This paper investigates the robustness of determinants of economic growth in the presence of model uncertainty, parameter heterogeneity and outliers. The robust model averaging approach introduced in the paper uses a flexible and parsimonious mixture modeling that allows for fat-tailed errors...

It is generally accepted that regional labor markets are characterized by strong interdependencies. However, only few studies include spatial elements to their estimations. Using the model framework proposed by Cliff and Ord (1973, 1981) and the estimation technique proposed by Kelejian and...

We illustrate the importance of placing model-consistent restrictions on expectations in the estimation of forward-looking Euler equations. In two-stage limited-information settings where first-stage estimates are used to proxy for expectations, parameter estimates can differ substantially,...

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether 'old' and 'new' EU countries are rated differently and to determine whether 'new' ones are assigned lower ratings, ceteris paribus, than 'old' ones. We...

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether old and new EU countries are rated differently and to determine whether new ones are assigned lower ratings, ceteris paribus, than old ones. We find that...

This paper tests whether the conditional CAPM accurately prices assets utilizing data from the Istanbul Stock Exchange (ISE) over the time period from February 1997 to April 2008. In our empirical analysis, we closely follow the methodology introduced in Lewellen and Nagel (2006). Our results...

The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counter-parts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we...

Robust decision making implies welfare costs or robustness premia when the approximating model is the true data generating process. To examine the importance of these premia at the aggregate level we employ a simple two-sector dynamic general equilibrium model with human capital and introduce an...

The aim of this paper is to introduce a new model selection mechanism for cross sectional spatial models. This method is more flexible than the approach proposed by Florax et al. (2003) since it controls for spatial dependence as well as for spatial heterogeneity. In particular, Bayesian and...

Labor and product market regulations affect the unemployment rate of a country without doubt. Econometricians, however, have yet to establish an unequivocal significance of this impact. Model mis-specification, one of the main underlying problems, is overcome by adopting a Bayesian Model...

This paper analyzes the impact of model complexity on the net present value distribution and the expected default probability of equity investments in project finance. Model complexity is analyzed along two dimensions: simulation complexity and forecast complexity. We aim to identify model...

This paper contributes to the on-going empirical debate regarding the role of the RBC model and in particular of technology shocks in explaining aggregate fluctuations. To this end we estimate the model's posterior density using Markov-Chain Monte-Carlo (MCMC) methods. Within this framework we...

We provide a comparison of return to schooling estimates based on an influential study by Angrist and Krueger (1991) using two stage least squares (TSLS), limited information maximum likelihood (LIML), jackknife (JIVE), and split sample instrumental variables (SSIV) estimation. We find that the...

Dynamic modeling of demand for goods whose cumulated stocks enter an intertemporal utility function as latent variables, is discussed. The issues include: how represent addiction, how handle unobserved expectations and changing plans, how deal with 'dynamic inconsistency'? Arguments are put...

Using a two-sector endogenous growth model, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate cycles in output, consumption, investment and hours. To contextualize our findings, we also assess whether the human capital...

This paper provides an array of empirical evidence bearing on potentially important changes in the dynamics of U.S. inflation. We examine the overall performance of Phillips curves relative to some well-known benchmarks, the efficiency with which the Federal Reserve's Greenbook forecasts of...

We compare estimates of the New Keynesian Phillips Curve (NKPC) when the curve is specified in two different ways. In the standard difference equation (DE) form, current inflation is a function of past inflation, expected future inflation, and real marginal costs. The alternative closed form...

This paper considers a formulation of the extended constant or time-varying conditional correlation GARCH model which allows for volatility feedback of either sign, i.e., positive or negative. In the previous literature, negative volatility spillovers were ruled out by the assumption that all...

In this paper we propose a novel methodology to analyze optimal policies under model uncertainty in micro-founded macroeconomic models. As an application we assess the relevant sources of uncertainty for the optimal conduct of monetary policy within (parameter uncertainty) and across models...

In the context of eliciting preferences for decision making under risk, we ask the question: “which might be the ‘best’ method for eliciting such preferences?”. It is well known that different methods differ in terms of the bias in the elicitation; it is rather less well-known that...

I perform the joint estimation of a reduced-form dynamic model of the transition from one grade level to the next, and a Mincer wage equation, using panel data taken from the NLSY. A very high degree of flexibility is achieved by approximating the distributions of idiosyncractic grade transition...

Our econometric research allows for a possible response of a person's hours worked to hours typically worked by members of a multidimensional labor market reference group that considers demographics and geographic location. Instrumental variables estimates of the canonical labor supply model...

The paper discusses the nested logit model for choices between a set of mutually exclusive alternatives (e.g. brand choice, strategy decisions, modes of transportation, etc.). Due to the ability of the nested logit model to allow and account for similarities between pairs of alternatives, the...

In the context of eliciting preferences for decision making under risk, we ask the question: "which might be the 'best' method for eliciting such preferences?". It is well known that different methods differ in terms of the bias in the elicitation; it is rather less well-known that different...

All economists say that they want to take their models to the data. But with incomplete and highly imperfect data, doing so is difficult and requires carefully matching the assumptions of the model with the statistical properties of the data. The cointegrated VAR (CVAR) offers a way of doing so....

In this article we derive conditions which ensure the non-negativity of the conditional variance in the Hyperbolic GARCH(p; d; q) (HYGARCH) model of Davidson (2004). The conditions are necessary and sufficient for p < 2 and sufficient for p > 2 and emerge as natural extensions of the inequality constraints derived in...</2>

We build and estimate a two-sector (goods and services) dynamic stochastic general equilibrium model with two types of inventories: materials (input) inventories facilitate the production of finished goods, while finished goods (output) inventories yield utility services. The model is estimated...

Most standard hypothesis tests have high power only against a limited space of alternative hypotheses. With the advent of new tests for the same hypothesis, claimed to have higher power for some alternatives, but lower for other, the practitioner has to make a choice between alternative tests....

This paper introduces a new long memory volatility process, denoted by Adaptive FIGARCH, or A-FIGARCH, which is designed to account for both long memory and structural change in the conditional variance process. Structural change is modeled by allowing the intercept to follow a slowly varying...

We investigate the economic significance of trading off empirical validity of models against other desirable model properties, and the potential loss from ’overestimating’ model uncertainty and basing monetary policy on a relatively robust model, or on a suite of models. We find that...

The contributions of the paper are threefold: i) compare with mathematical rigour the Charnes, Cooper, and Rhodes DEA model and the Farrell model exhibiting constant returns to scale, ii) reinterpret the contribution of Farrell and Fieldhouse that extended the analysis to variables returns to...

Non-linear relationships are common in economic theory, and such relationships are also frequently tested empirically. We argue that the usual test of non-linear relationships is flawed, and derive the appropriate test for a U shaped relationship. Our test gives the exact necessary and...

R&D activities by one industry often have positive effects on the productivity performance of other industries, as a consequence of technology spillovers. Econometric problems (such as multicollinearity), however, have prevented researchers from identifying the industries that have been...

We address the bias from using potential vs. actual experience in earnings models. Statistical tests reject the classical errors-in-variable framework. The nature of the measurement error is best viewed as a model misspecification problem. We correct for this by modeling actual experience as a...

Due to its ability to allow and account for similarities between pairs of alternatives, the nested logit model is increasingly used in practical applications. However the fact that there are two different specifications of the nested logit model has not received adequate attention. The utility...

The Value-at-Risk calculation reduces the dimensionality of the risk factor space. The main reasons for such simplifications are, e.g., technical efficiency, the logic and statistical appropriateness of the model. In Chapter 2 we present three simple mappings: the mapping on the market index,...

In this paper we derive tests for parameter constancy when the data generating process is non-stationary against the hypothesis that the parameters of the model change smoothly over time. To obtain the asymptotic distributions of the tests we generalize many theoretical results, as well as new...

In this paper we propose a method for determining the number of regimes in threshold autoregressive models using smooth transition autoregression as a tool. As the smooth transition model is just an approximation to the threshold autoregressive one, no asymptotic properties are claimed for the...

In empirical research it is common practice to use sensible rules of thumb for cleaning data. Measurement error is often the justification for removing (trimming) or recoding (winsorizing) observations whose values lie outside a specified range. We consider a general measurement error process...

This paper considers the problem of model uncertainty in the case of multi-asset volatility models and discusses the use of model averaging techniques as a way of dealing with the risk of inadvertently using false models in portfolio management. In particular, it is shown that under certain...

We study locally D-optimal designs for some exponential models that are frequently used in the biological sciences. The model can be written as an algebraic sum of two or three exponential terms. We show that approximate locally D-optimal designs are supported at a minimal number of points and...

In this note we consider several goodness-of-fit tests for model specification in non- parametric regression models which are based on kernel methods. In order to circumvent the problem of choosing a bandwidth for the corresponding test statistic we propose to consider the statistics as...

In this paper we present explanation on the phenomenon pointed out in Cook and Manning (2002) on the unusual behaviour of the Dickey-Fuller test in the presence of trend misspecification. It appears that the rejection frequency of the unit root tests in the presence of trend misspecification is...

Since the early seventies, hundreds of authors have calculated gender wage differentials between women and men of equal productivity. Consequently, estimates for the gender wage gap have been published for the most diverse countries at different points in time. This metastudy provides a...

This paper considers the identification and estimation of hedonic models. We establish that in an additive version of the hedonic model, technology and preferences are generically identified up to affine transformations from data on demand and supply in a single hedonic market. For a very...

In regression analysis there is typically a large collection of competing models available from which we want to select an appropriate one. This paper is concerned with asymptotic properties of procedures for selecting linear models, which are based on certain data-dependent criteria such as...

The last years have witnessed a sharp increase of interest in monetary policy rules (see Taylor [1999]). This normative branch of monetary policy tries to evaluate the performance of alternative monetary policy rules in terms of associated monetary policy outcomes. Nevertheless this exercise is...

The problem of constructing standardized maximin D-optimal designs for weighted polynomial regression models is addressed. In particular it is shown that, by following the broad approach to the construction of maximin designs introduced recently by Dette, Haines and Imhof (2003), such designs...