Empirical Economics

In order to restore the global economy to solid and sustainable growth, capitalism needs to be reformed from an irrational profit-maximising model into a more rational profit-equalising one. In the aggregate the growth rate of gross operating surplus plus gross mixed income must equal that of gross domestic product and not exceed it, thereby ensuring that the compensation of employees increases proportionally as well. This would prevent the deflationary effect of having continually to refinance debt as it increases disproportionally relative to GDP over successive economic cycles, the root cause of which is not treating the compensation of employees as both a cost and an income in the pursuit of maximising profitability. In SNA national income accounting methodology, income derived GDP is equal to gross operating surplus plus gross mixed income plus compensation of employees plus taxes on production and imports less subsidies. Thus, as profit and mixed income increase relative to GDP, employee compensation must necessarily decrease proportionally with allowances for taxes and subsidies. As wages and salaries are both a cost and an income, which is a self-evident truth, if they are suppressed as a cost on the supply side of an economy in order to maximise profit, this reduction affects aggregate demand by a proportional amount on the demand side by weakening the multiplier. This distorts supply and demand, leading to serious economic imbalances over time. Prices or rather their relative components of wages and profit determine the equilibrium of supply and demand in the aggregate rather than the other way around as the fundamental tenet of neo-classical economics proposes.

The equation below provides evidence that the first principle of wages being a cost and an income is key to balancing supply and demand, and income and expenditure over the economic cycle as well as economics becoming a fully-fledged science. Using United States’ national accounts time series data between 1972 and 2007 to empirically demonstrate a causal connection between the real and financial economies, the increasing dysfunction of the business cycle can be explained. Evidence from other national economies is examined as well. Despite wages being both a cost and a source of demand being obvious and fundamental to Keynes’ demand side theory in his General Theory, it has never been properly acknowledged or its effects fully understood. This reluctance to examine profit is an example of the dialectical opposition between convention based on excessive self-interest in the face of a seemingly uncertain and threatening environment and reason based on the underlying scientific laws of nature. Convention is always stronger than reason in the short to medium term and is only forced to become more rational in the longer term once it has finally collapsed under the weight of its contradiction with reality. The convention of profit-maximising capitalism could soon be at this point if the wall of corporate refinancing it faces in the next few years proves to be insurmountable.

Between June 1998 and March 2006, the price index of apartment houses in Seoul, Korea, more than doubled, while fundamentals such as GDP, wage, and population increased by less than 35%. This study examines the role of a rational speculative bubble in this price surge. We find that unobservable information explains part of the price volatility; and that a rational bubble proxy is a significant driver of prices. However, neither latent information nor rational bubble is enough to explain the recent housing price appreciation, even in conjunction with observable fundamentals.

A quadratic Box-Cox methodology is presented for choice of flexible functional form that includes consistent computation of variance estimates. Empirical viability of the procedure is investigated by specifying a dual profit function using highly aggregated U.S. agricultural data. Conditional and unconditional variance estimates for the parameters are compared and contrasted. Like-lihood ratio tests are utilized to discriminate among the generalized Leontief, normalized quadratic, translog, and square-rooted quadratic functional forms. Statistical results indicate that the squarerooted quadratic is the preferred choice of functional form for these data, followed by the normalized quadratic.

This paper employs the recently developed structural stability test with multiple regime shifts and grid bootstrapping methods to model US inflation dynamics over the past half century. Our empirical results suggest that the persistence of inflation has witnessed significant declines over the most recent period of low inflation and this helps to embed a low inflation environment. The finding is

In this paper we develop a dynamic model for integer counts to capture fundamental properties of financial prices at the transaction level. Our model relies on an autoregressive multinomial component for the direction of the price change and a dynamic count data component for the size of the price changes. Since the model is capable of capturing a wide range of discrete price movements it is particularly suited for financial markets where the trading intensity is moderate or low. We present the model at work by applying it to transaction data of two shares traded at the NYSE traded over a period of one trading month. We show that the model is well suited to test some theoretical implications of the market microstructure theory on the relationship between price movements and other marks of the trading process. Based on density forecast methods modified for the case of discrete random variables we show that our model is capable to explain large parts of the observed distribution of pr...

In this paper, we compare alternative estimation approaches for factor augmented panel data models. Our focus lies on panel data sets where the number of panel groups (N) is large relative to the number of time periods (T). The principal component (PC) and common correlated effects (CCE) estimators were originally developed for panel data with large N and T, whereas the GMM approaches of Ahn et al. (J Econ 728 174:1–14, 2013) and Robertson and Sarafidis (J Econ 185(2):526–541, 2015) assume that T is small (that is T is fixed in the asymptotic analysis). Our comparison of existing methods addresses three different issues. First, we analyze the possibility of an inappropriate normalization of the factor space (the so-called normalization failure). In particular we propose a variant of the CCE estimator that avoids the normalization failure by adapting a weighting scheme inspired by the analysis of Mundlak (Econometrica 46(1):69–85, 1978). Second, we analyze the effects of estimating v...

Mediation analysis aims at evaluating the causal mechanisms through which a treatment or intervention affects an outcome of interest. The goal is to  disentangle the total treatment effect into an indirect effect operating through one or several observed intermediate variables, the so-called mediators, as well as a direct effect reflecting any impact not captured by the observed mediator(s). This paper reviews methodological advancements with a particular focus on applications in economics. It defines the parameters of interest, covers various identification strategies, e.g. based on control variables or instruments, and presents sensitivity checks. Furthermore, it discusses several extensions of the standard mediation framework, such as multivalued treatments, mismeasured mediators, and outcome attrition.

El proceso de elegir, es desde aquellos textos de Adam Smith, una cuestión recurrente en el transcurso del pensamiento económico. Además, y con mayor énfasis en los últimos años, el modo en que los individuos seleccionan sus preferencias ha sido también un tema a tratar en vastas áreas de las ciencias humanas: psicología, sociología, antropología. Es bien sabido que los objetos de las preferencias y las elecciones pueden ser diferentes y diferente también el modo de optar por ellos. En la teoría de la elección del consumidor, primera aproximación académica al tema desde la economía (más tarde vendría la opción en las teorías de las finanzas públicas), son canastas de bienes y servicios. Como las preferencias de bienes individuales dependen de que otros bienes uno dispone, los objetos de preferencias deberían, en general y según la opinión de Hausman, ser tomados como descripciones completas de estados del mundo . En el razonamiento de los economistas, además, se postula el supuesto de racionalidad (con sus variantes) para el proceso de los agentes. Ahora bien, la combinación entre elección y racionalidad, en el caso de la teoría del consumidor, está ligada a la utilización instrumental de la utilidad ordinal como hilo conductor conceptual. En el momento en que teóricamente se plantean dudas epistemológicas acerca de la pertinencia real de la utilidad ordinal en el proceso, la verificación de la utilidad cardinal presente en los individuos se torna imprescindible. En el presente paper, se realizará a cabo un experimento enmarcado en las teorías de la preferencia revelada (Harbought at al) usando como sujetos del experimento a personas de diferente sexo, edad y conocimiento de economía. El objetivo, en la primera parte del mismo, será encontrar violaciones al axioma débil de la preferencia revelada, buscando contradicciones empíricas al interior mismo de la teorización sobre las elecciones. En segundo lugar, se buscará contrastar la elección absoluta, presente en la utilidad cardinal, con la utilidad instrumental en la cual la economía descansa.

This paper applies data envelopment analysis (DEA) to assess the efficiency, technical and scale, of both departments and faculties at University of Salerno in the South of Italy. Particular attention has been paid on two main activities, teaching and research, and on two large groups, science and technology (ST) sector and humanity and social science (HSS) sector. The findings, based on data from 2005 to 2009, suggest that the ST sector is more efficient in terms of quality of research than the HSS sector that instead achieves higher efficiency in teaching activities. The efficiency estimates strongly depend on the output specification, given that the use of several quality proxies as output reduces the performance and its differentials for both research and teaching activities. The Malmquist index is calculated to measure changes in productivity. A bootstrap technique is also used to provide confidence intervals for efficiency scores and to determine accurate performance estimates.

This paper tests for unit roots, cointegration, and Granger-causality in the exports-GDP nexus in Canada 1947–96, using both bivariate and trivariate models. Contrary to previous studies we cannot conclude that economic growth is either export-led, or output-driven, but rather that strong bi-directional causality exists between Canadian exports and GDP, and the GDP of its main trading partner, the United States.

Abstract. Many researchers use GARCH models to generate volatility fore-casts. Using data on three major US dollar exchange rates we show that such forecasts are too high in volatile periods. We argue that this is due to the high persistence of shocks in GARCH forecasts. ...