Offering a unifying theoretical perspective not readily available in any other text, this innovative guide to econometrics uses simple geometrical arguments to develop students' intuitive understanding of basic and advanced topics, emphasizing throughout the practical applications of modern theory and nonlinear techniques of estimation. One theme of the text is the use of artificial regressions for estimation, reference, and specification testing of nonlinear models, including diagnostic tests for parameter constancy, serial correlation, heteroscedasticity, and other types of mis-specification. Explaining how estimates can be obtained and tests can be carried out, the authors go beyond a mere algebraic description to one that can be easily translated into the commands of a standard econometric software package. Covering an unprecedented range of problems with a consistent emphasis on those that arise in applied work, this accessible and coherent guide to the most vital topics in econometrics today is indispensable for advanced students of econometrics and students of statistics interested in regression and related topics. It will also suit practising econometricians who want to update their skills. Flexibly designed to accommodate a variety of course levels, it offers both complete coverage of the basic material and separate chapters on areas of specialized interest.

Estimation and Inference in Econometrics

The measurement of meaning

China's economy has been growing rapidly based on globalization of trade, but the country is only beginning to globalize its banking sector China's current banking reform includes partially privatizing three of its dominant Big Four state-owned banks and taking on minority foreign ownership of these institutions Other state-owned banks are also engaging in this practice Predicting the efficiency effects of these and other reforms is difficult because of little relevant background research evidence This paper helps to fill some of the gaps in the literature, analyzing the profit and cost efficiency of banks representing 95% of commercial banking assets in China over 1994-2003 with different majority and minority ownership structures The key findings are that the Big Four state-owned banks are by far the least efficient, and that minority foreign ownership of other banks is associated with significantly improved efficiency These and other findings suggest that minority foreign ownership of the Big Four and other reforms that allow foreign banks to play larger roles will likely improve the performance of the Chinese banking sector, with positive effects on economic growth

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1020583_code852818.pdf?abstractid=1020583&rulid=5230412&mirid=1

Bank Ownership and Efficiency in China: What will Happen in the World's Largest Nation?

Lecture Notes in Economics and Mathematical Systems

China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by far the least efficient; foreign banks are most efficient; and minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners may increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the Big Four will likely improve performance significantly.

/pdf/bank-ownership-and-efficiency-in-china-what-will-happen-in-433zdvs8v5.pdf

Bank ownership and efficiency in China: What will happen in the world’s largest nation? ☆

We use administrative and survey-based micro data to study the relationship between cognitive abilities (IQ), the formation of economic expectations, and the choices of a representative male population. Men above the median IQ (high-IQ men) display 50% lower forecast errors for in ation than other men. The in ation expectations and perceptions of high-IQ men, but not others, are positively correlated over time. High-IQ men are also less likely to round and to forecast implausible values. In terms of choice, only high-IQ men increase their propensity to consume when expecting higher in ation as the consumer Euler equation prescribes. High-IQ men are also forward-looking - they are more likely to save for retirement conditional on saving. Education levels, income, socio-economic status, and employment status, although important, do not explain the variation in expectations and choice by IQ. Our results have implications for heterogeneous-beliefs models of household consumption, saving, and investment.

https://www.nber.org/system/files/working_papers/w25496/w25496.pdf

IQ, Expectations, and Choice

Anchoring of inflation expectations in the euro area: Recent evidence based on survey data

This paper examines the empirical performance of the New Keynesian Phillips curve and its hybrid specification in the euro area. Instead of imposing rational expectations, direct measures, i.e. OECD forecasts, are used as empirical proxies for economic agents’ inflation expectations. Real marginal costs are proxied by three alternative measures. The results suggest that once the rational expectations hypothesis is relaxed and directly measured expectations are used, the European inflation process can be modeled using the forward-looking New Keynesian Phillips curve. However, when allowing for possible non-rationalities in expectations, inflation can be modeled more accurately by the hybrid Phillips curve with the additional lagged inflation term. In this approach, output gap turns out to be at least as good as labor income share as a proxy for real marginal cost. Moreover, the inflation process seems to have become more forward-looking in the recent years of low and stable inflation.

/pdf/inflation-dynamics-in-the-euro-area-and-the-role-of-2chb9m9g2v.pdf

Inflation Dynamics in the Euro Area and the Role of Expectations

Cognitive abilities help explain the large cross-sectional variation in inflation expectations at the household level. But which type of cognitive abilities are important? We find that not only quantitative abilities but also logical and verbal abilities are important to explain the accuracy and plausibility of households' inflation expectations. We discuss the channels through which different forms of cognition might shape households' abilities to forecast future macroeconomic variables. We also draw implications for the effectiveness of policies that aim to manage households' expectations.

/pdf/cognitive-abilities-and-inflation-expectations-3nzioxvcqp.pdf

Cognitive abilities and inflation expectations

This paper analyzes euro area and U.S. inflation dynamics since the beginning of the 1990s by estimating New Keynesian hybrid Phillips curves with time-varying parameters. We measure inflation expectations by subjective forecasts from Consensus Economics survey and so do not assume rational expectations. Both rolling regressions and state-space models are employed. The results indicate that in both economic areas the inflation dynamics have steadily become more forward-looking over time. We also provide evidence that the impact of the output gap on inflation has increased in recent years. Overall, diminished inflation persistence emphasizes the role of credible monetary policy in inflation dynamics. JEL Classification: E31, C22, C51 Key words: inflation, Phillips curve, time-varying parameters, survey expectations

/pdf/how-have-inflation-dynamics-changed-over-time-evidence-from-2ewhprhrvk.pdf

Maritta Paloviita

Papers

IQ, Expectations, and Choice

Anchoring of inflation expectations in the euro area: Recent evidence based on survey data

Inflation Dynamics in the Euro Area and the Role of Expectations

Cognitive abilities and inflation expectations

How have inflation dynamics changed over time? : Evidence from the euro area and USA