Subsistence Consumption and Rising Saving Rate


 Laurence Banks
 3 years ago
 Views:
Transcription
1 Subience Conumpion and Riing Saving Rae Kenneh S. Lin a, HiuYun Lee b * a Deparmen of Economic, Naional Taiwan Univeriy, Taipei, 00, Taiwan. b Deparmen of Economic, Naional Chung Cheng Univeriy, ChiaYi, 6, Taiwan. Abrac Thi paper inveigae he implicaion of he permanen income hypohei wih ubience conumpion being he driving force of a riing aving rae during economic developmen. To olve he difficuly ha ubience conumpion i unavailable, we ue coinegraing regreion o generae he unobervable, ubiencelevel adjued aving rae erie, and hen e he orhogonal condiion impoed by he model uing he generaed erie. The implicaion of he model canno be rejeced for Taiwan aiically, bu receive weak uppor for Japan. JEL claificaion: E Keyword: Saving rae; Subience conumpion; Permanen income hypohei * Correponding auhor: HiuYun Lee, Deparmen of Economic, Naional Chung Cheng Univeriy, MingHiung, ChiaYi 6, Taiwan. TEL: ex Fax:
2 . Inroducion The aving rae roe in he powar period for many counrie wih a noiceable excepion being he U.S., and here exi ubanial crocounry dipariy in he lope of riing aving rae. Thi paper udie he longrun behavior of he aving rae in he framework of he permanen income model, and he ubience level of conumpion i he key driving force. When conumpion i near he ubience level, an agen major concern i meeing he ubience requiremen, and he elaiciy of ineremporal ubiuion in conumpion i cloe o zero. If he economy grow a a uained rae, agen become more willing o ubiue curren conumpion for fuure conumpion. Tha i, he ubience requiremen can generae a riing aving rae. Once he imporance of he ubience requiremen in conumpion deciion decline, he aving rae behave more like a aionary variable. The idea ha ubience conumpion induce a imevarying aving rae i no Thee ylized fac were documened in Maddion (99). An alernaive approach in modeling he poiive relaionhip beween growh and aving would be he life cycle model of conumpion. However, recen crocounry regreion did no find populaionrelaed variable uch a he populaion growh rae, meaure of he age rucure, and moraliy rae o be ignifican facor in accouning for he counrydifference in he aving rae (Rebelo, 99).
3 new. Zellner (960) howed ha ubience conumpion can make he raio of opimal conumpion o permanen income depend on he level of permanen income. Chriiano (989) inroduced he ubience level of conumpion in he repreenaive agen uiliy funcion. Given cerain parameerizaion, he model wa able o accoun for he humphaped paern of Japan' aving rae in he powar period. Rebelo (99) alo ued he uiliy funcion wih he ubience level of conumpion o explain he crocounry difference in he growh rae of conumpion wih a perfec inernaional capial marke. Chaerjee (994) argued ha if he economy grow oward he eady ae and here exi a minimum conumpion level requiremen, hen he average aving propeniy i poiively relaed o wealh. Recenly, Ogaki, Ory and Reinhar (996) eimaed a model ha emphaize he role of ubience conumpion and found rong empirical uppor for he hypohei ha he aving rae and i eniiviy o he inere rae are a riing funcion of income. According o he permanen income hypohei, when agen ave only for conumpion moohing, change in aving reflec anicipaed change in fuure income. In addiion, here i a iling moive relaed o any dicrepancy beween he ubjecive dicoun facor and he marke dicoun facor. Wih a perfec inernaional capial marke, mo growh model wih andard preference imply ha conumpion
4 and oupu growh would equalize acro counrie. The model predic ha he aving rae conain no upward rend a he U.S. obervaion over he pa one hundred year. However, during he proce of economic developmen he aving rae rie in many counrie. A riing aving rae indicae ha he growh of income oupace he growh of conumpion. Therefore, imperfec inernaional capial mobiliy i neceary o have crocounry dipariy, or he real inere rae mu be implauibly high in order o generae a riing aving rae in lowincome counrie. In hi paper, we ry o provide an alernaive explanaion for a riing aving rae while mainaining he aumpion of perfec capial mobiliy. The ubience level of conumpion impoe eable rericion on he rend and cyclical properie of aving rae and labor income growh. We how ha once he ubience requiremen i properly conidered in meauring he aving rae, he adjued aving rae become a aionary erie. However, economerician canno oberve he ubience conumpion and hi caue difficuly in regular eimaing. Ogaki, Ory and Reinhar (996) aeed a range of value of ubience conumpion around he value of US$3 (985 price) found for India by Akeon and Ogaki (993). Raher han aigning he value, hi paper employ a woep economeric procedure o olve he difficuly ha ubience conumpion i 3
5 unavailable. We fir ue Park (99) canonical coinegraing regreion (CCR) o generae he unobervable, ubiencelevel adjued aving rae erie. We hen apply he Generalized Mehod of Momen (GMM) o e he orhogonal condiion impoed by he model uing he adjued aving rae and labor income growh rae erie. In an empirical inveigaion, we ak wheher he aving rae erie in Japan and Taiwan i conien wih he longrun predicion of our model. Thee wo counrie were near ubience a he end of World War II, and managed o have uained and impreive growh in he pa fory year. They did no begin wih a high aving rae, bu experienced a dramaic increae during economic developmen. Hence, our focu i no on why hee counrie ave a lo, bu raher on why hey have riing aving rae. The remainder of he paper i a follow. The nex ecion preen a permanen income model wih he ubience requiremen. Secion 3 ue he oluion for he Euler equaion and he ineremporal budge conrain o derive he longrun implicaion for he aving rae. Secion 4 propoe a woep economeric procedure for parameer eimaing and hypohei eing. Secion 5 decribe he ime erie daa for Japan and Taiwan and preen he empirical reul. The la ecion conain ome concluion. 4
6 . A model wih a ubience level of conumpion The repreenaive agen face he problem of chooing a coningency plan of conumpion {, 0}, o a o maximize c E ) 0 0 U( c ; ubjec o b ( r)( b y c ), wih b given. Here y i he privae agen 0, labor income a ime, b i he nonhuman wealh valued in uni of conumpion good held a he beginning of period, and r i he conan real rae of reurn on nonhuman wealh. Funcion U(c ; ) i he ime eparable uiliy funcion of conumpion a ime wih U ( ; ) 0 and U ( ; ) 0. Term i he c c poiive rae of ime preference, and E denoe he mahemaical expecaion condiioned on he informaion e available a he beginning of ime,. Term capure he exience of ubience conumpion, becaue marginal uiliy of conumpion hoo off o infiniy a conumpion decreae oward : lim U ( c ; ). c To model he ubience level of conumpion, we ue he following log verion of he HARA (hyperbolic abolue rik averion) uiliy funcion: 3 3 The widely ued quadraic uiliy funcion ha wo undeired feaure for he purpoe of our udy. 5
7 U c ; ) ln( c ). ( Here i aumed o evolve according o E ) ( m for all in which m i a conan. Two pecificaion of were ued in previou udie. Fir, he ubience level of conumpion i conan over ime ( 0 ) in Rebelo (99) and Akeon and Ogaki (993). Second, he ubience level of conumpion ha a linear ime rend: ( m) wih m 0 in Chriiano (989). The Euler equaion for he repreenaive agen problem i 0 ( r)( c ) ( )( c ), () in which i he lea quare projecion error ha aifie E[ ] 0 and reflec new abou fuure income. 4 I i clear from () ha marginal uiliy i convex in c under he logarihmform uiliy funcion. An increae in uncerainy raie he expeced marginal uiliy of conumpion. To mainain he equaliy in he Euler equaion, he expeced fuure conumpion mu increae relaive o curren conumpion. Furhermore, we aume ha E [ ] for all. Auming ha he ubience level of conumpion doe no grow, equaion () yield he following lognormal approximaion: Fir, i implie he finie marginal uiliy for any admiible level of conumpion. Second, he ineremporal elaiciy of ubiuion fall a he level of conumpion increae. 4 A i common in empirical reearch, we ake condiional expecaion o be linear leaquare projecion on he informaion e. 6
8 E c c r, () in which 0 / c i he ineremporal elaiciy of ubiuion. Term i no longer conan and i converge o one when conumpion grow a a uained rae. The larger he value of i, he eaier i i for privae agen, in erm of uiliy, o forego curren conumpion for fuure conumpion, and hu he higher he expeced conumpion growh rae i. The poiive relaionhip beween and c implie ha agen in he highincome economy are more willing o ubiue curren conumpion for fuure conumpion han hoe in he lowincome economy. Hence, he flucuaion of conumpion in he highincome economy could be higher han hoe in he lowincome counerpar. The expeced conumpion growh rae i deermined by wo equally conribuing facor. Fir, ( r ) characerize he opimal repone of conumpion deciion o he real rae of reurn on he nonhuman wealh. When he real rae of reurn exceed he rae of ime preference, here i an incenive for privae agen o increae conumpion in he fuure. The higher real rae of reurn caue he ineremporal conumpion pah o il oward fuure period. Second, / repreen he effec of uncerainy in fuure even on he conumpion profile, ince aving provide a reerve again any bad oucome from fuure even. Privae agen prefer o defer curren conumpion for higher fuure conumpion in he face of uncerainy. We call 7
9 aving induced by he above wo facor he eae aving and precauionary aving, repecively. Wihou he ubience conumpion ( ), equaion () predic ha any crocounry difference in conumpion growh mu be aribued o he crocounry difference in or or preference in a world wih a perfec inernaional capial marke. The riing ineremporal elaiciy of ubiuion apparenly offer an explanaion for he crocounry difference in conumpion growh. Anoher approach aume ha he rae of ime preference fall a an economy become richer. 5 Uing he Indian village panel daa, Akeon and Ogaki (993) found ha he rae of ime preference i conan acro poor and rich houehold, while he ineremporal elaiciy of ubiuion i higher for rich houehold han i i for poor houehold. 3. Saving rae and he ubience conumpion The Euler equaion i only one of he neceary condiion for opimizaion o ha he implied aving rae could be inconien wih he budge conrain. In hi ecion we ue he Euler equaion and he budge conrain o yield a igher 5 Geroviz (983) emphaized he imporance of nuriion and healh in he deerminaion of aving behavior. In hi model, he probabiliy of urvival depend on an agen' conumpion in he previou period and he rae of ime preference decreae a he previou period' conumpion increae. 8
10 characerizaion for he aving rae. When conumpion grow a a uained rae and c, for all, equaion () can be approximaed a ] )[ ( ] [ c r c E. (3) Recurively ubiuing (3) ino he budge conrain under he aumpion ha m r and give he oluion of : / c p y c, (4) in which, i he permanen income a ime : r ) / / ( p y i i i p b y r E r r y 0, and i he permanen ubience conumpion a ime : r m m r /. The marginal propeniy o conume ou of permanen income ( ) ay conan over ime, bu he conumpionpermanen income raio will change wih he level of permanen income. The hree facor r, and deermine he value of. If r exceed, agen have incenive o increae fuure conumpion. Hence, he ineremporal paern of conumpion il oward fuure period and i a decreaing funcion of r. On he oher hand, when fuure even become more uncerain, agen 9
11 end o ave more of heir permanen income a he reerve again bad fuure oucome and i a decreaing funcion of. Unlike he quadraic uiliy funcion, when r he value of i ill le han one due o precauionary aving. Agen are more willing o ubiue curren conumpion for fuure conumpion only when curren and fuure ubience conumpion become le of a concern in conumpion deciion. I i unlikely ha p c / y ay conan during he period of economic developmen. The permanen ubience conumpion appear o be a ource of rend for he aving rae. However, he role of ubience conumpion in he ime profile of conumpion depend on he ign of m k, where k r / i he expeced growh rae of conumpion when here i no ubience requiremen. Conider ha he expeced growh rae of (m) i le han he lope of he ineremporal conumpion pah (k) and 0 for all. Since meeing fuure ubience conumpion i no a major concern for agen, agen end o ave le han wha hey would ave wihou he ubience conumpion. The expeced conumpion growh rae i le han k. For m k, he addiional fuure income generaed by eae aving and precauionary aving exacly offe he expendiure required for he fuure increae in he permanen ubience conumpion. The negaive effec of an increae in c on he marginal uiliy i exacly offe by he poiive effec of an increae in on he marginal uiliy. The expeced marginal rae of ubiuion beween curren conumpion and fuure conumpion ay conan over ime. Tha i, he ubience level of conumpion ha no effec on conumpion 0
12 deciion. For m k, we expec he ubience conumpion o grow faer han conumpion. Once agen worry abou he faincreaing permanen ubience conumpion in heir deciion, hey mu ave more o mee fuure ubience conumpion. The conumpion pah mu il oward he fuure period o ha conumpion ay above i ubience level in every fuure period. Agen ave o urvive. Since he aumpion of r m and / required in he derivaion of (4) are no ufficien o pin down he ign of hereafer. m k, we aume ha k m 0 To preciely characerize he relaionhip beween conumpion growh and income growh, conider he following ranformaion of equaion (4): c y i i r ( j i r b E ) r j y y, (5) in which i he growh rae of labor income a ime : y ( ) y. The derivaion of (4) and (5) do no require any explici relaionhip among b, y and, excep ha heir expeced growh rae are all le han r, i.e., r and r m. Suppoe ha he growh rae of labor income i expeced o be greaer han ha of (m). When agen were near ubience, hey had o pend a ignifican porion of heir income in conumpion imply for urvival. Equaion (5) predic ha boh / and c / y are high in he early age of economic developmen. When heir y conumpion move away from he ubience level, agen are more willing o
13 ubiue curren conumpion for fuure conumpion o ha he ineremporal conumpion pah il oward fuure period. The raio / y here i he driving force for he declining conumpionlabor income raio during economic developmen. However, he effec on c / y i weaker a he level of labor income increae. On he oher hand, if he growh rae of labor income i expeced o be le han m, hen / y become an increaingly dominan driving force for he riing conumpionlabor income raio. The permanen ubience conumpion exer ronger influence on agen conumpion deciion a he economy grow. Since hi i an undeirable feaure of he model, uch a poibiliy i ruled ou on he ground ha he conumpionlabor income canno rie wihou an upper bound. To derive aving, le ŷ denoe he oal income, which i he um of labor income ( y ) and capial income ( rb /( r) ): r yˆ b y, r and he convenional aving i defined o be yˆ c. Generally, equaion (5) canno be ranformed in erm of hi aving. Define a new variable: ˆ yˆ c uch ha ŝ i he convenional aving when. For impliciy, will be referred o a ŝ
14 aving hroughou he remainder of he paper. 6 A andard manipulaion of equaion (5) produce: ˆ y i i r E r r i r j ( j ). (6) y The permanen ubience conumpion ( / y ) i clearly a driving force for he riing aving rae. Imagine ha wo counrie have he ame ime profile of and. Equaion (6) implie ha he counry in he early age of developmen hould have a lower aving rae han he counry in he laer age of developmen. Thi i becaue agen in he early age of developmen have o pend mo of heir income imply for urvival. Afer an economy achieve a ufficienly high level of income, he imporance of he permanen ubience conumpion ( / y ) decline for driving he aving rae. Equaion (6) can be ued o examine he effec of change in he labor income growh on he aving rae, oo. To do hi we ake he firorder Taylor expanion of i i ( r) ( around o obain i j j ) 6 Campbell (987) meaure aving a he dicrepancy beween dipoable income and conumpion divided by he marginal propeniy o conume ou of permanen income. Thu, he aving defined in our paper i proporional o he one in Campbell wih he proporionaliy facor. 3
15 i i ( ) ( i ), j i r j r r i0 i in which i he mean value of he labor income growh rae, and i ( r ) /( ) wih r. The abolue ummabiliy of {( ) } implie ha he fir and econd momen of i ( ) i0 i are well defined. Equaion (6) can hen be ranformed o y r r E r)( r ) ( i0 ( i, (7) i ) in which ˆ i he level of aving adjued for he permanen ubience conumpion. If i a aionary variable, hen he preen value of a fuure deviaion from i mean i aionary a well. Therefore, equaion (7) implie ha / y i aionary. Suppoe labor income growh i expeced o emporarily low down in he nex everal period. To keep conumpion on he planned pah, privae agen mu increae heir aving o ha higher fuure capial income can offe he decline in fuure labor income caued by he emporary lowdown. Hence, cyclical flucuaion of only induce flucuaion in aving. A menioned above, he declining paern of / y in economic developmen induce an upward rend in ˆ / y. Only he proper conideraion of he permanen ubience conumpion in meauring he aving rae 4
16 can eliminae he rend componen of he aving rae. 4. A woep economeric procedure A hown in equaion (6), he permanen ubience conumpion ( ) i he driving force for he riing aving rae. One poenial problem in eimaing equaion (6) i ha economerician canno oberve. In hi ecion we propoe a woep economeric procedure, which ue he informaion conained in he rend and cyclical properie of he aving rae, o olve hi problem. in which From equaion (6), i follow ha y ( r), y i i r( E E ) ( i r j j ) i he unpredicable reviion from o in he expeced value of human wealh. When / y, / y and are aionary variable, a linear combinaion of he hree aionary variable eliminae all erial correlaion and i compleely unpredicable wih repec o he pa informaion e. The above equaion implie a e of orhogonaliy rericion (or he momen condiion): 5
17 E r r z y y for any random vecor. z 0, (8) The GMM procedure appear o be uiable for eimaing parameer and eing he model by fiing equaion (8). Since he unoberved erie of he ubience level of conumpion ( ) can be compleely characerized by 0 and m under our pecificaion, 0 and m are reaed a parameer o be eimaed. However, one imporan aumpion under which large ample properie of GMM eimaor are derived i he aionariy of variable. When 0 and m are parameer o be eimaed, no all of he variable in equaion (8) can be ranformed ino aionary one. Thi rule ou he direc applicaion of he GMM procedure o equaion (8). For hi reaon, we propoe a woep economeric procedure. In he fir ep we impoe he aionariy of / y a a rericion in eimaion, and hen generae a equence of / y uing he eimae of coinegraion eimaion. By he definiion of, he aionariy of / y implie ha here exi a lea a 3 vecor, e, for ŷ / y, c / y, and / y uch ha he hree variable are coinegraed. The coinegraion vecor implied by he model i e r k r k,,,, r r m r. r m 6
18 To obain he generaed erie of / y, conider he following aic regreion: c y e 0 e yˆ y e v y e 0 e yˆ y e ( m) y v, under he aumpion ha y ˆ /, c / y, and y / y are coinegraed. The heory predic, e e 0 [ ( r k) /( r m)] 0 e k / r, and / y e v. 0 Uing he eimaed value of e and eimaed reidual ( vˆ ) obained in he above 0 regreion can generae he unobervable / y erie. One raighforward approach i o apply OLS o he aic regreion. However, a argued in Campbell and Perron (99), when eiher he error erm v i erially correlaed or he innovaion in c / Granger caue eiher innovaion in y ˆ / y or y innovaion in / y, he OLS eimae of e i no aympoically opimal and may no have good finie ample properie. The aim here i no only eing he coinegraion bu alo finding he eimae of e, we hu apply Park (99) CCR procedure o he aic regreion and ue he Park (99) H(p,q) aiic for eing he coinegraion rericion. / Once he / y and y erie are conruced, he econd ep i o apply he GMM procedure o eimae relevan parameer and o conduc he hypohei eing for he orhogonaliy rericion uing he generaed erie of / y and 7
19 / y. The GMM eimaor are inrumenal variable eimaor exploiing he momen condiion: E[ ] 0. When here are overidenifying rericion, he z aiic can be ued o e he validiy of he orhogonaliy condiion. Thi woep procedure doe no aler he aympoic diribuion of he GMM eimaor and e aiic, becaue our coinegraing regreion eimaor i uper conien and converge faer han he GMM eimaor. 5. Daa and empirical reul In hi ecion, we explain he daa ued in eimaion and e reul o examine he empirical validiy of he ubience level of conumpion a a ource of generaing a riing aving rae. The powar annual daa on real per capia conumpion, dipoable income, and compenaion of employee are obained from Japan and Taiwan. Since he compenaion of employee i no comparable wih he concep of labor income in he model, we follow Blinder and Deaon' (985) procedure o decompoe proprieor' income (or income from privae unincorporaed enerprie) ino he labor and capial componen according o heir overall hare. We hen conver nominal, aggregae magniude o a real, per capia bai by dividing by he available general price index 8
20 and oal populaion. Finally, wo pecificaion for he growh rae of he ubience level of conumpion are conidered: m 0 (he conan ubience level of conumpion) and m 0.3% (he ubience level of conumpion grow a he annual rae of 0.3%). Japanee daa are from Hiorical Saiic of Japan and Japan Saiical Yearbook. The ample period of he daa erie for Japan i For Taiwan, we ue wo differen meaure of labor income. Daa from Taiwan Naional Income Accoun begin earlier, bu ceae o repor he eparae proprieor' income erie ince 987. Thu, our fir Taiwan daa e (TWI) i over he period 95 o 987. Daa from Survey of Family Income and Expendiure in Taiwan begin laer and he erie in 965, 967, and 969 are inerpolaed due o lack of daa. The econd Taiwan daa e (TWII) i from 964 o 996. Becaue he proprieor' income equence in wo Taiwan daa e are no compaibly conruced, hey canno be combined o one. Figure plo he peronal aving rae for he wo counrie. 7 The high aving rae for Japan and Taiwan in he poworld War II period ha araced lo of aenion in empirical udie. The wo counrie did no begin wih a high aving rae, bu boh 7 Here he peronal aving i obained by ubracing privae conumpion from dipoable income. 9
21 experienced dramaic increae in he aving rae during economic developmen. 8 A for Japan' peronal aving rae, i diplay a pronounced humphaped paern. Iniially i wa very low, reached i fir peak in 96 and a higher peak around , and hen eadily fell o i curren aionary rae. Like Japan, Taiwan' peronal aving rae alo exhibied an upward rend and hen reached a peak around 986 (TWI) or 993 (TWII). However, i i oo early o conclude ha Taiwan' aving rae will flucuae around he curren aionary rae. The wo counrie experienced riing aving rae in he proce of economic developmen. A heir economie maured, he aving rae in boh Japan and Taiwan began o decline oward he end of 970 and 980, repecively. For he hree daa e (one for Japan, wo for Taiwan), he raio uing he conruced labor income exhibi a mooher paern han ha uing wage compenaion, which indicae high mobiliy beween employee and owner of privae unincorporaed enerprie for privae agen in reponding o exernal hock. More imporanly, he proprieor' income, which i he major componen of houehold income in he early age of developmen, uually exhibi a differen rend from he 8 On he oher hand, baed on 5 OECD counrie for he period , Carroll and Summer (99) preened low frequency evidence ha here wa a nearly perfec equaliy beween conumpion growh and income growh. The aving rae i aionary. 0
22 wage compenaion. The dipoable incomelabor income raio uing conruced labor income are ploed in Figure. Te for difference aionariy To e he difference aionariy (or uni roo nonaionariy) for each componen of c /, ˆ /, and / ), we apply Park and Choi' (988) J(,q) e and / y ( y y y y Augmened DickeyFuller (ADF) e. Given he known growh rae of and, y an arbirary choice of he iniial value of he / y erie will no change i nonaionariy. We imply aume ha he iniial ubience conumpion i niney percen of acual conumpion here. Thi arificial ubience conumpion raio equence, denoed a a / y, i ued o ubiue he unobervable y erie in / he uniroo e. The null of difference aionary i rejeced when he J(p,q) aiic i maller han he criical value abulaed in Park and Choi (988). The parameer p in he J(p,q) e i he order of he ime polynomial in he null (uniroo) hypohei, while he q denoe he order of he ime polynomial in he fied regreion. The J(p,q) e doe no require he eimaion of he longrun variance and ha an advanage over he Phillip and Perron' e and ADF e in ha neiher he bandwidh parameer nor he order of auoregreion need o be choen. The Mone Carlo experimen alo how ha he
23 J(p,q) e ha a able ize and i no dominaed by he ADF e in mall ample in erm of power. Table diplay J(,q) e reul for he null of he difference aionariy for he hree daa e. We expec he difference aionariy for each componen of / y. The J(,q) e wih q, 5 canno rejec he null a he 5% ignificance level for a c / y, y ˆ / y and / y ( m 0 and m 0.3% ) a expeced. Furhermore, afer differencing all of hee erie, he J(,q) e doe rejec he uniroo null excep for he a difference of c / in TWII and for he difference of / y in Japan. y We nex repor he ADF e for he null of difference aionariy wih a ime rend in Table becaue i wa widely ued in he lieraure. Since coniderable evidence exi ha daa dependen mehod for elecing he value of he lag order in he ADF regreion are uperior han chooing a fixed order a priori, we follow he recurive aiic procedure uggeed by Campbell and Perron (99). Reul of he ADF e for he hree daa e are generally conien wih he J(,q) e. There are wo excepion: c / erie in TWI and he difference of c / y erie in TWII; heir y ADF e rejec he uniroo hypohei firmly. Even hough he above reul hould no be viewed a concluive evidence on he difference aionariy, i i accepable o aume ha here exi uni roo in he individual componen of / y. Empirical reul of coinegraion regreion
24 In he ligh of he reul obained in e for difference aionariy, we adop he following pecificaion for he re of he paper: c / y, y ˆ / y, and / y are aumed o have a uni roo around a linear ime rend. If he growh rae of labor income are aionary wihou a ime rend, hen equaion (7) implie ha he hree componen of / y are deerminiically coinegraed. Thu, we apply he CCR procedure 9 o c y yˆ ( m) e ) q i c e e 0 i (ime. y y i An imporan propery of he CCR procedure i ha linear rericion can be eed by e, which are free from nuiance parameer. Le H(p,q) aiic denoe he Wald aiic o e he hypohei p p q 0. Park (990) howed ha he H(p,q) aiic converge in diribuion o a ( q p) random variable under he null of coinegraion. According o Ogaki and Park' (997) definiion, o ay a e of difference aionary proce i deerminiic coinegraed require ha heir coinegraing vecor eliminae boh he ochaic and deerminiic rend. Sochaic coinegraion require only ha he ochaic rend componen of he erie are 9 The CCR procedure require an eimae of nuiance parameer uch a he longrun covariance of he diurbance in he yem. We ue Park and Ogaki (99) VAR prewhiening mehod wih Andrew (99) QS kernel and hi auomaic band widh parameer eimaor o eimae he nuiance parameer. The VAR of order one wa ued for prewhiening. 3
25 coinegraed. Therefore, he H(0,) aiic e he hypohei of he deerminiic coinegraing rericion while he H(,q) aiic e ochaic coinegraion. Table 3 repor he H(0,) e reul for he null of he deerminiic coinegraion among he hree componen of / y wih and wihou dummy variable. 0 The H(0,) e are more favorable for he pecificaion wih he dummy variable. Among he e aiic repored wihou a dummy variable, only one cae i inignifican a he 5% level (TWII wih m = 0.3%). While including dummy variable in regreion, none of he Taiwanee cae i ignificanly rejeced, bu he reul for Japan improve only marginally. The reul for he rejecion of deerminiic coinegraion appear o ugge ha he full e of aionariy rericion impoed by he aionariy of he growh rae of labor income and hu / y i oo rong for Japan. The ADF e how ha wheher he uni roo null for he growh rae of Japanee labor income fail or no depend on he rend pecificaion. The aiic favor he ime rend hypohei again he uni roo null. To ake ino accoun he decreaing growh rae of labor income in he raniion of developmen and o idenify he poible caue of he 0 There are wo even ha may be crucial for he aving behavior of open economie like Japan or Taiwan o change, he oil hock in 974 and he G5 Plaza Accord in Sepember 985. We eimae a crah model wih wo rucural breaking poin, 974 and 986, repecively. 4
26 rejecion, we drop he corending rericion among he individual componen of / y, and include a linear rend in he aic regreion. The H(,q) e i appropriae for eing he null of ochaic coinegraion among hree componen of / y. For Japan, he reul of he H(,q) e wih q =, 3, 4 (no repored here) favor he null of he ochaic coinegraion among hee variable now. Thee reul, ogeher wih he reul for he deerminiic coinegraion in Table 3, confirm ha he meaure of aving rae adjued for he permanen ubience conumpion can eliminae he rend componen once he growh rae of labor income i aionary. Table 3 alo repor coefficien eimae of and e e in he aic regreion uing Park' CCR procedure. Differen daa e yield very differen coefficien eimae. For example, when applying Japan and TWII wihou a dummy variable, he CCR eimae of e are all greaer han one. Noe ha e and ( r k) / r when he heoreical model i rue. According o our model, he real rae of reurn on he nonhuman wealh mu be well below zero and/or he expeced growh rae of conumpion wihou a ubience requiremen i negaive in order for o be above one, which i inconien wih he empirical regulariie of fagrowing Baed on he ize and power properie, Han and Ogaki (99) recommend he H(,q) e wih mall value of q when he ample ize i mall. 5
27 developing counrie. On he oher hand, when eimaing he deerminiic coinegraion regreion wih dummy variable, only he TWII eimae of e are greaer han one. Since a reaonable hould be poiive and le han one, our following dicuion will focu on he cae where he eimae of e i le han one. Tha i, we ue he daa e of Japan and TWI and heir eimae wih dummy variable included in he CCR regreion for he re of he paper. We now ue he CCR eimae of e and he eimaed reidual ( vˆ ) in he aic 0 regreion o generae he / y erie. According o he model, when financing he permanen ubience conumpion i he major concern in agen' ineremporal deciion of conumpion in he early coure of economic developmen, he relaively high value of / y make he value of / y ignificanly higher han he ŝ / y counerpar. A he economy grow, he imporance of / y in he deerminaion of aving behavior decline and y i expeced o exer decreaing effec on / / y over ime. Evenually, / y and ŝ / y will converge, and ŝ / y become a aionary proce. Tha i, he permanen ubience conumpion conideraion i capable of inducing he aionariy of /. y Figure 3 and 4 plo hoe generaed erie for Japan and Taiwan. Unlike he hump haped peronal aving rae in Figure, Japan' ŝ / y erie now exhibi wo 6
28 deeper rough around 967 and 985 and hree mild peak during he whole ample period. The difference beween / and ŝ / y conrac unil he fir oil hock, y bu afer ha i ha no endency for convergence. The ubience conumpion requiremen appear o be helpful in explaining he riing aving rae in he 950 and 60 only. On he oher hand, plo in Figure 4 clearly indicae ha he ubience level of conumpion effecively induce he aionariy of Taiwanee / y. When conducing he formal uni roo e, he null of he difference aionariy wihou ime rend for Taiwanee / y can be rejeced firmly under he ADF e and he J(p,q) e. However, for Japanee / y he ame null can be rejeced under he J(p,q) e only. The weak evidence for Japan i conien wih he le aifacory reul of he previou H(p,q) e. Empirical reul and e for orhogonaliy rericion In he econd ep we eimae r and conduc he e for he orhogonaliy rericion baed upon he CCR eimae of and he generaed / y erie. Since ( ) / y / y, / y doe no conain exra informaion once / and y have been choen a inrumen. The inrumenal variable choen for he benchmark GMM procedure are z { k / yk, k, k q}. The lag 7
29 lengh of he inrumen variable (q) i from o 4. A q increae, more orhogonaliy condiion are employed in he eimaion. Table 4 repor he GMM eimae of r wih m 0 and m 0.3%, and he correponding e aiic. The model' orhogonaliy rericion canno be rejeced and he eimae of r are ignificanly poiive in all cae. Alhough he null hypohei i aified, he GMM eimae of r are oo high for Japan o uppor he heoreical model excep for one cae: when m 0.3% and when he lag lengh of he inrumen variable i four. In oher cae, he eimae of r for Japan fall in he 38.4%53.0% range. Excluding hee cae from conideraion, he GMM eimae of r for Taiwan range from 8.9% o 3.4%. The eimaion reul are very plauible from he viewpoin of he permanen income hypohei. The value of eimaed r are alo cloe o hoe obained in Hayahi (98). 3 Keep in mind ha e and e 0[ /( m / r)] when he model i rue. To ake accoun for he problem of meauremen error and ime aggregaion, we inroduce a firorder moving average proce in he error erm and elec inrumen ha lag wo period or more. See, e.g., Hall (988), Heaon (995), and Ory and Reinhar (99). 3 Uing powar U.S. ime erie daa, Hayahi obained he eimae of r ranging from 3.% wihou any rericion on he ize of he liquidiyconrained houehold in he populaion o 7.3% wihou he equaliy rericion beween r and. 8
30 We now have he eimae of e, e and r, and herefore can recover he unobervable ubience level of conumpion. I i confirmed ha he conumpion expendiure i above i ubience counerpar during he whole ample period for Japan and Taiwan. In addiion, a eniiviy analyi i conduced wih differen growh rae abou he ubience conumpion. Given he preumpion ha he growh rae of he ubience conumpion canno be higher han he eadyae growh rae of oupu, we raie m o 0.5% and % per year and repea all of he eimaion and e above. In general, he empirical reul are robu o he choice of m. However, when m i a high a %, he CCR eimaion implie a low rae of convergence and a le aionary / y erie. 6. Concluding Remark A poined ou by Rebelo (99) and oher, a ubience conumpion requiremen induce a riing aving rae. However, unobervable ubience conumpion caue difficuly in empirical udy. Thi paper employ a woep economeric procedure o olve hi problem. We e he implicaion of he permanen income hypohei wih ubience conumpion ha a permanen ubience conumpion i he driving force of a riing aving rae during economic 9
31 developmen. Even hough he model compleely abrac from he demographic conideraion of he lifecycle hypohei, we have found ubanial evidence for he permanen income hypohei wih ubience conumpion in Japan and Taiwan afer WWII. The coinegraion and orhogonaliy rericion impoed by he model canno be rejeced for Taiwan aiically, and all of he eimae of parameer are ignifican and wih he correc ign. On he oher hand, we find weak uppor for Japan. The ubience conumpion requiremen i helpful o explain he riing aving rae in he 950 and 60, bu i appear no an imporan facor for he changing of Japanee aving rae ince he oil hock. 30
32 Reference Andrew, D.W., 99, Heerokedaiciy and auocorrelaion conien covariance marix eimaion, Economerica 59, Akeon, A. and M. Ogaki, 993, Wealhvarying ineremporal elaiciy of ubiuion: Evidence from panel and aggregae daa, Mimeo, Wahingon: Inernaional Moneary Fund. Blinder, A.S. and A.S. Deaon, 985, The ime erie conumpion funcion reviied, Brooking Paper on Economic Aciviy, Campbell, J.Y., 987, Doe aving anicipae declining labor income? An alernaive e of he permanen income hypohei, Economerica 55, Campbell, J.Y. and P. Perron, 99, Pifall and opporuniie: Wha macroeconomi hould know abou uni roo, in: O. Blanchard and S. Ficher, ed., Macroeconomic Annual, (MIT, Cambridge, Ma.) 40. Carroll, C.D. and L.H. Summer, 99, Conumpion growh parallel income growh: Some new evidence, in: B.D. Bernheim and J.B. Shoven, ed., Naional Saving and Economic Performance, (Chicago Univeriy, Chicago) Chaerjee, S., 994, Traniional dynamic and he diribuion of wealh in a neoclaical growh model, Journal of Public Economic 54,
33 Chriiano, L.J., 989, Underanding Japan aving rae: he reconrucion hypohei, Quarerly Review, Federal Reerve Bank of Minneapoli, Spring: 05. Geroviz, M., 983, Saving and nuriion a low income, Journal of Poliical Economy 9, Hall, R.E., 988, Ineremporal ubiuion in conumpion, Journal of Poliical Economy 96, Han, H.L. and M. Ogaki, 99, Conumpion, income, and coinegraion: furher analyi, Rocheer Cener for Economic Reearch Working Paper No Hayahi, F., 98, The permanen income hypohei: eimaion and eing by inrumenal variable, Journal of Poliical Economy 90, Heaon, J., 995, An empirical inveigaion of ae pricing wih emporally dependen preference pecificaion, Economerica 63, Maddion, A., 99, A longrun perpecive on aving, Scandinavian Journal of Economic 94, Ogaki, M., J.D. Ory, and C..M. Reinhar, 996, Saving behavior in low and middleincome developing counrie, IMF Saff Paper 43, Ory, J.D. and C..M. Reinhar, 99, Privae aving and erm of rade hock: evidence from developing counrie, IMF Saff Paper 39,
34 Park, J.Y., 990, Teing for uni roo and coinegraion by variable addiion, Advance in Economeric 8, Park, J.Y., 99, Canonical coinegraing regreion, Economerica 60, Park, J.Y. and B. Choi, 988, A new approach o eing for a uni roo, CAE Working Paper No. 883, Cornell Univeriy. Park, J.Y. and M. Ogaki, 99, Inference in coinegraed model uing VAR prewhiening o eimae horrun dynamic, Rocheer Cener for Economic Reearch Working Paper No. 8, Univeriy of Rocheer. Rebelo, S., 99, Growh in open economie, CarnegieRocheer Conference Serie on Public Policy 36, Zellner, A., 960, Te of ome baic propoiion in he heory of conumpion, American Economic Review, Paper 50,
35 Table. J(p, q) aiic J(, ) J(, 3) J(, 4) J(, 5) Japan TWI TWII Japan TWI TWII c / y y / y / y c a m m 03. % / y y / y / y c a m m 03. % / y y / y / y a m m 03. % ( c / y ) 0.00* 0.058* 0.060* 0.074* ( y / y ) * 0.055* 0.53* / y a m m 03. % ( c / y ) * 0.048* 0.050* ( y / y ) * 0.06* 0.085* / y a m * 0.63* m 03. % * 0.74* ( c / y ) ( y / y ) * 0.047* 0.048* / y a m * 0.03* 0.08* 0.4* m 03. % 0.000* 0.03* 0.09* 0.7* Noe: * mean rejecion of he null a a 5% level. 34
36 Table. ADF e Japan TWI TWII Japan TWI TWII c lag aiic / y y / y / y c a m m 03. % / y * y / y / y c a m m 03. % / y 5 0. y / y / y a m m 03. % ( c / y ) * ( y / y ) * / y a m m 03. % ( c / y ) 35.6* ( y / y ) * / y a m * m 03. % a ( c / y ) * ( y / y ) * / y a m * m 03. % 4.60* Noe: * mean rejecion of he null a a 5% level, a mean rejecion of he null a a 0% level. 35
37 Table 3. Canonical Coinegraing Regreion Reul ê ê H(0,) Japan.040* * m 0 TWI 0.39* 5.70* 4.05* wihou TWII.95* 0.04* 3.954* dummy Japan.04* * m 03. % TWI 0.7* 5.398* 3.565* TWII.57* 0.06*.60 Japan 0.740* 0.09*.65* m 0 TWI 0.36* 4.796*.68 wih TWII.43* dummy Japan 0.730* 0.09* 0.685* m 03. % TWI 0.336* 4.9*. TWII.373* Noe: * mean ignifican a a 5% level 36
38 Table 4. Generalized Mehod of Momen Reul m 0 Japan Taiwan (TWI) q r r 0.437* * * * * * m 03. % q r r 0.384* * * * * * Noe: * mean ignifican a a 5% level. 37
How has globalisation affected inflation dynamics in the United Kingdom?
292 Quarerly Bullein 2008 Q3 How ha globaliaion affeced inflaion dynamic in he Unied Kingdom? By Jennifer Greenlade and Sephen Millard of he Bank Srucural Economic Analyi Diviion and Chri Peacock of he
More informationFortified financial forecasting models: nonlinear searching approaches
0 Inernaional Conference on Economic and inance Reearch IPEDR vol.4 (0 (0 IACSIT Pre, Singapore orified financial forecaing model: nonlinear earching approache Mohammad R. Hamidizadeh, Ph.D. Profeor,
More informationA Comparative Study of Linear and Nonlinear Models for Aggregate Retail Sales Forecasting
A Comparaive Sudy of Linear and Nonlinear Model for Aggregae Reail Sale Forecaing G. Peer Zhang Deparmen of Managemen Georgia Sae Univeriy Alana GA 30066 (404) 6514065 Abrac: The purpoe of hi paper i
More information6.003 Homework #4 Solutions
6.3 Homewk #4 Soluion Problem. Laplace Tranfm Deermine he Laplace ranfm (including he region of convergence) of each of he following ignal: a. x () = e 2(3) u( 3) X = e 3 2 ROC: Re() > 2 X () = x ()e d
More informationCHAPTER 11 NONPARAMETRIC REGRESSION WITH COMPLEX SURVEY DATA. R. L. Chambers Department of Social Statistics University of Southampton
CHAPTER 11 NONPARAMETRIC REGRESSION WITH COMPLEX SURVEY DATA R. L. Chamber Deparmen of Social Saiic Univeriy of Souhampon A.H. Dorfman Office of Survey Mehod Reearch Bureau of Labor Saiic M.Yu. Sverchkov
More informationNew Evidence on Mutual Fund Performance: A Comparison of Alternative Bootstrap Methods. David Blake* Tristan Caulfield** Christos Ioannidis*** and
New Evidence on Muual Fund Performance: A Comparion of Alernaive Boorap Mehod David Blake* Trian Caulfield** Chrio Ioannidi*** and Ian Tonk**** June 2014 Abrac Thi paper compare he wo boorap mehod of Koowki
More informationThe Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of
Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world
More informationEquity Valuation Using Multiples. Jing Liu. Anderson Graduate School of Management. University of California at Los Angeles (310) 2065861
Equiy Valuaion Uing Muliple Jing Liu Anderon Graduae School of Managemen Univeriy of California a Lo Angele (310) 2065861 jing.liu@anderon.ucla.edu Doron Niim Columbia Univeriy Graduae School of Buine
More informationCointegration: The Engle and Granger approach
Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be nonsaionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require
More informationHeat demand forecasting for concrete district heating system
Hea demand forecaing for concree diric heaing yem Bronilav Chramcov Abrac Thi paper preen he reul of an inveigaion of a model for horerm hea demand forecaing. Foreca of hi hea demand coure i ignifican
More informationTopic: Applications of Network Flow Date: 9/14/2007
CS787: Advanced Algorihm Scribe: Daniel Wong and Priyananda Shenoy Lecurer: Shuchi Chawla Topic: Applicaion of Nework Flow Dae: 9/4/2007 5. Inroducion and Recap In he la lecure, we analyzed he problem
More informationThe International Investment Position of Jamaica: An Estimation Approach
WP/04 The Inernaional Invemen Poiion of Jamaica: An Eimaion Approach Dane Docor* Economic Informaion & Publicaion Deparmen Bank of Jamaica Ocober 2004 Abrac Thi paper eek o inroduce he inernaional invemen
More informationEconomics 140A Hypothesis Testing in Regression Models
Economics 140A Hypohesis Tesing in Regression Models While i is algebraically simple o work wih a populaion model wih a single varying regressor, mos populaion models have muliple varying regressors 1
More informationHow Much Can Taxes Help Selfish Routing?
How Much Can Taxe Help Selfih Rouing? Tim Roughgarden (Cornell) Join wih Richard Cole (NYU) and Yevgeniy Dodi (NYU) Selfih Rouing a direced graph G = (V,E) a ource and a deinaion one uni of raffic from
More information2.4 Network flows. Many direct and indirect applications telecommunication transportation (public, freight, railway, air, ) logistics
.4 Nework flow Problem involving he diribuion of a given produc (e.g., waer, ga, daa, ) from a e of producion locaion o a e of uer o a o opimize a given objecive funcion (e.g., amoun of produc, co,...).
More informationVector Autoregressions (VARs): Operational Perspectives
Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101115. Macroeconomericians
More information11/6/2013. Chapter 14: Dynamic ADAS. Introduction. Introduction. Keeping track of time. The model s elements
Inroducion Chaper 14: Dynamic DS dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuingedge
More informationCalculation of variable annuity market sensitivities using a pathwise methodology
cuing edge Variable annuiie Calculaion of variable annuiy marke eniiviie uing a pahwie mehodology Under radiional finie difference mehod, he calculaion of variable annuiy eniiviie can involve muliple Mone
More informationTwoGroup Designs Independent samples ttest & paired samples ttest. Chapter 10
TwoGroup Deign Independen ample e & paired ample e Chaper 0 Previou e (Ch 7 and 8) Ze z M N e (oneample) M N M = andard error of he mean p. 989 Remember: = variance M = eimaed andard error p. 
More informationLong Term Spread Option Valuation and Hedging
Long Term Spread Opion Valuaion and Hedging M.A.H. Demper, Elena Medova and Ke Tang Cenre for Financial Reearch, Judge Buine School, Univeriy of Cambridge, Trumpingon Sree, Cambridge CB 1AG & Cambridge
More informationINVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS
INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS Ilona Tregub, Olga Filina, Irina Kondakova Financial Universiy under he Governmen of he Russian Federaion 1. Phillips curve In economics,
More informationI S T H E A U S T R A L I A N F O R E X M A R K E T E F F I C I E N T? A T E S T O F T H E F O R W A R D R A T E
I S T H E A U S T R A L I A N F O R E X M A R K E T E F F I C I E N T? A T E S T O F T H E F O R W A R D R A T E U N B I A S E D N E S S H Y P O T H E S I S By D.E. Allen and Paul Taco School o Accouning,
More informationOptimal Investment and Consumption Decision of Family with Life Insurance
Opimal Invesmen and Consumpion Decision of Family wih Life Insurance Minsuk Kwak 1 2 Yong Hyun Shin 3 U Jin Choi 4 6h World Congress of he Bachelier Finance Sociey Torono, Canada June 25, 2010 1 Speaker
More informationEmpirical heuristics for improving Intermittent Demand Forecasting
Empirical heuriic for improving Inermien Demand Forecaing Foio Peropoulo 1,*, Konanino Nikolopoulo 2, Georgio P. Spihouraki 1, Vailio Aimakopoulo 1 1 Forecaing & Sraegy Uni, School of Elecrical and Compuer
More informationUsefulness of the Forward Curve in Forecasting Oil Prices
Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,
More informationChapter 13. Network Flow III Applications. 13.1 Edge disjoint paths. 13.1.1 Edgedisjoint paths in a directed graphs
Chaper 13 Nework Flow III Applicaion CS 573: Algorihm, Fall 014 Ocober 9, 014 13.1 Edge dijoin pah 13.1.1 Edgedijoin pah in a direced graph 13.1.1.1 Edge dijoin pah queiong: graph (dir/undir)., : verice.
More informationYTM is positively related to default risk. YTM is positively related to liquidity risk. YTM is negatively related to special tax treatment.
. Two quesions for oday. A. Why do bonds wih he same ime o mauriy have differen YTM s? B. Why do bonds wih differen imes o mauriy have differen YTM s? 2. To answer he firs quesion les look a he risk srucure
More informationII.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal
Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.
More informationRobust Bandwidth Allocation Strategies
Robu Bandwidh Allocaion Sraegie Oliver Heckmann, Jen Schmi, Ralf Seinmez Mulimedia Communicaion Lab (KOM), Darmad Univeriy of Technology Merckr. 25 D64283 Darmad Germany {Heckmann, Schmi, Seinmez}@kom.udarmad.de
More informationMultiple Structural Breaks in the Nominal Interest Rate and Inflation in Canada and the United States
Deparmen of Economics Discussion Paper 0007 Muliple Srucural Breaks in he Nominal Ineres Rae and Inflaion in Canada and he Unied Saes Frank J. Akins, Universiy of Calgary Preliminary Draf February, 00
More informationChapter 6: Business Valuation (Income Approach)
Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he
More informationIssues Using OLS with Time Series Data. Time series data NOT randomly sampled in same way as cross sectional each obs not i.i.d
These noes largely concern auocorrelaion Issues Using OLS wih Time Series Daa Recall main poins from Chaper 10: Time series daa NOT randomly sampled in same way as cross secional each obs no i.i.d Why?
More informationBALANCE OF PAYMENTS. First quarter 2008. Balance of payments
BALANCE OF PAYMENTS DATE: 20080530 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se
More informationAn empirical analysis about forecasting Tmall airconditioning sales using time series model Yan Xia
An empirical analysis abou forecasing Tmall aircondiioning sales using ime series model Yan Xia Deparmen of Mahemaics, Ocean Universiy of China, China Absrac Time series model is a hospo in he research
More informationCrosssectional and longitudinal weighting in a rotational household panel: applications to EUSILC. Vijay Verma, Gianni Betti, Giulio Ghellini
Croecional and longiudinal eighing in a roaional houehold panel: applicaion o EUSILC Viay Verma, Gianni Bei, Giulio Ghellini Working Paper n. 67, December 006 CROSSSECTIONAL AND LONGITUDINAL WEIGHTING
More informationThe Twin Agency Problems in Corporate Finance  On the basis of Stulz s theory 
The Twin Agency Problem in Corporae Finance  On he bai of Sulz heory  Von der Fakulä für Machinenbau, Elekroechnik und Wirchafingenieurween der Brandenburgichen Technichen Univeriä Cobu zur Erlangung
More informationPrice elasticity of demand for crude oil: estimates for 23 countries
Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh
More informationThe Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas
The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he
More informationChapter 8: Regression with Lagged Explanatory Variables
Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One
More informationWhy Did the Demand for Cash Decrease Recently in Korea?
Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in
More informationData Analysis Toolkit #7: Hypothesis testing, significance, and power Page 1
Daa Analyi Toolki #7: Hypohei eing, ignificance, and power Page 1 The ame baic logic underlie all aiical hypohei eing. Thi oolki illurae he baic concep uing he mo common e,  e for difference beween mean.
More informationExplore the Application of Financial Engineering in the Management of Exchange Rate Risk
SHS Web o Conerence 17, 01006 (015) DOI: 10.1051/ hcon/01517 01006 C Owned by he auhor, publihed by EDP Science, 015 Explore he Applicaion o Financial Engineering in he Managemen o Exchange Rae Rik Liu
More informationTerms of Trade and Present Value Tests of Intertemporal Current Account Models: Evidence from the United Kingdom and Canada
Terms of Trade and Presen Value Tess of Ineremporal Curren Accoun Models: Evidence from he Unied Kingdom and Canada Timohy H. Goodger Universiy of Norh Carolina a Chapel Hill November 200 Absrac This paper
More informationJournal Of Business & Economics Research September 2005 Volume 3, Number 9
Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy YiKang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo
More informationMACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR
MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry
More informationA Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM)
A Brief Inroducion o he Consumpion Based Asse Pricing Model (CCAPM We have seen ha CAPM idenifies he risk of any securiy as he covariance beween he securiy's rae of reurn and he rae of reurn on he marke
More informationWorking Paper Modeling technological progress and investment in China: Some caveats
econor www.econor.eu Der OpenAccePublikaionerver der ZBW eibnizinformaionzenrum Wirchaf The Open Acce Publicaion Server of he ZBW eibniz Informaion Cenre for Economic Felipe, Jeu; McCombie, John Working
More information4. International Parity Conditions
4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency
More informationMeasuring macroeconomic volatility Applications to export revenue data, 19702005
FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a
More informationDividend taxation, share repurchases and the equity trap
Working Paper 2009:7 Deparmen of Economic Dividend axaion, hare repurchae and he equiy rap Tobia Lindhe and Jan Söderen Deparmen of Economic Working paper 2009:7 Uppala Univeriy May 2009 P.O. Box 53 ISSN
More informationWhy Do Real and Nominal. InventorySales Ratios Have Different Trends?
Why Do Real and Nominal InvenorySales Raios Have Differen Trends? By Valerie A. Ramey Professor of Economics Deparmen of Economics Universiy of California, San Diego and Research Associae Naional Bureau
More informationPROFITS AND POSITION CONTROL: A WEEK OF FX DEALING
PROFITS AND POSITION CONTROL: A WEEK OF FX DEALING Richard K. Lyon U.C. Berkeley and NBER Thi verion: June 1997 Abrac Thi paper examine foreign exchange rading a he dealer level. The dealer we rack average
More informationInterest Rate Spreads and Mandatory Credit Allocations: Implications on Banks Loans to Small Businesses in Indonesia
Dicuion Paper No. 0402 Inere Rae Spread and Mandaory Credi Allocaion: Implicaion on Bank oan o Small Buinee in Indoneia Reza Y. Siregar January 2004 Indoneia Program Univeriy of Adelaide Adelaide 5005
More informationPROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE
Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees
More informationChapter 7. Response of FirstOrder RL and RC Circuits
Chaper 7. esponse of FirsOrder L and C Circuis 7.1. The Naural esponse of an L Circui 7.2. The Naural esponse of an C Circui 7.3. The ep esponse of L and C Circuis 7.4. A General oluion for ep and Naural
More informationVOLATILITY DYNAMICS OF NYMEX NATURAL GAS FUTURES PRICES
VOLATILITY DYNAMICS OF NYMEX NATURAL GAS FUTURES PRICES Hiroaki Suenaga Reearch Fellow School of Economic and Finance Curin Buine School Curin Univeriy of Technology Aaron Smih Aian Profeor Deparmen of
More informationHOUSE PRICES AND RENTS: AN EQUILIBRIUM ASSET PRICING APPROACH
DOCUMENTO DE TRABAJO HOUSE PRICES AND RENTS: AN EQUILIBRIUM ASSET PRICING APPROACH Documeno de Trabajo n.º 0304 Juan Ayuo and Fernando Reoy BANCO DE ESPAÑA SERVICIO DE ESTUDIOS HOUSE PRICES AND RENTS:
More informationCHARGE AND DISCHARGE OF A CAPACITOR
REFERENCES RC Circuis: Elecrical Insrumens: Mos Inroducory Physics exs (e.g. A. Halliday and Resnick, Physics ; M. Sernheim and J. Kane, General Physics.) This Laboraory Manual: Commonly Used Insrumens:
More informationWorking Paper No. 482. Net Intergenerational Transfers from an Increase in Social Security Benefits
Working Paper No. 482 Ne Inergeneraional Transfers from an Increase in Social Securiy Benefis By Li Gan Texas A&M and NBER Guan Gong Shanghai Universiy of Finance and Economics Michael Hurd RAND Corporaion
More informationFormulating CyberSecurity as Convex Optimization Problems
Formulaing CyberSecuriy a Convex Opimizaion Problem Kyriako G. Vamvoudaki, João P. Hepanha, Richard A. Kemmerer, and Giovanni Vigna Univeriy of California, Sana Barbara Abrac. Miioncenric cyberecuriy
More informationIndividual Health Insurance April 30, 2008 Pages 167170
Individual Healh Insurance April 30, 2008 Pages 167170 We have received feedback ha his secion of he e is confusing because some of he defined noaion is inconsisen wih comparable life insurance reserve
More informationPart 1: White Noise and Moving Average Models
Chaper 3: Forecasing From Time Series Models Par 1: Whie Noise and Moving Average Models Saionariy In his chaper, we sudy models for saionary ime series. A ime series is saionary if is underlying saisical
More informationChapter 4. Properties of the Least Squares Estimators. Assumptions of the Simple Linear Regression Model. SR3. var(e t ) = σ 2 = var(y t )
Chaper 4 Properies of he Leas Squares Esimaors Assumpions of he Simple Linear Regression Model SR1. SR. y = β 1 + β x + e E(e ) = 0 E[y ] = β 1 + β x SR3. var(e ) = σ = var(y ) SR4. cov(e i, e j ) = cov(y
More informationCointegration Analysis of Exchange Rate in Foreign Exchange Market
Coinegraion Analysis of Exchange Rae in Foreign Exchange Marke Wang Jian, Wang Shuli School of Economics, Wuhan Universiy of Technology, P.R.China, 430074 Absrac: This paper educed ha he series of exchange
More informationImpact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences
S.R. No. 002 10/2015/CEFT Impac of Deb on Primary Defici and GSDP Gap in Odisha: Empirical Evidences 1. Inroducion The excessive pressure of public expendiure over is revenue receip is financed hrough
More informationOn the Connection Between MultipleUnicast Network Coding and SingleSource SingleSink Network Error Correction
On he Connecion Beween MulipleUnica ework Coding and SingleSource SingleSink ework Error Correcion Jörg Kliewer JIT Join work wih Wenao Huang and Michael Langberg ework Error Correcion Problem: Adverary
More informationDuration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.
Graduae School of Business Adminisraion Universiy of Virginia UVAF38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised
More informationDOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR
Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios
More informationThe naive method discussed in Lecture 1 uses the most recent observations to forecast future values. That is, Y ˆ t + 1
Business Condiions & Forecasing Exponenial Smoohing LECTURE 2 MOVING AVERAGES AND EXPONENTIAL SMOOTHING OVERVIEW This lecure inroduces imeseries smoohing forecasing mehods. Various models are discussed,
More informationGOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA
Journal of Applied Economics, Vol. IV, No. (Nov 001), 31337 GOOD NEWS, BAD NEWS AND GARCH EFFECTS 313 GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA CRAIG A. DEPKEN II * The Universiy of Texas
More informationUnderstanding Sequential Circuit Timing
ENGIN112: Inroducion o Elecrical and Compuer Engineering Fall 2003 Prof. Russell Tessier Undersanding Sequenial Circui Timing Perhaps he wo mos disinguishing characerisics of a compuer are is processor
More informationTime Series Analysis Using SAS R Part I The Augmented DickeyFuller (ADF) Test
ABSTRACT Time Series Analysis Using SAS R Par I The Augmened DickeyFuller (ADF) Tes By Ismail E. Mohamed The purpose of his series of aricles is o discuss SAS programming echniques specifically designed
More informationRegime Switching in Dynamics of Risk Premium: Evidence from SHIBOR ABSTRACT
Regime Swiching in Dynamic of Rik Premium: Evidence from SHIBOR Baochen Yang College of Managemen and Economic, Tianjin Univeriy Tianjin 372, China bchyang@ju.edu.cn Tel: 86228789859, 8639249878 Yunpeng
More informationBanking, Inside Money and Outside Money
Banking, Inide Mone and Ouide Mone Hongfei Sun Deparmen of Economic Univeri of Torono (Job Marke Paper) Abrac Thi paper preen an inegraed heor of mone and banking. I addre he following queion: when boh
More informationSc i e n c e a n d t e a c h i n g:
Dikuionpapierreihe Working Paper Serie Sc i e n c e a n d e a c h i n g: Tw o d i m e n i o n a l i g n a l l i n g in he academic job marke Andrea Schneider Nr./ No. 95 Augu 2009 Deparmen of Economic
More information4.8 Exponential Growth and Decay; Newton s Law; Logistic Growth and Decay
324 CHAPTER 4 Exponenial and Logarihmic Funcions 4.8 Exponenial Growh and Decay; Newon s Law; Logisic Growh and Decay OBJECTIVES 1 Find Equaions of Populaions Tha Obey he Law of Uninhibied Growh 2 Find
More informationChapter 8 Student Lecture Notes 81
Chaper Suden Lecure Noes  Chaper Goals QM: Business Saisics Chaper Analyzing and Forecasing Series Daa Afer compleing his chaper, you should be able o: Idenify he componens presen in a ime series Develop
More informationReal exchange rate variability in a twocountry business cycle model
Real exchange rae variabiliy in a wocounry business cycle model Håkon Trevoll, November 15, 211 Absrac Real exchange rae flucuaions have imporan implicaions for our undersanding of he sources and ransmission
More informationTrading Strategies for Sliding, Rollinghorizon, and Consol Bonds
Trading Sraegie for Sliding, Rollinghorizon, and Conol Bond MAREK RUTKOWSKI Iniue of Mahemaic, Poliechnika Warzawka, 661 Warzawa, Poland Abrac The ime evoluion of a liding bond i udied in dicree and
More informationPresent Value Methodology
Presen Value Mehodology Econ 422 Invesmen, Capial & Finance Universiy of Washingon Eric Zivo Las updaed: April 11, 2010 Presen Value Concep Wealh in Fisher Model: W = Y 0 + Y 1 /(1+r) The consumer/producer
More informationSPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.
Paul Ferley Assisan Chief Economis 4169747231 paul.ferley@rbc.com Nahan Janzen Economis 4169740579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.
More informationANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS
ANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS R. Caballero, E. Cerdá, M. M. Muñoz and L. Rey () Deparmen of Applied Economics (Mahemaics), Universiy of Málaga,
More informationCURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH. José Manuel Campa Angel Gavilán
CIIF Working Paper WP no 651 Sepember, 2006 CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH José Manuel Campa Angel Gavilán IESE Business School Universiy of Navarra Avda. Pearson, 21 08034
More informationGraduate Macro Theory II: Notes on Neoclassical Growth Model
Graduae Macro Theory II: Noes on Neoclassical Growh Model Eric Sims Universiy of Nore Dame Spring 2011 1 Basic Neoclassical Growh Model The economy is populaed by a large number of infiniely lived agens.
More informationInfrastructure and Evolution in Division of Labour
Infrarucure and Evoluion in Diviion of Labour Mei Wen Monah Univery (Thi paper ha been publihed in RDE. (), 906) April 997 Abrac Thi paper udie he relaionhip beween infrarucure ependure and endogenou
More informationTEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS
TEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS RICHARD J. POVINELLI AND XIN FENG Deparmen of Elecrical and Compuer Engineering Marquee Universiy, P.O.
More informationand Decay Functions f (t) = C(1± r) t / K, for t 0, where
MATH 116 Exponenial Growh and Decay Funcions Dr. Neal, Fall 2008 A funcion ha grows or decays exponenially has he form f () = C(1± r) / K, for 0, where C is he iniial amoun a ime 0: f (0) = C r is he rae
More informationSAMPLE LESSON PLAN with Commentary from ReadingQuest.org
Lesson Plan: Energy Resources ubject: Earth cience Grade: 9 Purpose: students will learn about the energy resources, explore the differences between renewable and nonrenewable resources, evaluate the environmental
More informationHow much depreciation of the US dollar for sustainability of the current accounts?
How much depreciaion of he US dollar for susainabiliy of he curren accouns? Eiji Ogawa and Taeshi Kudo Firs version: May 27, 2004 This version: June 6, 2004 This paper is prepared for a conference of he
More informationChapter 1.6 Financial Management
Chaper 1.6 Financial Managemen Par I: Objecive ype quesions and answers 1. Simple pay back period is equal o: a) Raio of Firs cos/ne yearly savings b) Raio of Annual gross cash flow/capial cos n c) = (1
More informationRC, RL and RLC circuits
Name Dae Time o Complee h m Parner Course/ Secion / Grade RC, RL and RLC circuis Inroducion In his experimen we will invesigae he behavior of circuis conaining combinaions of resisors, capaciors, and inducors.
More informationCURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH. José Manuel Campa and Ángel Gavilán an. Documentos de Trabajo N.
CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH 2006 José Manuel Campa and Ángel Gavilán an Documenos de Trabajo N.º 0638 CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH CURRENT
More informationThe Maturity Structure of Volatility and Trading Activity in the KOSPI200 Futures Market
The Mauriy Srucure of Volailiy and Trading Aciviy in he KOSPI200 Fuures Marke Jong In Yoon Division of Business and Commerce Baekseok Univerisy Republic of Korea Email: jiyoon@bu.ac.kr Received Sepember
More informationHedging with Forwards and Futures
Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buyside of a forward/fuures
More informationStock option grants have become an. Final Approval Copy. Valuation of Stock Option Grants Under Multiple Severance Risks GURUPDESH S.
Valuaion of Sock Opion Gran Under Muliple Severance Rik GURUPDESH S. PANDHER i an aian profeor in he deparmen of finance a DePaul Univeriy in Chicago, IL. gpandher@depaul.edu GURUPDESH S. PANDHER Execuive
More informationThe Kinetics of the Stock Markets
Asia Pacific Managemen Review (00) 7(1), 14 The Kineics of he Sock Markes Hsinan Hsu * and BinJuin Lin ** (received July 001; revision received Ocober 001;acceped November 001) This paper applies he
More informationModelling the Volatility of Spot Electricity Prices
Modelling he Volailiy of Spo Elecriciy Price Abrac Nekaria V. Karakaani and Derek W. Bunn 1 Deparmen of Deciion Science London Buine School March 004 Thi paper preen a rucural approach o model ochaic volailiy
More informationINTRODUCTION TO FORECASTING
INTRODUCTION TO FORECASTING INTRODUCTION: Wha is a forecas? Why do managers need o forecas? A forecas is an esimae of uncerain fuure evens (lierally, o "cas forward" by exrapolaing from pas and curren
More informationMathematics in Pharmacokinetics What and Why (A second attempt to make it clearer)
Mahemaics in Pharmacokineics Wha and Why (A second aemp o make i clearer) We have used equaions for concenraion () as a funcion of ime (). We will coninue o use hese equaions since he plasma concenraions
More information1. Explain why the theory of purchasing power parity is often referred to as the law of one price.
Chaper Review Quesions. xplain why he heory of purchasing power pariy is ofen referred o as he law of one price. urchasing ower ariy () is referred o as he law of one price because he deerminaion of he
More information