Showing papers in "Journal of Applied Econometrics in 2004"
TL;DR: In this article, the authors consider the dynamics of a categorical indicator of self-assessed health using eight waves (1991-1998) of the British Household Panel Survey (BHPS).
Abstract: This paper considers the dynamics of a categorical indicator of self-assessed health using eight waves (1991–1998) of the British Household Panel Survey (BHPS). Our analysis has three focal points: the relative contributions of state dependence and heterogeneity in explaining the dynamics of health, the existence and consequences of health-related sample attrition, and the investigation of the effects of measures of socioeconomic status, with a particular focus on educational attainment and income. To investigate these issues we use dynamic panel ordered probit models. There is clear evidence of health-related attrition in the data but this does not distort the estimates of state dependence and of the socioeconomic gradient in health. The models show strong positive state dependence and heterogeneity accounts for around 30% of the unexplained variation in health. Copyright © 2004 John Wiley & Sons, Ltd.
529 citations
TL;DR: The authors examined the determinants of low income transitions using first-order Markov models that control for initial conditions effects (those found to be poor in the base year may be a nonrandom sample) and for attrition (panel retention may also be non-random).
Abstract: We examine the determinants of low income transitions using first-order Markov models that control for initial conditions effects (those found to be poor in the base year may be a non-random sample) and for attrition (panel retention may also be non-random). Our econometric model is a form of endogeneous switching regression, and is fitted using simulated maximum likelihood methods. The estimates, derived from British panel data for the 1990s, indicate that there is substantial genuine state dependence in poverty. We also provide estimates of low income transition rates and lengths of poverty and non-poverty spells for persons of different types.
292 citations
TL;DR: In this article, the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post-war US data were studied, and it was shown that increased growth uncertainty is associated with significantly lower average growth, while higher inflation uncertainty is significantly negatively correlated with lower output growth.
Abstract: We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post-war US data. Our results suggest that increased growth uncertainty is associated with significantly lower average growth, while higher inflation uncertainty is significantly negatively correlated with lower output growth and lower average inflation. Both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude. Copyright © 2004 John Wiley & Sons, Ltd.
279 citations
TL;DR: In this paper, the authors show that more powerful variants of commonly applied unit root tests are readily available and that power gains persist when the modifications are applied to bootstrap procedures that may be employed when cross-correlation of a rather general sort among individual panel members is suspected.
Abstract: Unit root tests, seeking mean or trend reversion, are frequently applied to panel data. We show that more powerful variants of commonly applied tests are readily available. Moreover, power gains persist when the modifications are applied to bootstrap procedures that may be employed when cross-correlation of a rather general sort among individual panel members is suspected. Copyright © 2004 John Wiley & Sons, Ltd.
262 citations
TL;DR: In this article, a self-reported indicator of disability status from the Health and Retirement Study was used as an unbiased indicator of the Social Security Administration's decision on disability eligibility, and the authors were unable to reject the hypothesis that selfreported disability is an unbiased predictor of the SSA's decision.
Abstract: A pervasive concern with the use of self-reported health measures in behavioural models is that individuals tend to exaggerate the severity of health problems in order to rationalize their decisions regarding labour force participation, application for disability benefits, etc. We re-examine this issue using a self-reported indicator of disability status from the Health and Retirement Study. We study a subsample of individuals who applied for disability benefits from the Social Security Administration (SSA), for whom we can also observe the SSA's decision. Using a battery of tests, we are unable to reject the hypothesis that self-reported disability is an unbiased indicator of the SSA's decision. Copyright © 2004 John Wiley & Sons, Ltd.
237 citations
TL;DR: In this paper, the authors proposed a new test based on a Fourier series to approximate the unknown form of a nonlinear time series model, which has good size and power properties to detect structural breaks, seasonal parameters and random coefficients.
Abstract: We propose a new test based on a Fourier series to approximate the unknown form of a nonlinear time-series model. The test has good size and power properties to detect structural breaks, seasonal parameters and random coefficients. Moreover, it has reasonable power to discriminate between nonlinearity in variables and nonlinearity in parameters. We use the test to show that U.S. inflation is appropriately estimated with a time-varying intercept that jumps in the late 1960’s, peaks in the early 1980’s and then begins to decline. German income and consumption data is used to illustrate the ability of the test to suggest the form of the nonlinearity.
209 citations
TL;DR: In this article, the effects of distance as a common determinant of exports and FDI in a three-factor New Trade Theory model, assuming that distance affects both pure trade costs and plant set-up costs.
Abstract: This paper analyses the effects of distance as a common determinant of exports and FDI in a three-factor New Trade Theory model, assuming that distance affects both pure trade costs and plant set-up costs. Exports and FDI are not necessarily substitutes with respect to distance, since the predicted impact depends on its importance for fixed plant set-up costs relative to transportation costs and on the relative importance of vertical MNEs. For the empirical specification, we suggest that the impact of time-invariant variables such as distance is most appropriately analysed in a Hausman–Taylor SUR model. We apply our model to industry-level data of bilateral outward FDI stocks and exports of the US and Germany. Copyright © 2004 John Wiley & Sons, Ltd.
201 citations
TL;DR: In this article, the authors consider Markov error-correction (MEC) models in which deviations from the long-run equilibrium are characterized by different rates of adjustment, and show that the MEC model is flexible enough to account for situations where deviations from a long run equilibrium are nonstationary in one of the states of nature.
Abstract: This paper considers Markov error-correction (MEC) models in which deviations from the long-run equilibrium are characterized by different rates of adjustment To motivate our analysis and illustrate the various issues involved, our discussion is structured around the analysis of the long-run properties of US stock prices and dividends It is shown that the MEC model is flexible enough to account for situations where deviations from the long-run equilibrium are nonstationary in one of the states of nature and allows us to test for such a possibility An empirical specification procedure to establish the existence of MEC adjustment in practice is also presented This is based on a multi-step test procedure that exploits the differences between the global and local characteristics of systems with MEC adjustment Copyright © 2004 John Wiley & Sons, Ltd
196 citations
TL;DR: In this article, the authors estimate the effect of subjective survival probabilities on retirement and on the claiming of Social Security benefits because delayed claiming is equivalent to the purchase of additional Social Security annuities.
Abstract: According to the life-cycle model, mortality risk will influence both retirement and the desire to annuitize wealth. We estimate the effect of subjective survival probabilities on retirement and on the claiming of Social Security benefits because delayed claiming is equivalent to the purchase of additional Social Security annuities. We find that those with very low subjective probabilities of survival retire earlier and claim earlier than those with higher subjective probabilities, but the effects are not large. The great majority of workers claim as soon as they are eligible. Copyright © 2004 John Wiley & Sons, Ltd.
171 citations
TL;DR: In this article, the authors examined whether nonlinearities in the aggregate production function can explain parameter heterogeneity in the Solow growth regressions and showed that cross-country regressions favour the CES over the Cobb-Douglas aggregated production specification.
Abstract: This paper examines whether nonlinearities in the aggregate production function can explain parameter heterogeneity in the Solow growth regressions. Nonlinearities in the production technology are introduced by replacing the commonly used Cobb–Douglas (CD) aggregated production specification with the more general Constant-Elasticity-of-Substitution (CES) specification. We first justify our choice of production function by showing that cross-country regressions favour the CES over the CD technology. Then, by using an endogenous threshold methodology we show that the Solow model with CES technology is consistent with the existence of multiple regimes. Copyright © 2004 John Wiley & Sons, Ltd.
165 citations
TL;DR: In this article, the authors evaluated the effect of the German health care reform of 1997, using the individual number of doctor visits as outcome measure and data from the German Socio-economic Panel for the years 1995-1999.
Abstract: This paper evaluates the German health care reform of 1997, using the individual number of doctor visits as outcome measure and data from the German Socio-Economic Panel for the years 1995–1999. A number of modified count data models allow us to estimate the effect of the reform in different parts of the distribution. The overall effect of the reform was a 10% reduction in the number of doctor visits. The effect was much larger in the lower part of the distribution than in the upper part. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this article, the authors estimate the stochastic process that determines both the distribution and dynamics of health care costs using data from the Health and Retirement Survey and the Assets and Health Dynamics of the Oldest Old survey, and find that the data-generating process for log health costs is well represented as the sum of a white noise process and a highly persistent AR(1) process.
Abstract: Using data from the Health and Retirement Survey and the Assets and Health Dynamics of the Oldest Old survey, we estimate the stochastic process that determines both the distribution and dynamics of health care costs. We find that the data-generating process for log health costs is well represented as the sum of a white noise process and a highly persistent AR(1) process. We also find that the innovations to this process can be modelled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs. Simulating this model, we find that in any given year 0.1% of households receive a health cost shock with a present value of at least $125,000. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors model and explain US macroeconomic outcomes subject to the discipline that monetary policy is set optimally, exploiting the restrictions that come from optimal policymaking, and estimate the parameters in the Federal Reserve's policy objective function together with the parameters of its optimization constraints.
Abstract: In this paper we model and explain US macroeconomic outcomes subject to the discipline that monetary policy is set optimally. Exploiting the restrictions that come from optimal policymaking, we estimate the parameters in the Federal Reserve’s policy objective function together with the parameters in its optimization constraints. For the period following Volcker’s appointment as chairman, we estimate the implicit inflation target to be around 1.4% and show that policymakers assigned a significant weight to interest rate smoothing. We show that the estimated optimal policy provides a good description of US data for the 1980s and 1990s.
TL;DR: This article investigated the impact of exchange rate volatility on real international trade flows utilizing a 13-country data set of monthly bilateral real exports for 1980-1998 and found that the effect of exchange-rate volatility on trade flows is nonlinear, depending on its interaction with the importing country's volatility of economic activity.
Abstract: In this paper, we investigate empirically the impact of exchange rate volatility on real international trade flows utilizing a 13-country data set of monthly bilateral real exports for 1980–1998. We compute one-month-ahead exchange rate volatility from the intra-monthly variations in the exchange rate to better quantify this latent variable. We find that the effect of exchange rate volatility on trade flows is nonlinear, depending on its interaction with the importing country's volatility of economic activity, and that it varies considerably over the set of country pairs considered. Copyright © 2003 John Wiley & Sons, Ltd.
TL;DR: In this paper, the directional distance function (DDF) method is used to analyse the role of undesirable outputs of the economy, such as carbon dioxide and other greenhouse gases, on the frontier production process which is specified as a piecewise linear and convex boundary function.
Abstract: This paper explores a relatively new methodology, the directional distance function method, to analyse productivity growth. The method allows us to explicitly evaluate the role that undesirable outputs of the economy, such as carbon dioxide and other greenhouse gases, have on the frontier production process which we specify as a piecewise linear and convex boundary function. We decompose productivity growth into efficiency change (catching up) and technology change (innovation). We test the statistical significance of the estimates using recently developed bootstrap methods. We also explore implications for growth of total factor productivity in the OECD and Asian economies. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this article, a structural model of family retirement using US data from the Health and Retirement Study (HRS) is presented, which provides further insight into household retirement decision making and the reasons for interdependence in the retirement decisions of each spouse.
Abstract: This paper estimates a structural model of family retirement using US data from the Health and Retirement Study (HRS). It provides further insight into household retirement decision making and the reasons for interdependence in the retirement decisions of each spouse. Improvements in HRS data and matched employer provided pension histories allow more precise identification of key parameters governing interdependent behaviour within the household.
In an earlier study we found that interdependence was due to preferences rather than coordination of retirement incentives in the budget, and in particular that it is not a correlation in preferences, but the appearance of the spouse's retirement status in the husband's and wife's utility function that is largely responsible for coordination of retirement between spouses. We now find that a measure of how much each spouse values being able to spend time in retirement with the other accounts for a good portion of that apparent interdependence. For the wife, the husband's retirement status influences her retirement decision only if she values spending time in retirement with her husband. For husbands, the effect of having the wife already retired on his retirement decision is roughly doubled if he enjoys spending time in retirement with his wife, but there is some effect even if he does not. This is consistent with our earlier findings that the husband is more influenced by having a retired spouse than the wife is. The increase in the extent of the dependence of the wife's labour supply on the husband's retirement from our past work probably is traceable to better measurement of the opportunity set facing the husband in HRS data.
Once estimated, we use the model to investigate the labour supply effects of alternative social security policies, examining the effect of dividing credit for earnings evenly between spouses, or of basing social security benefits on the amounts accumulated in private accounts. Both policies change the relative importance of spouse and survivor social security benefits within the household and both raise the relative reward to work later in the life cycle. The incentives created are modest, and retirement responds accordingly. Nevertheless, at some ages, such as 65, there may be as much as a 6% increase in the old age work force under privatized accounts. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this paper, the effects of various types of rehabilitation programs on labour market out-comes are estimated based on a large sample of per-sons in western Sweden who are long-term sick and could participate in rehabilitation pro-grammes.
Abstract: In this study the effects of various types of rehabilitation programmes on labour market out-comes are estimated. A main feature of this study is that it jointly evaluates multiple treat-ments by nonparametric matching estimators. The study is based on a large sample of per-sons in western Sweden who are long-term sick and could participate in rehabilitation pro-grammes. Our results suggest that work-place training is superior to the other rehabilitation programmes with respect to labour market outcomes, but compared to non-participation no positive effects are found.
(doi:10.1002/jae.757) Download appendix: (pdf, 147 kb)
TL;DR: In this paper, a bivariate exact Whittle (BEW) estimator is proposed for the presence of short memory noise in the data, which enhances the empirical capacity to separate low-frequency behaviour from high-frequency fluctuations, and produces estimates of long-range dependence that are much less biased when there is noise contaminated data.
Abstract: It is argued that univariate long memory estimates based on ex post data tend to underestimate the persistence of ex ante variables (and, hence, that of the ex post variables themselves) because of the presence of unanticipated shocks whose short-run volatility masks the degree of long-range dependence in the data. Empirical estimates of long-range dependence in the Fisher equation are shown to manifest this problem and lead to an apparent imbalance in the memory characteristics of the variables in the Fisher equation. Evidence in support of this typical underestimation is provided by results obtained with inflation forecast survey data and by direct calculation of the finite sample biases.
To address the problem of bias, the paper introduces a bivariate exact Whittle (BEW) estimator that explicitly allows for the presence of short memory noise in the data. The new procedure enhances the empirical capacity to separate low-frequency behaviour from high-frequency fluctuations, and it produces estimates of long-range dependence that are much less biased when there is noise contaminated data. Empirical estimates from the BEW method suggest that the three Fisher variables are integrated of the same order, with memory parameter in the range (0.75, 1). Since the integration orders are balanced, the ex ante real rate has the same degree of persistence as expected inflation, thereby furnishing evidence against the existence of a (fractional) cointegrating relation among the Fisher variables and, correspondingly, showing little support for a long-run form of Fisher hypothesis. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this paper, a dynamic programming model for the simultaneous choice of retirement age and route, which includes social insurance and private pensions, eligibility conditions for early retirement, lifecycle wage and health profiles, and layoffs, is presented.
Abstract: This study focuses on determinants of elderly labour force participation and retirement decisions in the Netherlands. This is analysed by a dynamic programming model for the simultaneous choice of retirement age and route, which includes social insurance and private pensions, eligibility conditions for early retirement, lifecycle wage and health profiles, and layoffs. Special attention is given to opportunities for and the effect of participation policies. Results show that institutional structures of benefit and pension programmes are prime determinants of retirement, particularly eligibility conditions and potential substitution between exit routes, and that dynamic aspects are relevant for understanding retirement behaviour. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: The authors applied a discrete choice approach to model the empirical behavior of the Federal Reserve in changing the federal funds target rate, the benchmark of short-term market interest rates in the US.
Abstract: We apply a discrete choice approach to model the empirical behaviour of the Federal Reserve in changing the federal funds target rate, the benchmark of short-term market interest rates in the US. Our methods allow the explanatory variables to be nonstationary as well as stationary. This feature is particularly useful in the present application as many economic fundamentals that are monitored by the Fed and are believed to affect decisions to adjust interest rate targets display some nonstationarity over time. The chosen model successfully predicts the majority of the target rate changes during the time period considered (1994–2001) and helps to explain strings of similar intervention decisions by the Fed. Based on the model-implied optimal interest rate, our findings suggest that there is a lag in the Fed's reaction to economic shocks during this period. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this article, a piecewise linear relationship between the natural logarithm of annual earnings and years of schooling was shown to be a non-classical measurement error model.
Abstract: This paper relaxes some restrictions of previous twin-based estimates of the effects of education on earnings. First, it estimates the earnings premiums associated with different educational levels. Second, it estimates a piecewise linear relationship between the natural logarithm of annual earnings and years of schooling. Third, the measurement error corrections are based on a less restrictive, ‘non-classical’, measurement error model. The estimation strategy implies that ability bias can be investigated separately in different parts of the educational distribution. The linear relationship between the logarithm of annual earnings and years of schooling is rejected. Furthermore, the results in the sample of identical (MZ) twins indicated both that the ability bias could be of different signs and of different magnitudes in different parts of the educational distribution. The twin-based estimates in the sample of fraternal (DZ) twins did not display any marked differences as compared to the cross-sectional estimates. Finally, the results indicated that the error-corrected twin-based estimates of the average return to years of schooling that rely on a classical measurement error model are upwards biased by approximately 30%. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this article, the joint distribution of the durations until retirement of Danish husbands and wives was analyzed and a multivariate mixed proportional hazards model that allows for interdependence in the times to retirement of spouses was proposed.
Abstract: We analyse the joint distribution of the durations until retirement of Danish husbands and wives. We estimate a multivariate mixed proportional hazards model that allows for interdependence in the times to retirement of spouses. We find evidence of strong complementarities in leisure times. Symmetrically for husband and wife, low own income and poor health are found to induce individual retirement (prior to spouse's retirement), whereas low spousal income is not, and neither party is found likely to substitute own for purchased care when the spouse is in poor health. Furthermore, high wealth and low income are found to spur joint (simultaneous) retirement. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this article, convergence in gross domestic product series of five European countries is empirically identified using multivariate time series models that are based on unobserved components with dynamic con- verging properties.
Abstract: Convergence in gross domestic product series of five European countries is empirically identified using multivariate time series models that are based on unobserved components with dynamic con- verging properties. We define convergence in terms of a decrease in dispersion over time and model this decrease via mechanisms that allow for gradual reductions in the ranks of covariance matrices associated with the disturbance vectors driving the unobserved components of the model. The inclusion of such convergence mechanisms within the formulation of unobserved components makes the identification of various types of convergence possible. The common converging component model is estimated for the per capita gross domestic product of five European countries: Germany, France, Italy, Spain and the Netherlands. It is found that convergence features in trends and cycles are present and are associated with some key events in the history of European integration.
TL;DR: In this article, the authors compared the change between the number of men and women who reported sick during a popular sporting event and a preceding time period, and found that men who reported being ill were more likely to watch the sporting event on television.
Abstract: Moral hazard is easy to justify theoretically but difficult to detect empirically. Individuals may report sick due to illness as well as for moral hazard reasons. Potential abuse of the sickness insurance system in Sweden is estimated by comparing the change between the number of men and women who report sick during a popular sporting event and a preceding time period. Difference-in-differences estimates provide clear evidence that the number of men who reported sick increased in order to watch the sporting event on television. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this article, the authors present an empirical analysis of how Sweden's public old age pension system affects the retirement decision, focusing on male blue-collar workers whose dominant income source as retired workers.
Abstract: This paper presents an empirical analysis of how Sweden's public old age pension system affects the retirement decision. We focus on male blue-collar workers whose dominant income source as retired ...
TL;DR: In this article, the authors developed a dynamic programming model of the Social Security Disability Insurance (SSDI) application timing decision, estimating the time to application from the point at which a health condition first begins to affect the kind or amount of work that a currently employed person can do.
Abstract: This paper develops a dynamic programming model of the Social Security Disability Insurance (SSDI) application timing decision. We estimate the time to application from the point at which a health condition first begins to affect the kind or amount of work that a currently employed person can do. We use Health and Retirement Study (HRS) and restricted access Social Security earnings data for estimation. Our results show that the type of work-limiting health condition, presence of employer accommodation, and the relative value of income in the application state to income in the work state significantly affect the timing of SSDI application. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: The authors used data from the National Longitudinal Survey of Youth (NLSY) to investigate the nature of unobserved heterogeneity in returns to schooling and found strong evidence that the heterogeneity follows a continuous rather than a discrete distribution, and that bivariate normality provides a very reasonable description of individual-level heterogeneity in intercepts and returns to education.
Abstract: Using data from the National Longitudinal Survey of Youth (NLSY) we introduce and estimate various Bayesian hierarchical models that investigate the nature of unobserved heterogeneity in returns to schooling. We consider a variety of possible forms for the heterogeneity, some motivated by previous theoretical and empirical work and some new ones, and let the data decide among the competing specifications. Empirical results indicate that heterogeneity is present in returns to education. Furthermore, we find strong evidence that the heterogeneity follows a continuous rather than a discrete distribution, and that bivariate normality provides a very reasonable description of individual-level heterogeneity in intercepts and returns to schooling.
TL;DR: In this article, the correlation of p-values from a single-equation residual-based test (i.e., ADF or ) with a system based test (trace or maximum eigenvalue) is very low even as the sample size gets large.
Abstract: This paper illustrates that, under the null hypothesis of no cointegration, the correlation of p-values from a single-equation residual-based test (i.e., ADF or ) with a system-based test (trace or maximum eigenvalue) is very low even as the sample size gets large. With data-generating processes under the null or ‘near’ it, the two types of tests can yield virtually any combination of p-values regardless of sample size. As a practical matter, we also conduct tests for cointegration on 132 data sets from 34 studies appearing in this Journal and find substantial differences in p-values for the same data set. Copyright © 2004 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors show that the common translog specification of hospital costs is a misspecification, and employ nonparametric, local linear estimation with both continuous and discrete covariates.
Abstract: This paper presents new estimates of scale economies for US hospitals. We show that the common translog specification of hospital costs is a misspecification, and employ nonparametric, local linear estimation with both continuous and discrete covariates. A bootstrap method is used to provide inferences regarding ray scale economies and expansion path scale economies for a large sample of hospitals covering 1984–1996. We find evidence of changes in the structure of hospital costs over the sample period, as well as evidence of locally optimal hospital sizes. Copyright © 2004 John Wiley & Sons, Ltd.