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Showing papers in "The Review of Economics and Statistics in 1999"


Journal ArticleDOI
TL;DR: The authors developed a set of approximate band-pass filters and illustrates their application to measuring the business-cycle component of macroeconomic activity, and compared them with several alternative filters commonly used for extracting business cycle components.
Abstract: Band-pass filters are useful in a wide range of economic contexts. This paper develops a set of approximate band-pass filters and illustrates their application to measuring the business-cycle component of macroeconomic activity. Detailed comparisons are made with several alternative filters commonly used for extracting business-cycle components.

2,272 citations


Journal ArticleDOI
TL;DR: In this article, economic value estimates were obtained on 962 inventions made in the United States and Germany and on which German patent renewal fees were paid to full-term expiration in 1995.
Abstract: Through a survey, economic value estimates were obtained on 962 inventions made in the United States and Germany and on which German patent renewal fees were paid to full-term expiration in 1995. A search of subsequent U.S. and German patents yielded a count of citations to those patents. Patents renewed to full term were significantly more valuable than patents allowed to expire before their full term. The higher an invention's economic value estimate was, the more the relevant patent was subsequently cited.

1,410 citations


Journal ArticleDOI
TL;DR: In this article, the authors employ a Bayesian approach to identify a structural break at an unknown changepoint in a Markov-switching model of the business cycle, with the posterior mode of the break date at 1984.
Abstract: We hope to answer three questions: Has there been a structural break in postwar U.S. real GDP growth towards stabilization? If so, when? What is the nature of this structural break? We employ a Bayesian approach to identify a structural break at an unknown changepoint in a Markov-switching model of the business cycle. Empirical results suggest a break in GDP growth toward stabilization, with the posterior mode of the break date at 1984:1. Furthermore, we find a narrowing gap between growth rates during recessions and booms that is at least as important as any decline in the volatility of shocks.

1,225 citations


Journal ArticleDOI
TL;DR: This article examined the reliability of alternative output detrending methods, with special attention to the accuracy of real-time estimates of the output gap, and showed that ex-post revisions of the estimated gap are of the same order of magnitude as the estimate itself and that these revisions are highly persistent.
Abstract: We examine the reliability of alternative output detrending methods, with special attention to the accuracy of real-time estimates of the output gap. We show that ex post revisions of the estimated gap are of the same order of magnitude as the estimated gap itself and that these revisions are highly persistent. Although important, the revision of published data is not the primary source of revisions in measured output gaps; the bulk of the problem is due to the pervasive unreliability of end-of-sample estimates of the trend in output. Multivariate methods that incorporate information from inflation to estimate the output gap are not more reliable than their univariate counterparts.

896 citations


Journal ArticleDOI
TL;DR: In this article, the authors present estimates of the effect of parental income on children's cognitive, social, and emotional development, and they show that family background characteristics play a more important role than income in determining child outcomes.
Abstract: This study presents estimates of the effect of parental income on children's cognitive, social, and emotional development. The effect of current income is small, especially when income is treated as endogenous. The effect of “permanent” income is substantially larger, but relatively small when compared to the magnitude of recent policy-induced changes in income. Family background characteristics play a more important role than income in determining child outcomes. Policies that affect family income will have little direct impact on child development unless they result in very large and permanent changes in income.

712 citations


Journal ArticleDOI
TL;DR: In this article, the authors show that the estimated separate contributions of sets of dummy variables to the explained portion and the overall decomposition are not dependent upon the choice of left-out reference groups.
Abstract: The standard wage decomposition methodology produces arbitrary results when attempting to estimate the separate contributions of sets of dummy variables to the unexplained portion of the wage decomposition: the estimates are not invariant with respect to the choice of reference groups. However, the estimated separate contributions of sets of dummy variables to the explained portion and the overall decomposition are shown not to be dependent upon the choice of left-out reference groups. A similar identification problem applies to continuous variables, although this may not be as likely to cause problems in practice.

589 citations


Journal ArticleDOI
TL;DR: This article examined the extent to which labor markets allow households to shift labor from farm to off-farm employment and found that such a shift explains the observed lack of correlation between consumption and idiosyncratic crop shocks.
Abstract: While research has demonstrated that farm households in developing economies are able to protect consumption from idiosyncratic crop shocks, little evidence shows how this is achieved. This paper examines the extent to which labor markets allow households to shift labor from farm to off-farm employment, and the extent to which such a shift explains the observed lack of correlation between consumption and idiosyncratic crop shocks. The empirical analysis uses a novel measure of the idiosyncratic crop income shock which utilizes information on start-of-season cropping choices to more accurately estimate household expectations of weather.

554 citations


Journal ArticleDOI
TL;DR: In this article, the authors estimate that the deadweight loss caused by increasing existing tax rates is substantially greater and may exceed $2 per $1 of revenue, which is more than ten times Harberger's classic 1964 estimate.
Abstract: Traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption. The full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure, excludable income, and deductible consumption are a Hicksian composite good. Microeconomic estimates imply a deadweight loss of as much as 30% of revenue or more than ten times Harberger's classic 1964 estimate. The relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed $2 per $1 of revenue.

548 citations


Journal ArticleDOI
TL;DR: In this article, the authors analyzed the link between crime rates and urban flight and found that each additional reported crime is associated with a roughly one-person decline in city population, and that most of the crime-related population decline is attributable to increased out-migration rather than a decrease in new arrivals.
Abstract: This paper analyzes the link between rising city crime rates and urban flight Each additional reported crime is associated with a roughly one-person decline in city population Almost all of the crime-related population decline is attributable to increased out-migration rather than a decrease in new arrivals Households that leave the city because of crime are much more likely to remain within the Standard Metropolitan Statistical Area (SMSA) than those that leave the city for other reasons Migration decisions of highly educated households and those with children are particularly responsive to changes in crime Causality appears to run from rising crime rates to city depopulation

542 citations


Journal ArticleDOI
TL;DR: In this article, the authors examined the relationship between consumption smoothing and excess female mortality, by asking if favorable rainfall shocks in childhood increase the survival probabilities of girls to a greater extent than they increase boys' survival probabilities for a sample of rural Indian children.
Abstract: This paper examines the relationship between consumption smoothing and excess female mortality, by asking if favorable rainfall shocks in childhood increase the survival probabilities of girls to a greater extent than they increase boys' survival probabilities for a sample of rural Indian children. In order to avert the issue of selection bias due to underreporting of births of girls, a methodology is employed that does not require data on births by gender. The results indicate that favorable rainfall shocks increase the ratio of the probability that a girl survives to the probability that a boy survives.

437 citations


BookDOI
TL;DR: The authors investigated the policy and non-policy factors behind saving disparities, using a large panel data set and an encompassing approach including several relevant determinants of private saving, and found that private saving rates show considerable inertia (are highly serially correlated even after controlling for other relevant factors).
Abstract: The authors investigate the policy and non-policy factors behind saving disparities, using a large panel data set and an encompassing approach including several relevant determinants of private saving. They extend the literature in several dimensions, by: 1) Using the largest data set on aggregate saving assembled to date. 2) Using panel instrumental variable techniques to correct for endogeneity and heterogeneity. 3) Performing robustness checks on changes in estimation procedures, data samples, and model specification. Their main empirical findings: a) Private saving rates show considerable inertia (are highly serially correlated even after controlling for other relevant factors). b) Private sector rates rise with the level and growth rate of real per capita income. So policies that spur development are in indirect but effective way to raise private saving rates. c) Predictions of the life-cycle hypothesis are supported in that dependency ratios generally have a negative effect on private saving rates. d) The precautionary motive for saving is supported by the finding that inflation - conventionally taken as a summary measure of macroeconomic volatility - has a positive impact on private saving, holding other facts constant. e) Fiscal policy is a moderately effective tool for raising national saving. F) the direct effect of financial liberalization are largely detrimental to private saving rates. Greater availability of credit reduces the private saving rate; financial depth and higher real interest rates do not increase saving.

Journal ArticleDOI
TL;DR: Simulation results verify insights, suggesting that the grid bootstrap provides an important improvement over conventional methods, and is first-order correct globally in the parameter space.
Abstract: A “grid” bootstrap method is proposed for confidence-interval construction, which has improved performance over conventional bootstrap methods when the sampling distribution depends upon the parameter of interest. The basic idea is to calculate the bootstrap distribution over a grid of values of the parameter of interest and form the confidence interval by the no-rejection principle. Our primary motivation is given by autoregressive models, where it is known that conventional bootstrap methods fail to provide correct first-order asymptotic coverage when an autoregressive root is close to unity. In contrast, the grid bootstrap is first-order correct globally in the parameter space. Simulation results verify these insights, suggesting that the grid bootstrap provides an important improvement over conventional methods. Gauss code that calculates the grid bootstrap intervals-and replicates the empirical work reported in this paper'is available from the author's Web page at www.ssc.wisc.edu˜bhansen

Journal ArticleDOI
TL;DR: In this article, a multivariate framework for evaluating and improving multivariate density forecasts is proposed, and conditions under which a technique of density forecast "calibration" can be used to improve deficient density forecasts are provided.
Abstract: We provide a framework for evaluating and improving multivariate density forecasts. Among other things, the multivariate framework lets us evaluate the adequacy of density forecasts involving cross-variable interactions, such as time-varying conditional correlations. We also provide conditions under which a technique of density forecast “calibration” can be used to improve deficient density forecasts, and we show how the calibration method can be used to generate good density forecasts from econometric models, even when the conditional density is unknown. Finally, motivated by recent advances in financial risk management, we provide a detailed application to multivariate high-frequency exchange rate density forecasts.

Journal ArticleDOI
TL;DR: In this article, the authors provided some evidence that vertical disintegration should be greater in areas where industries localize and showed that this implication is true for the U.S. manufacturing sector.
Abstract: Theory suggests that vertical disintegration should be greater in areas where industries localize. This paper provides some evidence that this implication is true for the U.S. manufacturing sector. Purchased inputs as a percent of the value of output is used as a measure of vertical disintegration. To measure the localization of industry, for each manufacturing plant the amount of employment in neighboring plants in the same industry is determined.

Journal ArticleDOI
TL;DR: In this article, the effect of buyer merger on bilateral negotiations between a supplier and n buyers was examined, and it was shown that buyer merger may have bargaining effects in addition to the usual efficiency effects.
Abstract: We examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers. Merger may have bargaining effects in addition to the usual efficiency effects. The effect of merger on the buyers' bargaining position depends on the curvature of the supplier's gross surplus function: merger enhances (worsens) the buyers' bargaining position if the function is concave (convex). Based on a panel of advertising revenue in the cable television industry, our estimates indicate that the gross surplus function for suppliers of program services is convex. This result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis-a-vis program suppliers.

Journal ArticleDOI
TL;DR: The authors examined the persistence of incremental industry, corporate-parent, and business-specific effects on profitability of U.S. companies and found that changes in industry structure have a more persistent impact on profitability than do changes in firm structure.
Abstract: In this study, we use data for 1981 through 1994 on a large sample of U.S. companies to examine the persistence of incremental industry, corporate-parent, and business-specific effects on profitability. Our results indicate that the incremental effects of industry on profitability persist longer than the incremental effects of the corporate parent and of the specific business. Changes in industry structure have a more persistent impact on profitability than do changes in firm structure.

Journal ArticleDOI
TL;DR: In this article, the authors explore to what extent behavioral responses to the tax changes during the 1980s may also explain the rising inequality and find that both tax rates and nontax factors appear to have had significant effects on relative income growth during the late 1980s.
Abstract: Research on the distribution of income during the 1980s has identified a trend towards increasing inequality, which may be the continuation and acceleration of trends spanning several decades. This paper explores to what extent behavioral responses to the tax changes during the 1980s may also explain the rising inequality. The 1986 Tax Reform Act is used as a natural experiment to explore the roles played by both taxes and a variety of nontax factors. Our principal finding is that both tax rates and nontax factors appear to have had significant effects on relative income growth during the late 1980s.

Journal ArticleDOI
TL;DR: In this paper, a simple construction that will be referred to as an error-duration model is shown to generate fractional integration and long memory, making error duration an alternative to autoregression for explaining dynamic persistence in economic variables.
Abstract: A simple construction that will be referred to as an error-duration model is shown to generate fractional integration and long memory. An error-duration representation also exists for many familiar ARMA models, making error duration an alternative to autoregression for explaining dynamic persistence in economic variables. The results lead to a straightforward procedure for simulating fractional integration and establish a connection between fractional integration and common notions of structural change. Two examples show how the error-duration model could account for fractional integration in aggregate employment and in asset price volatility.

Journal ArticleDOI
TL;DR: In this article, the authors analyze the decision by teachers to leave the profession in a dependent competing risks framework, which allows for a flexible, semiparametric specification of the duration-dependence structure and of the unobserved heterogeneity distribution in each exit-specific hazard function.
Abstract: In this paper, we analyze the decision by teachers to leave the profession in a dependent competing risks framework. The econometric model allows for a flexible, semiparametric specification of the duration-dependence structure and of the unobserved heterogeneity distribution in each exit-specific hazard function. Our results obtained for a large sample of UK teachers affirm the importance of teacher salaries and opportunity wages in the turnover decision of teachers and illustrate the insight gained from differentiating between multiple destinations or exit types.

Journal ArticleDOI
TL;DR: In this article, the authors examined the effect of job loss risk on household net worth and found that, for the dependent variable of total net worth, the risk of losing a job is positively associated with household wealth.
Abstract: This paper examines precautionary behavior by relating job-loss risk to household net worth. We use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty, instrumentation, and incorporating theoretical restrictions. We do not find precautionary variation in the wealth holdings of households with low permanent income, but do find precautionary effects for moderate and higher-income households. When the dependent variable is total net worth, these findings are robust to several alternative specifications. But we do not find precautionary responses in subaggregates of wealth that exclude home equity.

Journal ArticleDOI
TL;DR: In this paper, the authors explore one possible explanation for the energy paradox: realized returns fall short of the returns promised by engineers and product manufacturers, and conclude that the case for energy paradox is weaker than has previously been believed.
Abstract: An important factor driving energy policy over the past two decades has been the “energy paradox,” the perception that consumers apply unreasonably high hurdle rates to energy-saving investments. We explore one possible explanation for this apparent puzzle: that realized returns fall short of the returns promised by engineers and product manufacturers. Using a unique data set, we find that the realized return to attic insulation is statistically significant, but the median estimate (9.7%) is almost identical to a discount rate for this investment implied by a CAPM analysis. We conclude that the case for the energy paradox is weaker than has previously been believed.

Journal ArticleDOI
TL;DR: This paper used the Worker-Establishment Characteristic Database (WECD) to examine seven explanations for the employer size-wage premium and found that none of the explanations can fully explain the employer's size wage premium.
Abstract: In spite of the large and growing importance of the employer size-wage premium, previous attempts to account for this premium using observable worker or employer characteristics have had limited success. The problem is that, while most theoretical explanations for the size-wage premium are based on the matching of employers and employees, previous empirical work has relied on either worker surveys with little information about the employer, or establishment surveys with little information about the workers. In contrast, this study uses the newly created Worker-Establishment Characteristic Database, which contains linked employer-employee data for a large sample of U.S. manufacturing workers and establishments, to examine seven explanations for the employer size-wage premium. A number of the explanations can account for some of the observed cross-sectional variation in worker wages. However, none of the explanations can fully account for the employer size-wage premium. In the end there remains a large, sig...

Journal ArticleDOI
TL;DR: In this article, the authors developed techniques for estimating the conditional distribution of the forward integrated variance given observed variables and found that standard models do not fit the data very well and a more general three-factor model does better, as it mimics the long-memory feature of financial volatility.
Abstract: A common model for security price dynamics is the continuous- time stochastic volatility model. For this model, Hull and White (1987) show that the price of a derivative claim is the conditional expectation of the Black-Scholes price with the forward integrated variance replacing the Black-Scholes variance. Implementing the Hull and White characteriza- tion requires both estimates of the price dynamics and the conditional distribution of the forward integrated variance given observed variables. Using daily data on close-to-close price movement and the daily range, we find that standard models do not fit the data very well and that a more general three-factor model does better, as it mimics the long-memory feature of financial volatility. We develop techniques for estimating the conditional distribution of the forward integrated variance given observed variables. I. Introduction

Journal ArticleDOI
TL;DR: In this article, a stochastic permanent break (STOPBREAK) process is proposed, where frequent transitory shocks are supplemented by occasional permanent shifts, and the model is applied to relative prices of pairs of stocks and significant test statistics result.
Abstract: This paper bridges the gap between processes where shocks are permanent and those with transitory shocks by formulating a process in which the long-run impact of each innovation is time-varying and stochastic. In the stochastic permanent breaks (STOPBREAK) process, frequent transitory shocks are supplemented by occasional permanent shifts. Consistency and asymptotic normality of quasi-maximum-likelihood estimates is established, and locally best hypothesis tests of the null of a random walk are developed. The model is applied to relative prices of pairs of stocks and significant test statistics result.

Journal ArticleDOI
TL;DR: In this paper, the optimal consumption behavior of individuals who face borrowing limitations that vary stochastically with their income is studied. But the authors focus on the U.S. aggregate data and do not consider the effect of time-varying liquidity constraints on consumption.
Abstract: This paper studies the optimal consumption behavior of individuals who face borrowing limitations that vary stochastically with their income. This framework is motivated by new empirical evidence that I document in U.S. aggregate data: predictable growth in consumer credit is significantly related to consumption growth, a finding that is inconsistent with existing models of consumer behavior. The time-varying liquidity constraint model considered here correctly predicts two key properties of the U.S. aggregate data: the correlation of consumption growth with predictable credit growth documented in this paper, and the well-known correlation between consumption growth and predictable income growth that has been documented extensively elsewhere.

Journal ArticleDOI
Martin Ravallion1
TL;DR: In this paper, the authors find that private consumption per capita, based on national accounts, deviates on average from mean household income, or expenditure based on National Sample Surveys, and that the aggregate difference in the levels is due more to income surveys, than to expenditure surveys.
Abstract: In a data set for developing, and transition economies, the author finds that private consumption per capita, based on national accounts, deviates on average from mean household income, or expenditure based on national sample surveys. Growth rates also differ systematically, so that the ratio of the survey mean to the national accounts mean, tends to fall over time. But there are revealing exceptions to these general findings. The aggregate difference in the levels is due more to income surveys, than to expenditure surveys. And there are strong regional effects; for example, the severe data problems in the transition economies of Eastern Europe, and Central Asia, means that there is negligible correlation in that region, between growth rates from national accounts, and those from household surveys.

Journal ArticleDOI
TL;DR: In this article, the authors compared the risk sharing across regions of Canada, the states of the United States, and the G-7 countries and found similar degrees of risk sharing within Canada and the U.S. that exceed the risk-sharing that occurs across countries, and found that more than two-thirds of the fitted annual variation in regional consumption is common to all regions compared to less than one-third in the case of G-seven countries.
Abstract: This paper contributes to the empirical literature that tests the implications of risk sharing across regions or countries. Rather than test the null of full insurance, the estimation method produces a parameter that measures the fraction of the annuity value of individual income that individuals of different regions (or nations) pool. Comparing the provinces of Canada, the states of the United States, and the G-7 countries, I find similar degrees of risk sharing within regions of Canada and the U.S. that exceed the risk sharing that occurs across countries. Specifically, more than two-thirds of the fitted annual variation in regional consumption is common to all regions compared to less than one-third in the case of G-7 countries.

Journal ArticleDOI
TL;DR: This article developed Bayesian methods for computing the exact finite-sample distribution of conditional forecasts in the vector autoregressive (VAR) framework and applied them to both structural and reduced-form VAR models.
Abstract: In the existing literature, conditional forecasts in the vector autoregressive (VAR) framework have not been commonly presented with probability distributions. This paper develops Bayesian methods for computing the exact finite-sample distribution of conditional forecasts. It broadens the class of conditional forecasts to which the methods can be applied. The methods work for both structural and reduced-form VAR models and, in contrast to common practices, account for parameter uncertainty in finite samples. Empirical examples under both a flat prior and a reference prior are provided to show the use of these methods.

Journal ArticleDOI
TL;DR: This paper developed employment and job flow statistics for a representative sample of French establishments from 1987 to 1990, using data that permit a distinction between flows of workers (directly measured) and job creation and destruction (again, directly measured).
Abstract: Using data that permit a distinction between flows of workers (directly measured) and job creation and destruction (again, directly measured), we develop employment and job flow statistics for a representative sample of French establishments from 1987 to 1990. Annual job creation can be characterized as hiring three persons and separating two for each job created in a given year. Annual job destruction can be characterized as hiring one person and separating two for each job destroyed in a given year. When an establishment is changing employment, the adjustment is made primarily by reducing entry and not by changing the separation rates. There is considerable simultaneous hiring and separation, even controlling for skill group. Two-thirds of all hiring is on short-term contracts, and more than half of all separations are due to the end of these short-term contracts.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the empirical consequences of nonlinear RUMs in the case of sportfishing modal choice, while refining and contrasting the available methods for welfare estimation.
Abstract: Random utility models (RUMs) are used in the literature to model consumer choices from among a discrete set of alternatives, and they typically impose a constant marginal utility of income on individual preferences. This assumption is driven partially by the difficulty of constructing welfare estimates in models with nonlinear income effects. Recently, McFadden (1995) developed an algorithm for computing these welfare impacts using a Monte Carlo Markov chain simulator for generalized extreme-value variates. This paper investigates the empirical consequences of nonlinear RUMs in the case of sportfishing modal choice, while refining and contrasting the available methods for welfare estimation.