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

A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low.

Reference Points and Effort Provision

Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.

/pdf/why-is-fiscal-policy-often-procyclical-1korenvcjc.pdf

Why is Fiscal Policy Often Procyclical

https://www.econstor.eu/bitstream/10419/19010/1/cesifo1_wp1546.pdf

Trade and business cycle synchronization in OECD countries: A re-examination

Worker industry affiliation plays a crucial role in how trade policy affects wages in many trade models. Yet, most research has focused on how trade policy affects wages by altering the economy-wide returns to a specific worker characteristic (i.e. skill or education) rather than through worker-industry affiliation. This Paper exploits drastic trade liberalizations in Colombia in the 1980s and 1990s to investigate the relationship between protection and industry wages. Using the Colombian National Household Survey we first compute industry wage premiums, adjusting for a series of worker, job, and firm characteristics. We find that Colombian industry wage premiums exhibit remarkably less persistence over time than US wage premiums. Similarly, tariffs are less correlated over time than in the US data, indicating that trade liberalization has changed the structure of protection. We next relate wage premiums to trade policy in a framework that accounts for the political economy of trade protection. Accounting for time-invariant political economy factors is critical. When we do not control for unobserved time-invariant industry characteristics, we find that workers in protected sectors earn less than workers with similar observable characteristics in unprotected sectors. Allowing for industry fixed effects reverses the result: trade protection increases relative wages. This positive relationship persists when we instrument for tariff changes. Our results are in line with short- and medium-run models of trade where labour is immobile across sectors, or, alternatively, with the existence of industry rents that are reduced by trade liberalization. In the context of the current debate on the rising income inequality in developing countries, our findings point to a source of disparity beyond the well-documented rise in the economy-wide skill premium: because tariff reductions were proportionately larger in sectors employing a high fraction of less-skilled workers, the decrease in the wage premiums in these sectors affected such workers disproportionately.

Trade, Wages and the Political Economy of Trade Protection: Evidence from the Colombian Trade Reforms

We apply the Berry, Levinsohn, and Pakes (1995) market equilibrium model to data from 30 brands of beers sold in 12 U.S. cities over 20 quarters (1988-92) to estimate the consumers taste for beer characteristics (price, alcohol content, and calories) as well as for the cultural region of origin (USA, Anglo-European, Germanic, and countries bordering the U.S.). Consumer heterogeneity is allowed with respect to age and income. Overall we end up with 7,200 beer brand observations (30x12x20) and 13,920 (58 random draws x 12 x 20) consumer observations. Empirical results indicate that indeed there is home bias with respect to foreign beers. Home bias is less accentuated among older and more affluent individuals.

/pdf/home-bias-in-u-s-beer-consumption-3r707jzx8p.pdf

Home Bias in U.S. Beer Consumption

The United States introduced Federal Trade Adjustment Assistance (TAA) as part of the 1962 Trade Expansion Act to dampen the adverse impact of increased trade on workers. Applications to receive TAA require approval from the Department of Labor. Guided by the technical criteria used by the U.S. government in the official TAA certification process, we capitalize on a rich multi-dimensional panel data set to quantify the effects of political influence on the TAA certification decision. We find that political factors such as party affiliation of the President, voting outcomes at the state level, and whether a petition was certified in an election year influence the TAA certification outcome. Those effects remain even when including a wide array of controls and a rich set of fixed effects.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2733494_code459177.pdf?abstractid=2733494

Policy and Politics: Trade Adjustment Assistance in the Crossfire

In a static supergame context, a model is presented in which a foreign and a domestic firm form a cartel for selling a homogeneous good. In order to maximize joint cartel profit, the two firms have agreed to restrict sales to their own home market. Due to transfer costs, this market split paretodominates other cartel solutions. Side payments are assumed to be feasible. The introduction of an import quota may affect cartel stability as measured by a so-called critical interest rate. The two-country setting and the feasibility of side payments lead to results very different from previous findings that mild import regulations foster cartelization whereas severe restrictions destabilize quantity-setting cartels.

On the Impact of Import Quotas on a Quantity-Fixing Cartel in a Two-Country Setting

The United States introduced Federal Trade Adjustment Assistance (TAA) as part of the 1962 Trade Expansion Act to dampen the adverse impact of increased trade on workers. Applications to receive TAA require approval from the Department of Labor. Guided by the technical criteria used by the U.S. government in the official TAA certification process, we capitalize on a rich multi-dimensional panel dataset to quantify the effects of political influence on the TAA certification decision. We find that political factors such as party affiliation of the President, voting outcomes at the state level, and whether a petition was certified in an election year influence the TAA certification outcome. Those effects remain even when including a wide array of controls and a rich set of fixed effects.

/pdf/policy-and-politics-trade-adjustment-assistance-in-the-537o6hvlrk.pdf

Policy and politics: Trade adjustment assistance in the crossfire

This paper examines the relationship between offshoring activity by U.S. multinational firms and the structure of U.S trade preferences. We combine firm level panel data on U.S. foreign affiliate activity from the U.S. Bureau of Economic Analysis (BEA) with detailed measures of U.S. trade preferences from the U.S. International Trade Commission (USITC) to create a three-way panel that spans 80 industries, 184 countries, and ten years (1997-2006). Consistent with existing theory, we find that offshoring multinational activity and preferential market access are positively and consistently correlated, both in the pooled sample and within countries, industries, and years. Using both instrumental variables and simultaneous equations approaches to address the likely endogeneity of export-oriented foreign investment, we find that each $1 billion in U.S. foreign affiliate exports to the U.S. from a particular industry and country is associated with roughly a 3.5 percentage point increase in the rate of preferential duty free access. Restricting attention to the Generalized System of Preferences (GSP), the dollar-for-dollar influence of multinational affiliate sales on preferential market access declines by roughly a third for the overall sample, but rises by more than an order of magnitude when we resF130, F150, F210, F230trict attention to potentially GSP eligible countries.

Xenia Matschke

Papers

Home Bias in U.S. Beer Consumption

Policy and Politics: Trade Adjustment Assistance in the Crossfire

On the Impact of Import Quotas on a Quantity-Fixing Cartel in a Two-Country Setting

Policy and politics: Trade adjustment assistance in the crossfire

U.S. Multinationals and Preferential Market Access