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This paper investigates the impact of macroprudential policy announcements on financial stability in Europe. Our three financial (in)stability proxies are systemic risk measures that cover all types of financial institutions and consider various financial market segments. We find that the announcements of macroprudential policy actions only contain banking systemic risk with the latter computed based on market data. However, when measuring systemic risk by including both market and balance sheet data, we observe an increase in the systemic risk of all financial institutions, banks and non-banks. This last result is confirmed when considering non-diversifiable risk across financial market segments. [ABSTRACT FROM AUTHOR]

To which extent do equity and housing hedge against inflation? Despite the extensive literature, there is only little consensus. This paper presents evidence on this question from the Jordà–Schularick–Taylor Macrohistory Database covering 16 countries from 1870 to 2020. The results depend on the time horizon and period considered. Within a 1-, 5-, and 10-year horizon, housing at least partially hedges against inflation. The nominal return–inflation relation is higher in the post-war period. In the long run, housing hedges excessively in the whole sample and perfectly in the post-war period. Equity provides no hedge within 1 year in the entire period, and the returns tend to decrease with inflation in the post-war period. The hedge improves slightly with a longer time horizon and is perfect in the long run in the post-war period. Thus, housing is at least weakly superior in hedging against inflation. The results are robust to a non-housing consumption price index and an asset price appreciation approach. [ABSTRACT FROM AUTHOR]

The COVID-19 pandemics and the lockdowns imposed to mitigate the rise of infections beyond manageable levels strongly affected international trade. Although the health crisis and the mobility restrictions associated with lockdowns are closely related, their impacts on international trade have a different nature. This paper uses monthly firm-level trade data for Portuguese firms to measure the impact of partner countries' lockdowns on nominal export and import flows during 2020 and the first half of 2021, while also assessing the impact of the health crisis. The high time frequency and granularity of the data contribute to the identification of the impact of these obstacles on trade. We conclude that the detrimental impact of lockdowns is sizeable and broadly similar in exports and imports, and the impact of the health conditions is slightly stronger in exports. There is evidence that the detrimental impact of lockdowns was stronger for larger firms, for those with higher geographical concentration of trade, more integrated in global value chains and in the upper quartiles of the trade unit value distribution. The negative impact is also estimated to be larger for industries with high import content and for trade partners that are more important as sources of value added to be embodied in Portuguese exports. Results also suggest that exports adapted to the prevailing circumstances as of June 2020, but such an effect is not clear in imports. [ABSTRACT FROM AUTHOR]

The link between democracy and within-country income inequality remains an unresolved quest in the literature of political economy. To look into this debate, I propose exploring the implications of electoral systems, rather than political regimes, on income inequality. I surmise that proportional representation systems should be associated with lower income inequality than majoritarian or mixed systems. Further, I conjecture that the relationship between electoral systems and income inequality hinges on the de facto distribution of real political power, namely political equality. I use data on 85 countries covering the period 1960–2016 and specify models able to capture the persistence and mean reversion of income inequality. The estimates fail to significantly associate democracy with income inequality, and find other political institutions to significantly shape income inequality. The paper finds a robust association between more proportional systems and lower income inequality. However, this association depends on political equality. Changes towards proportional representation systems seem to lower income inequality at low and medium levels of political equality. Strikingly, instrumental variable estimates show that changes in electoral systems in political equal societies increases income inequality. [ABSTRACT FROM AUTHOR]

Energy planning and climate policy require understanding long-run energy demand patterns. Electricity demand further is important because energy services derived from electricity typically do not have substitution possibilities from other fuels. By employing dynamic panel models, we estimate the long-run price and output elasticities of aggregate industrial electricity demand for high-income (mostly OECD) and middle-income (mostly non-OECD) countries. The unbalanced data span 1978–2016 and include 35 high-income countries and 30 middle-income countries. Our dynamic panel estimates address nonstationarity, heterogeneity, and cross-sectional dependence. We believe these are the first such panel estimates for middle-income/non-OECD countries and among the few such estimates for high-income/OECD countries to appear in the literature. The output elasticity for high-income countries typically was significantly below unity, around 0.5, and the price elasticity was around − 0.25 (and was statistically significant). For middle-income countries, the output elasticity was greater than unity and was likely significantly larger than the output elasticity for high-income countries, whereas the price elasticity was small and insignificant for middle-income countries. [ABSTRACT FROM AUTHOR]

What drives external performance of countries? This is a recurring question in academia and policy circles. The factors underlying export growth are receiving great attention, as countries endeavoured to grow out of the crisis by increasing exports and as protectionist discourses take foot again. Despite decades of debates, it is still unclear what the common characteristics of countries that have a very good external performance are and, importantly, which ones policy makers can influence. We use Bayesian model averaging in a panel setting to investigate variables related to export market shares in 25 EU countries, considering a wide range of traditional indicators along with novel ones developed within the CompNet Competitiveness Research Network. We find that export market share growth is linked to different factors in the old and in the new member states, with one exception: for both groups, competitive pressures from China have strongly affected export performance since the early 2000s. In the case of old EU member states, investment, quality of institutions and available liquidity to firms also appear to play a role. For the new EU member states, labour and total factor productivity are particularly important, while inward FDI matters rather than domestic investment. Price competitiveness does not seem to play a very important role in either set of countries: relative export prices do show correlation with export performance for the new member states, but only when they are adjusted for quality. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to revisit the Granger causal relationship between banking sector development and economic growth for forty developing countries in the period 1970–2012. In order to capture the different aspects of banking sector development, we use two banking sector development indices and apply a panel bootstrap approach to Granger causality testing which takes into account cross-sectional dependence and heterogeneity issues. The empirical results show limited support for the supply-leading, demand-following and complementarity hypotheses, but provide evidence for a causal relationship between banking sector development and economic growth in twenty-five countries. [ABSTRACT FROM AUTHOR]

This paper sheds new light on the relationship between openness and industrial specialization. The roles of trade and financial openness, separately and in conjunction with each other, are unraveled to study specialization patterns for a panel of 30 countries for more than three decades. Results show that trade openness has a stronger association with industrial specialization in countries with a low degree of intra-industry trade, whereas financial openness has a stronger association with specialization in countries with more developed financial systems. Further, the effect of trade (financial) openness on specialization is enhanced by the level of financial (trade) openness. [ABSTRACT FROM AUTHOR]

The European debt crisis has emphasized the importance of a reliable assessment of the sustainability of fiscal balances. The literature on policy reaction functions interprets debt as sustainable if a rising debt-to-GDP ratio invokes a positive reaction in the primary surplus. In this study, I show in a panel framework that the persistence of debt-to-GDP ratios and the correlation of respective innovations with primary surpluses generate size distortions of t-tests for common policy reaction coefficients. An analysis of European data prior to 2009 reveals that these size distortions can potentially cause conventional inference techniques to spuriously signal sustainability of fiscal balances. In contrast, size-corrected bootstrap-based critical values allow for a timely detection of increased solvency risk. [ABSTRACT FROM AUTHOR]

This study estimates the effect of parenthood on the within-couple gender gap in paid sick leave. We find that as a result of parenthood, mothers more than double their sick leave compared with fathers. However, there is no corresponding effect on health measured by hospital stays. We also find that mothers' income trajectory is strongly related to the magnitude of the effect: A less favorable income trajectory is associated with a larger effect of parenthood on the sick leave gap. Since mothers' labor supply is measured 1 year prior to sick leave, this result suggests that the lower labor supply induces an increase in sick leave rather than the other way round. [ABSTRACT FROM AUTHOR]

Using monthly data for 10 euro area countries between 1999:01 and 2015:12, we take a new three-step methodological approach: first, we inspect the key determinants of 10-year government bond yield spreads; second, we compute country-specific time-varying coefficient models of spreads' determinants; third, we use these estimates as explanatory variables in panel regressions using output volatility as the dependent variable. We find that better fiscal positions or higher-than-expected economic growth prospects reduce the yield spreads, while increases in the VIX, bid-ask spread, debt-to-GDP ratio or real effective exchange rate appreciation increase the spreads. Moreover, the responsiveness of the yield spread determinants increased in the run-up to the global financial crisis. Finally, for the case of the budget balance and real growth (bid-ask spread, debt-to-GDP ratio, real effective exchange rate and VIX), the larger (higher) in absolute value the corresponding spread's responsiveness, the lower (higher) the economic volatility. [ABSTRACT FROM AUTHOR]

Migration is a space- and time-dependent phenomenon. Traditional geographical migration models have considered the distance between source and destination countries or have applied suitable normalizations to treat the correlation among migratory flows. To disentangle cross-sectional dependence, spatial correlation is explored in mainly two directions. First, migratory flows from "neighbouring" countries are considered to be directly interconnected. Second, a set for exogenous drivers are allowed to be correlated among the different economic units. Swiss immigration, from 153 source countries from 1981 to 2011, is modelled using a dynamic spatial econometric model able to capture both path-dependency and spatial interactions. An out-of-sample forecasting, performed to assess the model's accuracy, confirms the crucial role played by the spatial terms over the dynamic ones. [ABSTRACT FROM AUTHOR]

This paper studies stationarity and cointegration of healthcare expenditure (HE) and GDP for a sample of OECD countries. In particular, we employ newly developed unit root and cointegration tests which approximate an unknown number of smooth structural shifts in the low-frequency components of a Fourier expansion. The new unit root test indicates that HE and GDP are non-stationary. In the presence of a number of smooth shifts in the cointegration regression, our empirical results support the existence of stochastic comovement between HE and GDP in 14 out of 20 OECD countries. In addition, we examine the income elasticity of HE for the countries that we found cointegration relationship between HE and GDP. We found 13 out of 14 countries with income elasticity of HE higher than 1, which implies that health care is a luxury good. [ABSTRACT FROM AUTHOR]

This paper examines the effects of drug-related crimes on employment in Mexico at the state level during the period 2005–2014. Results indicate that such crimes have a negative impact on employment. We are able to decompose employment into low-skilled and high-skilled employment, and results are heterogeneous among both types of employment. Results indicate that a 10% increase in drug-related crimes reduces total employment up to 0.9%. Additionally, our empirical findings indicate that high-skilled employment is more sensitive to an increase in drug-related violence than low-skilled employment. Low-skilled employment decreases up to 0.3%, while skilled employment declines up to 1.5% when drug-related violence increases by 10%. It is also found that skilled employment responds at an increasing rate when drug violence skyrockets. We also find that a rise in drug-related crimes increases wages as a mechanism to retain jobs in violent places. [ABSTRACT FROM AUTHOR]

This paper presents new evidence on the dynamic treatment effects of class attendance on academic performance. The analysis is based on a dataset from a large introductory statistics course and a dynamic modeling framework of Ding and Lehrer (Rev Econ Stat 92(1):31–42, 2010). The course had seven progressive assessments spread across a thirteen-week semester. Assessment test scores were matched to individual student attendance records. We use a panel dataset to study the dynamic interactions over time and between learning activities including lectures and tutorials, while accounting for reverse causality and self-selection without resorting to instruments for attendance or discontinuity design. Class attendance is found to have a test score return rate of 1.3 percentage points per lecture and 1 percentage point per tutorial. For both lecture and tutorial attendances, the contemporaneous effect dominates the lagged effect, with the effects accumulating over time. We also find a substitution rather than complementarity effect between lecture attendance and tutorial attendance, but the former has a stronger effect on test scores than the latter. Our results also show these effects are stronger for under-performing students. [ABSTRACT FROM AUTHOR]

The rates of childhood obesity have increased dramatically in the last few decades. Non-causal evidence suggests that childhood obesity is highly persistent over the life cycle. However, little is known about the origins of this persistence. This paper examines the evolution of anthropometric measures from birth through primary school. We provide estimates of the causal effect of past anthropometric outcomes on future anthropometric outcomes (state dependence) and investigate the importance of time-varying and time-invariant factors in the dynamics of childhood anthropometric measures. We find that anthropometric measures are highly persistent from infancy through primary school. Moreover, most of this persistence is driven by time-invariant, unobserved factors that are determined prior to birth, consistent with the so-called fetal origins hypothesis. Thus, policy interventions designed to improve childhood obesity will only have meaningful, long-run effects if these time-invariant, unobserved factors are altered. Future research is needed to identify such factors, although evidence suggests that maternal nutrition may play an important role. [ABSTRACT FROM AUTHOR]

'Modern' theories of the Phillips curve inadvertently imply that inflation is an integrated or near-integrated process, but this implication is strongly rejected using US data. Alternatively, if we assume that inflation is a stationary process around a shifting mean (due to changes in monetary policy), then any estimate of long-run relationships in the data will suffer from a 'small-sample' problem as there are too few stationary inflation 'regimes'. Using the extensive literature on identification of structural breaks, we identify inflation regimes which are used in turn to estimate with panel data techniques the US long-run Phillips curve. [ABSTRACT FROM AUTHOR]

This paper reports findings from a study that has collected data on the expectations of Croatian stock market participants regarding the future level of the Croatian equity index CROBEX. The data are described and analyzed as a three-dimensional panel with multiple individual forecasters, target years, and forecast horizons. The results suggest that the panel under study has not been rational in predicting the index values. Forecasters tend to be biased, with a general tendency to overpredict the real index values in the sampled period. Some forecasters fail the test of efficiency by having a correlation between the forecast error and the past CROBEX value or Croatia's industrial production which was known to the forecaster at the time the forecast was made. Also, there is considerable individual heterogeneity. The framework used for analyzing the panel data also provided the means to distinguish between shocks and anticipated changes and to calculate them, as well as to calculate the implied volatility measures. [ABSTRACT FROM AUTHOR]

Employing a panel vector autoregression (PVAR) methodology, the paper addresses the nexus between military expenditures and two key macroeconomic variables, namely growth rates and investment spending using SIPRI's new consistent time series dataset. Given data constraints, the sample chosen was a compromise between T and N for the empirical tests conducted. It consists of 65 countries and covers the period 1971-2014 that allows for a total of 2730 observations. The PVAR model is estimated for the entire sample as well as three income group sub-samples. Findings reported herein are not uniformed, and noteworthy differences between the three income groups were unearthed by the empirical tests conducted. [ABSTRACT FROM AUTHOR]

The paper empirically investigated the relationship between remittance flows and output growth volatility for an extensive sample predominated by emerging and developing countries. Following this broad treatment, it goes further to estimate the extent to which the degree of financial development (FD) impacts on the remittances-growth volatility nexus. This novelty distinguishes the work from previous studies. Using the system-generalized method of moments estimator, which corrects for endogenity and omitted variable concerns, on data spanning the period 1996-2012 for a total of 71 countries some interesting findings ensued. One, both remittances and FD had growth volatility dampening effects. Two, the interaction between proxies for FD and remittances produced mixed results. Three, when volatility of FD is accounted for, the interactive term had mixed results. For instance, banking sector credit produces positive and insignificant coefficients, while private sector produced significant and negative coefficients. Summarily putting these results in other words, the counter-cyclicality of remittances was established, while the complementary dampening effect of financial development is dependent upon its measure. On the basis of the foregoing, a few related policy lessons are documented to conclude the paper. [ABSTRACT FROM AUTHOR]

We respond to the new article by Hayo, Neumeier, and Westphal (HNW), which is a critique of our 2006 article. The principal contribution of that article was to use a greatly improved proxy for gun prevalence to estimate the effect of gun prevalence on homicide rates. While the best available, our proxy, the ratio of firearms suicides to total suicides in a jurisdiction (FSS), is subject to measurement error which limits its use to larger jurisdictions that have enough suicides to stabilize the ratio. In this response, we report estimates for four different specifications and two data sets, the 200-county data and the data for the 50 states. We develop the claim that measurement error in FSS helps explain the observed pattern of results. Adopting the assumption that FSS follows a binomial process with a number of trials equal to the number of suicides, we characterize the relationship between measurement error and size of the jurisdiction, and thereby justify our conclusion that restricting the estimation to large jurisdictions reduces measurement error in FSS and hence the attenuation bias in the key coefficient estimate. We conclude that for the county-level data, the measurement error in FSS is of greater concern than using a specification that is flexible with respect to population. HNW focus on the latter but at the cost of increasing the effects of the former. We then demonstrate that the state-level data provide a robust case that more guns lead to more homicides. [ABSTRACT FROM AUTHOR]

In the light of the unconventional monetary policies implemented by most large central banks around the world, there is an intense debate about the potential impact on the prices of capital assets. Particularly in Germany, skepticism about the sustainability of the current policy by the European Central Bank is wide spread and concerns about the emergence of a speculative price bubble in the housing market are increasing. The present study analyzes a comprehensive data set covering 127 large German cities from 1990 through 2013, using tests for speculative bubbles, both at a national and city level. Furthermore, we apply two new testing approaches: panel-data and principal components versions of explosive root tests. We find evidence for explosive price increases in many cities. However, it is only in select urban housing markets that prices decouple from their fundamental values. There is no evidence for speculative price movements nationally. [ABSTRACT FROM AUTHOR]

We investigate the propagation of financial turbulence via trade, capital flows, and distance channels in the pre-crisis and Global Financial Crisis periods by modeling spillover and interdependence effects, using spatial econometric techniques. Financial turbulence is proxied by the ratio of nonperforming loans to total loans in a country. Spillover effects are defined as significant changes in the linkages between countries due to a shock, and interdependence effects as strong linkages among pairs of countries independent of shocks. Using annual data of 40 countries from 2003 to 2010, we find that interdependence and spillover effects should be jointly analyzed. Furthermore, our results suggest that the capital flows channel is more important than the other two channels in capturing propagation of financial turbulence. By deriving what is known in the spatial econometrics literature as direct and indirect effect estimates, we show that the marginal effects of macroeconomic variables (like GDP growth, inflation, and credit growth) on financial turbulence take different forms during a crisis than in tranquil periods. [ABSTRACT FROM AUTHOR]

This paper focuses on a three-dimensional model that combines two different types of spatial interaction effects, i.e. endogenous interaction effects via a spatial lag on the dependent variable and interaction effects among the disturbances via a spatial moving average (SMA) nested random effects errors. A three-stage procedure is proposed to estimate the parameters. In a first stage, the spatial lag panel data model is estimated using an instrumental variable (IV) estimator. In a second stage, a generalized moments (GM) approach is developed to estimate the SMA parameter and the variance components of the disturbance process using IV residuals from the first stage. In a third stage, to purge the equation of the specific structure of the disturbances a Cochrane-Orcutt-type transformation is applied combined with the IV principle. This leads to the GM spatial IV estimator and the regression parameter estimates. Monte Carlo simulations show that our estimators are not very different in terms of root mean square error from those produced by maximum likelihood. The approach is applied to European Union regional employment data for regions nested within countries. [ABSTRACT FROM AUTHOR]

This paper proposes a generalized spatial panel-data probit model with spatial autocorrelation of the dependent variable, the time-invariant individual shocks, and the remainder disturbances. It proposes its estimation with a Bayesian Markov chain Monte Carlo procedure. Simulation results show that the proposed estimation method performs well in small- to medium-sized samples. This method is then applied to the analysis of export-market participation of 1451 Chinese firms between 2002 and 2006 in the prefecture-level city of Wenzhou in the province of Zhejiang. Empirical results show that two of the three forms of the hypothesized spatial autocorrelation are significant, namely the spatial lag for the dependent variable and the time-invariant firm-specific shocks, but not the time-variant shocks. Ignoring any of these significant spatial effects would lead to misspecification. [ABSTRACT FROM AUTHOR]

This paper examines the long-run effect of the level of foreign direct investment (FDI) on the level of total factor productivity (TFP) for 49 developing countries for the period 1981–2011 using panel cointegration and causality techniques. It is found that (i) FDI has, on average, a negative long-run effect on TFP in developing countries, (ii) long-run causality runs in only one direction, from FDI to TFP, (iii) in the short run, TFP has a negative effect on FDI, and (iv) the long-run effect of FDI of TFP differs between selected groups of countries: While the estimated long-run FDI–TFP coefficients are always relatively large, negative, and significant for countries with lower levels of human capital, financial development, and trade openness, the estimated effects are relatively small, insignificant, or even significantly positive for subgroups of countries with higher levels of human capital, financial development, and trade openness. [ABSTRACT FROM AUTHOR]

Literature on convergence in inequality is sparse and has almost entirely focused on the notion of testing beta convergence in the Gini indices. In this paper, for the first time, we test for sigma convergence in decile income shares across countries. We compile panel data on decile income shares for more than 60 countries over the last 25 years. Regardless of the level of development, within-country inequality increased; income shares of the poorest deciles declined and those of the top decile increased significantly. Importantly, the decile income shares exhibited a statistically significant decline in dispersion between 1985 and 2011, providing strong evidence of sigma convergence in inequality. Convergence was more prominent among developing countries and less so among developed countries. The findings are robust to an array of sensitivity tests. Our analysis suggests that cross-country income distributions became more unequal but noticeably similar over time. [ABSTRACT FROM AUTHOR]

We consider a model for matched data with two types of unobserved effects: a random effect related to the main observational unit and a random or fixed effect related to a secondary unit to which the main unit is matched. In typical applications, e.g., on registry data, there is a curse of dimensionality which we propose to mitigate using an iterative feasible GLS approach on variables subjected to the Helmert transformation. Control functions allow for correlation between the explanatory variables and the random effects. This approach is illustrated by a wage equation with unobserved individual- and firm-specific effects and an endogenous years-of-schooling variable. [ABSTRACT FROM AUTHOR]

We show that risk plays an important role in estimating the adjustment of the firm's capital structure. We find that the adjustment process is asymmetric and depends on the type of risk, its magnitude, the firm's current leverage, and its financial status. We also show that firms with financial surpluses and above-target leverage adjust their leverage more rapidly when firm-specific risk is low and when macroeconomic risk is high. Firms with financial deficits and below-target leverage adjust their capital structure more quickly when both types of risks are low. Our investigation suggests that models without risk factors yield biased results. [ABSTRACT FROM AUTHOR]

GMM estimation of autoregressive equations in error-ridden variables with error memory is considered in exploring the impact of foreign direct investment (FDI) on GDP from country panel data, contrasting, inter alia, the manufacturing and the service sector. To evaluate finite-sample properties of the methods selected, results from Monte Carlo simulations are reported. Contrary to the previous findings, no negative spillover effects from the service FDI on manufacturing GDP growth are obtained; the estimates indicate a positive effect, while (surprisingly) the effect of service FDI on the service GDP growth comes out as insignificant. Overall conclusions are: (1) Aggregate FDI has a positive, but insignificant effect on aggregate GDP based on the full country panel; (2) for the developing Asian countries, FDI significantly improves GDP growth; and (3) manufacturing FDI impacts both manufacturing and service GDP growth positively. [ABSTRACT FROM AUTHOR]

This paper applies panel cointegration tests and panel vector error correction models to investigate the interrelationship among the banking sector, insurance market, and regional output based on the samples from 25 Chinese provinces. We first find that there is a fairly strong long-run cointegrating relationship among real GDP, banking credit, and real insurance premiums. Second, both insurance markets (life and non-life) and the banking sector have a positive effect on real output. Third, we determine that banking activities and economic growth exhibit long-run and short-run bidirectional causalities. Fourth, there is fairly strong evidence in favor of the hypothesis for the long-run bidirectional causal relationships between insurance premiums and economic growth, taking into account the critical channel of the banking sector. Finally, we provide some beneficial suggestions for investors and policy-makers. [ABSTRACT FROM AUTHOR]

This paper proposes a hurdle model of repayment behaviour in loans with fixed instalments. Using information on previous and current contracts, the approach yields a model of customer behaviour, useful, for example, in assessing the impact of determinants of default, a natural concern for credit and behavioural scoring. Under plausible assumptions, a debtor in each period faces a number of missed payments, which depends on his previous repayment decisions; meanwhile, as most debtors are expected to meet financial obligations, the number of missed payments is bound to display excess zeros, with reference to a single-part law. Each sequence of missed payments is modelled by using the binomial thinning, a conceptual tool that allows for dependence between integers by defining the support of consecutive counts. Under suitable assumptions on heterogeneity, the model can be produced under a random effects approach, leading to a two-part panel data model, estimable by quasi-maximum likelihood. The proposed approach is illustrated using a panel data set on personal loans granted by a Portuguese bank. [ABSTRACT FROM AUTHOR]

The article looks that the impact of public and human capital in production functions of 48 U.S. states. Topics discussed include the production function formula that involves total factor productivity (TFC), computation of public capital and human capital in the states through the Pesaran's cross-sectional dependence (CD), and results revealed states with highest positive elasticities in public capital like Alabama, Kansas and Arizona.

This paper derives panel unit root tests, based on the unit root tests in single time series by He and Sandberg (Oxf Bull Econ Stat 68:835-861, 2006), in a nonlinear dynamic heterogeneous panel accommodating smooth structural changes in the intercepts, in the dynamics, and in the trends. The finite sample size properties of the tests are satisfactory, and the tests are conspicuously more powerful than the panel data unit root tests by Im et al. (J Econom 115:53-74, 2003; Bull Econ Stat 67:393-419, 2005), and Pesaran (J Appl Econom 22:265-312, 2007) in panels subject to structural changes. To accommodate panels with cross-section-dependent idiosyncratic errors, a bootstrap version of the tests is considered. The tests are applied to unemployment rates in Scandinavia, and strong evidence against the hysteresis hypothesis is found. This is not the case if panel unit root tests based on a linear panel or a nonlinear panel with a break in the intercept are applied. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between alcohol consumption and divorces in 23 OECD countries from 1960 to 2010. We employ the differenced fixed-effect panel regression and panel vector error-correction models. We establish a significant unidirectional Granger causality from alcohol consumption to divorce rates across countries. Furthermore, we discover a long-run equilibrium relation between divorce rates and alcohol consumption. The results are robust, since they do not change even if we include other socioeconomic factors in the regression. [ABSTRACT FROM AUTHOR]

A recent Monte Carlo study claims that the BE estimator outperforms other panel estimators in terms of average estimation bias in a dynamic specification of the Solow model in levels (Hauk and Wacziarg in J Econ Growth 14(2):103-147, ). Our simulation results show that the reported performance of the BE estimator depends on the selected parameterization of the data generating process. Using alternative parameter values, a different model specification, and a restricted cross-section estimator, we find that the BE estimator tends to produce a coefficient of the lagged endogenous variable that is biased toward 1. [ABSTRACT FROM AUTHOR]

Unilateral preferences aim at increasing exports from developing countries via reductions on applied tariffs and the incentives created by the preference margin. After decades of existence, the evidence as to the extent to which preferential schemes have been genuinely effective in increasing exports is mixed. This paper evaluates the impact of the European Union's (EU) unilateral preferential regimes on the exports of developing countries using a bilateral gravity model at the product level. We use a unique dataset that allows us to determine the actual tariff rate paid by each export flow at the product level (combined nomenclature CN-10 digits) to the EU and the preferential regime of entry. This allows us to accurately specify the impact of each trade regime and to properly address the issue of utilisation and non-utilisation of trade preferences. The most important findings of the paper are that unilateral preferences have been effective in increasing exports to the EU both as a result of the direct effect of lower tariffs and positive preference margin, and because of secondary effects associated with the preference regimes; although the outcome of these secondary effects depends on the margin of trade considered. [ABSTRACT FROM AUTHOR]

Many empirical gravity models are now based on generalized linear models (GLM), of which the poisson pseudo-maximum likelihood estimator is a prominent example and the most frequently used estimator. Previous literature on the performance of these estimators has primarily focussed on the role of the variance function for the estimators' behavior. We add to this literature by studying the small sample performance of estimators in a data-generating process that is fully consistent with general equilibrium economic models of international trade. Economic theory suggests that (1) importer- and exporter-specific effects need to be accounted for in estimation, and (2) that they are correlated with bilateral trade costs through general equilibrium (or balance-of-payments) restrictions. We compare the performance of structural estimators, fixed effects estimators, and quasi-differences estimators in such settings, using the GLM approach as a unifying framework. [ABSTRACT FROM AUTHOR]

Cultural factors and common languages are well-known determinants of trade. By contrast, the knowledge of foreign languages was not explored in the literature so far. We combine traditional gravity models with data on fluency in the main languages used in EU and candidate countries. We show that widespread knowledge of languages is an important determinant for foreign trade, with English playing an especially important role. The robustness of our results is confirmed by quantile regressions. [ABSTRACT FROM AUTHOR]

Credible inference requires attention to the possible fragility of the results ( $$p$$ values for key hypothesis tests) to flaws in the model assumptions, notably accounting for the validity of the instruments used. Past sensitivity analysis has mainly consisted of experimentation with alternative model specifications and with tests of over-identifying restrictions which actually presuppose instrument validity. We provide a feasible sensitivity analysis of two-stage least-squares and GMM estimation, quantifying the fragility/robustness of inference with respect to possible flaws in the exogeneity assumptions made, and also indicating which of these assumptions are most crucial. The method is illustrated via application to a well-known study of the education-earnings relationship. [ABSTRACT FROM AUTHOR]

This paper aims to shed light on the characteristics and particularly the determinants of credit-less recoveries. After documenting some stylised facts of credit-less recoveries in emerging market economies, this paper uses panel probit models to analyse key determinants of credit-less recoveries. Our main findings are the following. First, our frequency analysis shows that credit-less recoveries are not unusual. Moreover, the frequency of credit-less recoveries doubles after a banking or currency crisis. Second, results from estimated panel probit models suggest that credit-less recoveries are typically preceded by large declines in economic activity and by financial stress, in particular if private sector indebtedness is high and the country is reliant of foreign capital inflows. Finally, our model performs well in predicting the credit-less recoveries experienced by emerging market economies in recent years. [ABSTRACT FROM AUTHOR]

Major economic events, such as the global financial crisis, are episodes of identifiable duration that differ from other time periods. Using monthly data on the unemployment rate, labour force participation rate and employment for Australia for the period from 1978 to 2012, we estimate a Markov-switching SVAR model to examine the relationship between unemployment and labour force participation and the performance of the Australian labour market. Three distinct labour market regimes are identified. We find that the labour market switches between periods of low unemployment and high participation, prolonged periods of relative stability and short, sharp periods of high unemployment and low participation. A key finding is that, due to the behaviour of workers not in the labour force, the long-term effect of an upswing in labour hiring results in a lower unemployment rate and a lower labour force participation rate. [ABSTRACT FROM AUTHOR]

This paper evaluates the fiscal sustainability hypothesis for eight Latin American countries for the period 1960-2009: Argentina, Chile, Colombia, Ecuador, Panama, Peru, Paraguay and Uruguay. Using second-generation cointegration panel data models, we test whether government revenues and primary expenditures are sustainable in the long run. This methodology allows for cross-sectional dependence among countries and is appropriate under the existence of potential structural breaks. We found empirical evidence of fiscal sustainability for these Latin American countries but only in a weak sense. [ABSTRACT FROM AUTHOR]

This paper uses longitudinal data from the PSID and the BHPS to examine native-immigrant earnings differentials throughout the conditional wage distribution, while controlling for individual heterogeneity. We employ quantile regression techniques to estimate conditional quantile functions for longitudinal data. We show that country of origin, country of residence, and gender are all important determinants of earnings differentials. A large wage penalty occurs in the USA among female immigrants from non-English speaking countries, and the penalty is most negative among the lowest (conditional) wages. On the other hand, women in Britain experience hardly any immigrant-native wage differential. We find evidence suggesting that immigrant men in the USA earn lower wages, while British workers emigrating from English-speaking countries earn higher wages. The various differentials we report in this paper reveal the value of employing panel data quantile regression in estimating and better understanding immigrant wage effects. [ABSTRACT FROM AUTHOR]

Generalized Method of Moments (GMM) estimation is discussed under the joint occurrence of fixed effects and random measurement errors in an autoregressive panel data model. Finite memory of measurement errors is allowed for. Two GMM specializations are considered: (i) using instruments (IVs) in levels for a differenced version of the equation and (ii) using IVs in differences for the level version. Index sets for lags and leads are convenient in examining how the potential IV-set is affected by changes in the memory pattern. While measurement errors with long memory may give an IV-set too small for identification, problems of 'IV proliferation' and 'weak IVs' may arise unless the panel is short. An application based on data for (log-transformed) capital stock and output from Norwegian manufacturing firms, supplemented with Monte Carlo simulations, to illustrate finite sample biases, is considered. Overall, with respect to bias and IV strength, GMM specialization (ii) seems superior to inference using GMM specialization (i). [ABSTRACT FROM AUTHOR]

The paper proposes the use of panel data unit-root tests to assess market-share instability in order to obtain indications of industry dynamics. The idea is to consider movements in market shares as much more than mere elements of the market structure. In fact, these movements reflect conduct that arises from that market. If shares are mean-reverting, then firm actions have only a temporary effect on shares. On the other hand, if shares are evolving, as signaled by the presence of unit roots, then any gain in shares with respect to the competitors is long term. To illustrate the potential of unit-roots tests, the paper considers an application to the Italian retail banking industry. [ABSTRACT FROM AUTHOR]

This paper introduces a new approach to examine the relationship between income and democracy by employing panel count data models to explicitly allow for the fact that the primary indices of democracy are non-negative integers with upper bounds. We find evidence that though income and democracy are positively related the magnitude of the coefficient is extremely small implying that there is no evidence of a causal effect, and thus there is no support for the modernization hypothesis. Moreover, once we control for income endogeneity, the relationship between income and democracy turns to be insignificant or even negative. [ABSTRACT FROM AUTHOR]

In recent years, different alternatives have been suggested to specify and estimate gravity models for bilateral trade. Presently, the so-called Poisson pseudomaximum likelihood (PPML) with log-linear index is probably the most commonly used method. A method is proposed for panel data that targets to reconcile the pros and cons of fixed and random effects models, respectively. It applies equally to two- and three-way panel models and those with country-specific time-varying effects. It allows to filter out potential correlation between observed and unobserved heterogeneity and to identify the effects of time-invariant factors. It can also be used when panels are short in time, and to other specifications than the PPML-like gamma PML, zero-inflated, or Tobit-like models. We introduce and illustrate the proposed estimator with a study of bilateral trade flows across the European Union before the recent economic crisis. [ABSTRACT FROM AUTHOR]

This paper modifies the Cornwell, Schmidt and Sickles [CSS (J Econom 46:185-200, )] time-varying specification of technical efficiency to allow for switching patterns in temporal changes, which may occur more than once during the sample period. For this purpose, we move from the (second-order) polynomial specification of the standard CSS to a spline function setup, while keeping CSS's flexibility regarding the cross-sectional dimension. The spline function specification of the temporal pattern of technical efficiency can accommodate more than one turning point and thus can be non-monotonic. This allows the modeler to account for firm or individual efficiency gains that can occur relatively quickly, for example, changes related to regulation or policy changes, as well as those related to ownership/organization changes (e.g., merger or acquisitions). [ABSTRACT FROM AUTHOR]

This paper investigates the degree of market competition in the banking industries of 17 Central and Eastern European (CEE) countries over the period 1994-2008, using the H statistic proposed by Panzar and Rosse (J Ind Econ 35:443-456, ). Differing from previous works, this paper applies the newly developed censored stochastic frontier model (CSFM) to test whether these markets have achieved long-run equilibrium, which is an issue overlooked by previous literature. The CSFM appears to be preferable to the conventional one that requires adding a unity to the dependent variable return on assets for all observations, making the so-derived dependent variable non-negative. One can then take the natural logarithm of this distorted dependent variable for a subsequent equilibrium test. Inconsistent parameter estimates may occur and lead to doubtful testing results. Empirical outcomes show that a majority of the banking markets under study experience rising H statistics during the sample period and are operating under monopolistic competition. Moreover, our results indicate that some CEE banking sectors are characterized as contestable markets that may have contributed to the recent deregulation and liberalization progress. More importantly, the CSFM confirms that most of the banking sectors are in long-run equilibrium, justifying the use of the Panzar-Rosse model, while the conventional, transformed dependent variable approach tends to reject the equilibrium hypothesis in more sample countries. [ABSTRACT FROM AUTHOR]