Showing papers by "Serena Ng published in 1996"

Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties

Abstract: Many unit root tests have distorted sizes when the root of the error process is close to the unit circle. This paper analyses the properties of the Phillips-Perron tests and some of their variants in the problematic parameter space. We use local asymptotic analyses to explain why the Phillips-Perron tests suffer from severe size distortions regardless of the choice of the spectral density estimator but that the modified statistics show dramatic improvements in size when used in conjunction with a particular formulation an autoregressive spectral density estimator. We explain why kernel based spectral density estimators aggravate the size problem in the Phillips-Perron tests and yield no size improvement to the modified statistics. The local asymptotic power of the modified statistics are also evaluated. These modified statistics are recommended as being useful in empirical work since they are free of the size problems which have plagued many unit root tests, and they retain respectable power.

An Autoregressive Spectral Density Estimator at Frequency Zero for Nonstationarity Tests

Abstract: Many unit root and cointegration tests require an estimate of the spectral density function at frequency zero at some process. Kernel estimators based on weighted sums of autocovariances constructed using estimated residuals from an AR(1) regression are commonly used. However, it is known that with substantially correlated errors, the OLS estimate of the AR(1) parameter is severely biased. in this paper, we first show that this least squares bias induces a significant increase in the bias and mean-squared error of kernel-based estimators.

The Risky Spread, Investment, and Monetary Policy Transmission: Evidence on the Role of Asymmetric Information.

Abstract: Financing constraints can arise when there are important information asymmetries in financial markets. Using Canadian panel data, the authors reject a symmetric information specification of investment behavior in favor of an agency cost specification in which the shadow cost of finance can diverge from the market interest rate. The authors' empirical estimates suggest that shocks to net worth, as reflected in the risky spread and firm-specific balance sheet variables, can dramatically increase the shadow cost of finance. Tests which draw on distinctive institutional features of the Canadian economy show that it is firms in a weak informational position which tend to be responsible for this result. Copyright 1996 by MIT Press.

The exact error in estimating the spectral density at the origin

Abstract: This paper derives expressions for the exact bias and variance of a general class of spectral density estimators at the zero frequency, building on the work of Neave (The exact error in spectrum estimates Ann Math Statist 42 (1971), 961–75) who studied the case where the mean of the series is assumed known These expressions are evaluated for 15 different windows and for a wide variety of stationary time series The exact error of the estimators is found to depend on whether the sample mean has to be estimated, and some windows are noticeably inferior at certain values of the bandwidth A response surface analysis reveals that the finite sample relationships between the bandwidth and the exact error are quite different from the ones suggested by asymptotic theory

Parametric and Nonparametric Approaches to Price and Tax Reform

Abstract: In the analysis of tax reform, when equity is traded off against efficiency, the measurement of the latter requires us to know how tax- induced price changes affect quantities supplied and demanded. In this paper, we present various econometric procedures for estimating how taxes affect demand. We examine advantages and disadvantages of parametric methods of tax reform analysis and suggest that the nonparametric `average derivate estimator' is a useful alternative. We apply both parametric and nonparametric methods to analyze possible price reform for foods in rural Pakistan, and discuss the issues that remain to be dealt with in empirical welfare analyses.

Parametric and Non-Parametric Approaches to Price and Tax Reform

Abstract: In many public policy problems, we need to estimate the way in which policy changes affect people's behavior. In the analysis of tax and subsidy reform, which is the topic of this paper, we need to know how tax-induced price changes affect the amounts that people buy of the taxed goods. We present various economic and statistical approaches to obtaining the estimates that are required. We consider the structural methods that are standard in economics, where the behavior and welfare of individual agents are simultaneously captured by the specification of utility functions whose parameters are to be estimated. We argue that these methods are less useful than alternatives that directly consider the derivatives of the regression function of average behavior. We consider both parametric and nonparametric estimators of these derivatives in the context of price reform for foods in Pakistan, focussing on the advantages and disadvantages of "average derivative estimation" (ADE) as proposed by Hardle and Stoker (1989) and Stoker (1991). Average derivative estimation is attractive in principle because it directly estimates the statistics that are required for policy analysis. In the practical case considered here, neither technique is a clear winner; each has strengths and weaknesses.

Parametric and Non-Parametric Approaches to Price and Tax Reform

Abstract: In the analysis of tax reform, when equity is traded off against efficiency, the measurement of the latter requires us to know how tax- induced price changes affect quantities supplied and demanded. In this paper, we present various econometric procedures for estimating how taxes affect demand. We examine advantages and disadvantages of parametric methods of tax reform analysis and suggest that the nonparametric `average derivate estimator' is a useful alternative. We apply both parametric and nonparametric methods to analyze possible price reform for foods in rural Pakistan, and discuss the issues that remain to be dealt with in empirical welfare analyses.

A Semi-Parametric Factor Model for Interest Rates

Abstract: Understanding the dynamics of interest rates and the term structure has important implications for issues as diverse as real economic activity, monetary policy, pricing of interest rate derivative securities and public debt financing. Our paper follows a longstanding tradition of using factor models of interest rates but proposes a semi- parametric procedure to model interest rates.

A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks

Abstract: This paper proposes a systematic framework for analyzing the dynamic effects of permanent and transitory shocks on a system of n economic variables. We consider a two-step orthogonolization on the residuals of a VECM with r co integrating vectors. The first step separates the permanent shocks and r transitory shocks. The approach exploits the co integrating relationships in the data. Although theoretical restrictions can be used, they are not necessary. We also show how impulse response functions can be constructed to trace out the propagating mechanism of shocks distinguished by their degree of persistence. This differs from the common approach of distinguishing shocks by their origin, and hence offers a complementary way of analyzing macroeconomic dynamics.