
on Econometrics 
By:  David E. Giles (Department of Economics, University of Victoria) 
Abstract:  We consider Bayesian estimation of the coefficients in a linear regression model, using a conjugate prior, when certain additional exact restrictions are placed on these coefficients. The bias and matrix mean squared errors of the Bayes and restricted Bayes estimators are compared when these restrictions are both true and false. These results are then used to determine the consequences of model misspecification in terms of overfitting or underfitting the model. Our results can also be applied directly to determine the properties of the “ridge” regression estimator when the model may be misspecified, and other such applications are also suggested. 
Keywords:  Bayes estimator, regression model, linear restrictions, model misspecification, bias, matrix mean squared error 
JEL:  C11 C20 C52 
Date:  2010–12–14 
URL:  http://d.repec.org/n?u=RePEc:vic:vicewp:1004&r=ecm 
By:  Andreas Steinhauer; Tobias Wuergler 
Abstract:  This paper develops basic algebraic concepts for instrumental variables (IV) regressions which are used to derive the leverage and influence of observations on the 2SLS estimate and compute alternative heteroskedasticityconsistent (HC1, HC2 and HC3) estimators for the 2SLS covariance matrix in a finitesample context. Monte Carlo simulations and applications to growth regressions are used to evaluate the performance of these estimators. The results support the use of HC3 instead of White’s robust standard errors in small and unbalanced data sets. The leverage and influence of observations can be examined with the various measures derived in the paper. 
Keywords:  Two stage least squares, leverage, influence, heteroskedasticityconsistent covariance matrix estimation 
JEL:  C12 
Date:  2010–12 
URL:  http://d.repec.org/n?u=RePEc:zur:iewwpx:521&r=ecm 
By:  de Silva, Ashton J 
Abstract:  Innovations state space time series models that encapsulate the exponential smoothing methodology have been shown to be an accurate forecasting tool. These models for the first time are applied to Australian macroeconomic data. In addition new multivariate specifications are outlined and demonstrated to be accurate. 
Keywords:  exponential smoothing; state space models; multivariate time series; macroeconomic variables 
JEL:  C32 C53 E17 
Date:  2010–12–13 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:27411&r=ecm 
By:  Esmeralda A. Ramalho (Departamento de Economia, Universidade de Évora and CEFAGEUE); Joaquim Ramalho (Departamento de Economia, Universidade de Évora and CEFAGEUE) 
Abstract:  Binary response index models may be affected by several forms of misspecification, which range from pure functional form problems (e.g. incorrect specification of the link function, neglected heterogeneity, heteroskedasticity) to various types of sampling issues (e.g. covariate measurement error, response misclassification, endogenous stratification, missing data). In this paper we examine the ability of several versions of the RESET test to detect such misspecifications in an extensive Monte Carlo simulation study. We find that: (i) the best variants of the RESET test are clearly those based on one or two fitted powers of the response index; and (ii) the loss of power resulting from using the RESET instead of a test directed against a specific type of misspecification is very small in many cases. 
Keywords:  Binary models; RESET; Misspecification. 
JEL:  C12 C15 C25 
Date:  2010 
URL:  http://d.repec.org/n?u=RePEc:cfe:wpcefa:2010_09&r=ecm 
By:  Vasco J. Gabriel (Department of Economics, University of Surrey and Universidade do Minho  NIPE); Luis F. Martins (Department of Quantitative Methods and UNIDE, ISCTELUI, Portugal) 
Abstract:  We examine the properties of several residualbased cointegration tests when long run parameters are subject to multiple shifts driven by an unobservable Markov process. Unlike earlier work, which considered oneoff deterministic breaks, our approach has the advantage of allowing for an unspecified number of stochastic breaks. We illustrate this issue by exploring the possibility of Markov switching cointegration in the stockprice dividend relationship and showing that this case is empirically relevant. Our subsequent Monte Carlo analysis reveals that standard cointegration tests are generally reliable, their performance often being robust for a number of plausible regime shift parameterizations. 
Keywords:  Present value model; Cointegration tests; Markov switching. 
JEL:  C32 G12 E44 
Date:  2010 
URL:  http://d.repec.org/n?u=RePEc:nip:nipewp:28/2010&r=ecm 
By:  Urzúa, Carlos M. (Tecnológico de Monterrey, Campus Ciudad de México) 
Abstract:  It is noted that the regression procedure commonly used when testing for Zipf’s law is erroneous. 
Keywords:  Zipf’s law, ranksize 
JEL:  C12 R11 R12 
Date:  2010–12 
URL:  http://d.repec.org/n?u=RePEc:ega:docume:201004&r=ecm 
By:  Vasco J. Gabriel (Department of Economics, University of Surrey and Universidade do Minho  NIPE); Pataaree Sangduan (Bureau of the Budget, Thailand) 
Abstract:  We suggest a multivariate efficient test of the 'strong' fiscal sustainability hypothesis, based on Horvath and Watson's (1995) cointegration test when cointegration vectors are prespecified. Using data for a set of developed and developing economies, we show that, unlike our procedure, conventional methodologies tend to penalize the sustainability hypothesis. 
JEL:  C32 E62 H60 
Date:  2010 
URL:  http://d.repec.org/n?u=RePEc:nip:nipewp:32/2010&r=ecm 
By:  José Casals Carro (Departamento de Fundamentos de Análisis Económico II, Universidad Complutense de Madrid.); Alfredo GarcíaHiernaux (Departamento de Fundamentos de Análisis Económico II, Universidad Complutense de Madrid.); Miguel Jerez (Departamento de Fundamentos de Análisis Económico II, Universidad Complutense de Madrid.) 
Abstract:  Fixed coecients StateSpace and VARMAX models are equivalent, meaning that they are able to represent the same linear dynamics, being indistinguishable in terms of overall fit. However, each representation can be specifically adequate for certain uses, so it is relevant to be able to choose between them. To this end, we propose two algorithms to go from general StateSpace models to VARMAX forms. The first one computes the coeficients of a standard VARMAX model under some assumptions while the second, which is more general, returns the coeficients of a VARMAX echelon. These procedures supplement the results already available in the literature allowing one to obtain the StateSpace model matrices corresponding to any VARMAX. The paper also discusses some applications of these procedures by solving several theoretical and practical problems. 
Keywords:  StateSpace, VARMAX models, Canonical forms, Echelon. 
Date:  2010 
URL:  http://d.repec.org/n?u=RePEc:ucm:doicae:1002&r=ecm 
By:  Maria Vittoria Levati (Max Planck Institute of Economics, Jena); Topi Miettinen (Aalto School of Economics, Alto); Birendra K. Rai (Monash Univeristy, Clayton) 
Abstract:  The existing literature acknowledges that a mismatch between the experimenter's and the subjects' models of an experimental task can adversely affect the interpretation of data from laboratory experiments. We discuss why the two common experimental designs (betweensubjects and withinsubjects) used to conduct experiments may fail to sufficiently account for this concern. An alternative design for laboratory experiments is proposed which may alleviate this concern especially in studies of social preferences. The proposed design is used to answer some questions that have attracted continued attention in the literature on social preferences in general and reciprocity in particular. 
Keywords:  Experimental design, Context, Trust game 
JEL:  C70 C90 D63 D64 
Date:  2010–12–14 
URL:  http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010090&r=ecm 
By:  Naoto Kunitomo (Faculty of Economics, University of Tokyo); Seisho Sato (The Institute of Statistical Mathematics) 
Abstract:  We investigate some issues of macroeconomic statistics in Japan including the housing investment, the private nonresidential investment and the quarterly (preliminary) GDP estimates. We illustrate the problems associated with the seasonality and structural break in recent Japanese macroeconomy. We use the statistical smoothing method and DECOMP (developed by Kitagawa and Sato at ISM) and discuss the possible problems with the use of X12ARIMA program by the statistical offices in the Japanese central government. We propose several ways to improve the quality of macroeconomic statistics in Japan. 
Date:  2010–12 
URL:  http://d.repec.org/n?u=RePEc:tky:jseres:2010cj230&r=ecm 
By:  Kapsalis, Constantine 
Abstract:  The reverse regression method of measuring wage discrimination is the main challenge to the dominant direct regression method based on the Oaxaca/Blinder approach. In this article, it is argued that the choice between the two methods is fundamentally a choice of assumptions regarding the nature of the wage determination process and the nature of the unexplained regression residual of the wage regression equation. In particular, this article concludes that the reverse regression method is more likely to produce the correct wage discrimination measure if any of the following three assumptions is correct: (a) qualifications do not determine how much individuals earn (as the direct regression method assumes) but, instead, determine which candidates are selected for existing jobs with fixed wages; (b) errors in the measurement of qualifications are larger than errors in the measurement of wages, in which case the direct regression method would understate the importance of differences in qualifications; and (c) differences in unobserved qualifications (e.g., importance of job flexibility; relevance of past work experience) between two groups are not zero (as the direct regression method assumes) but tend to favour the group with the better observed qualifications. Finally, this article shows that application of the reverse regression technique simply requires the augmentation of the qualification component of the direct regression method by dividing it by the R2 coefficient. 
Keywords:  wage discrimination; gender discrimination 
JEL:  J7 
Date:  2010–12–08 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:27331&r=ecm 
By:  Hans DEWACHTER; Romain HOUSSA; Priscilla TOFFANO 
Abstract:  This paper develops a Spatial Vector AutoRegressive (SpVAR) model that takes into account both the time and the spatial dimensions of economic shocks. We apply this framework to analyze the propagation through space and time of macroeconomic (inflation, output gap and interest rate) shocks in Europe. The empirical analysis identifies an economically and statistically significant spatial component in the transmission of macroeconomic shocks in Europe. 
Keywords:  Macroeconomics, Spatial Models, VAR 
JEL:  E3 E43 E52 C51 C33 
Date:  2010–04 
URL:  http://d.repec.org/n?u=RePEc:ete:ceswps:ces10.12&r=ecm 
By:  Lee C. Spector (Department of Economics, Ball State University); Courtenay C. Stone (Department of Economics, Ball State University) 
Abstract:  The ex ante real rate of interest is an important concept in economics and finance. These disciplines treat Irving Fischer’s theory of interest as canonical; it is used universally. In the world as we know it, the Fisher theory requires positive ex ante real interest rates. Consequently, empirical estimates of the ex ante real interest rate derived from the Fisher theory of interest should also be positive. Virtually all estimates of the ex ante real interest rate published in economic journals and/or used in macroeconomic models and policy discussions for the past 35 years, however, contain negative values for extended time periods. These negative ex ante real interest rate estimates would thus seem to be theoretically flawed. Moreover, it was shown more than 30 years ago that the procedures generally used to estimate ex ante real interest rates produce biased estimates. We document this problem, explore why it exists, and assess alternative approaches for estimating the ex ante real interest rate. 
Keywords:  ex ante real interest rate, estimation problems 
JEL:  B4 E0 E3 
Date:  2010–10 
URL:  http://d.repec.org/n?u=RePEc:bsu:wpaper:201010&r=ecm 