most likely countries for which the proportionality condition holds, and that Italy and Japan for the symmetry condition relative to the United States.


Moon, Roger Hyungsik and Perron, Benoit (2004). "Testing for a Unit Root in Panels with Dynamic Factors", Journal of Econometrics, Vol. 122, Issue 1, pp. 81-126

Abstract: This paper studies testing for a unit root for large n and T panels in which the cross-sectional units are correlated. To model this cross-sectional correlation, we assume that the data are generated by an unknown number of unobservable common factors. We propose unit root tests in this environment and derive their (Gaussian) asymptotic distribution under the null hypothesis of a unit root and local alternatives. We show that these tests have significant asymptotic power when the model has no incidental trends. However, when there are incidental trends in the model and it is necessary to remove heterogeneous deterministic components, we show that these tests have no power against the same local alternatives. Through Monte Carlo simulations, we provide evidence on the finite sample properties of these new tests.
JEL Classifications: C21, C22, C23
Keywords: Unit root; Panel data; Factor models; Cross-sectional dependence; Local-to-unity asymptotics; Incidental trends


Moon, Roger Hyungsik and Phillips, Peter C. B. (2004). "GMM Estimation of Autoregressive Roots Near Unity with Panel Data", Econometrica, Vol. 72, Issue 2, pp. 467-522

Abstract: This paper investigates a generalized method of moments (GMM) approach to the estimation of autoregressive roots near unity with panel data and incidental deterministic trends. Such models arise in empirical econometric studies of firm size and in dynamic panel data modeling with weak instruments. The two moment conditions in the GMM approach are obtained by constructing bias corrections to the score functions under OLS and GLS detrending, respectively. It is shown that the moment condition under GLS detrending corresponds to taking the projected score on the Bhattacharya basis, linking the approach to recent work on projected score methods for models with infinite numbers of nuisance parameters (Waterman and Lindsay (1998)). Assuming that the localizing parameter takes a nonpositive value, we establish consistency of the GMM estimator and find its limiting distribution. A notable new finding is that the GMM estimator has convergence rate n^(1/6), slower than n^(1/2), when the true localizing parameter is zero (i.e., when there is a panel unit root) and the deterministic trends in the panel are linear. These results, which rely on boundary point asymptotics, point to the continued difficulty of distinguishing unit roots from local alternatives, even when there is an infinity of additional data.


Nugent, Jeff with Kandeel, Ayman (2004). "Leading Indicators, Institutions and the Development of Financial Markets in the MENA Region" in Heba Nassar and Haba El-Said, eds., Rising to the Challenge: International Crisis and Economic Management in Egypt, pp. 385-409, Center for Economic and Financial Research and Studies of Cairo University: Cairo


Pesaran, Hashem M. and Timmermann, Allan (2004). "How Costly is it to Ignore Breaks When Forecasting the Direction of a Time Series?", International Journal of Forecasting, Vol, 20, No. 3, July-August 2004, pp. 411-425

Abstract: Empirical evidence suggests that many macroeconomic and financial time series are subject to occasional structural breaks. In this paper we present analytical results quantifying the effects of such breaks on the correlation between the forecast and the realization and on the ability to forecast the sign or direction of a time-series that is subject to breaks. Our results suggest that it can be very costly to ignore breaks. Forecasting approaches that condition on the most recent break are likely to perform better over unconditional approaches that use expanding or rolling estimation windows provided that the break is reasonably large.
JEL Classification: C22, G10
Key Words: Sign prediction, estimation window, structural breaks.


Pesaran, Hashem M. and Weiner, Scott (2004). "Modelling Regional Interdepencies using a Global Error-Correcting Macroeconometric Model", Journal of Business and Economics Statistics, Vol. 22, Number 2, April 2004, pp 129-162, with Discussions

Abstract: Financial institutions are ultimately exposed to macroeconomic fluctuations in the global economy. This paper proposes and builds a compact global model capable of generating forecasts for a core set of macroeconomic factors (or variables) across a number of countries. The model explicitly allows for the interdependencies that exist between national and international factors. Individual region-specific vector error-correcting models are estimated, where the domestic variables are related to corresponding foreign variables constructed exclusively to match the international trade pattern of the country under consideration. The individual country models are then linked in a consistent and cohesive manner to generate forecasts for all the variables in the world economy simultaneously. The global model is estimated for 25 countries grouped into 11 regions using quarterly data over 1979Q1-99Q1. The degree of regional interdependencies is investigated via generalized impulse responses where the effects of shocks to a given variable in a given country on the rest of the world are provided. The model is then used to investigate the effects of various global risk scenarios on a bank's loan portfolio.
JEL Classification: C32, E17, G20. 
Key Words: Global interdependencies, global macroeconometric modeling, Credit loss distribution, Risk management, Global Vector Error Correcting Model.

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