Does Demographic Change Affect the Current Account? A Reconsideration #


 Edward Little
 3 years ago
 Views:
Transcription
1 ISSN Does Demographc Change Affect the Current Account? A Reconsderaton # Mchael Graff, a,* Kam K Tang, b, Je Zhang c Ths paper reexamnes the mpact of demographc factors on the current account balance. To ths end, we develop an analytcal framework that s more general than the one commonly used n the lterature n three aspects. Frst, t accounts for the facts that the world current account balance must be equal to zero. Second, a bgger economy wll have greater mpacts on others, but be nfluenced less by them. Thrd, a more open economy wll have greater mpacts on others and at the same tme be more readly nfluenced by them. We then confront two alternatve emprcal specfcatons based on both the new and the conventonal framework wth a panel of data. In contrast to the fndngs based on the conventonal framework, our results wth the new framework ndcate that populaton ageng does not appear to have dscernble mpacts on the current account balance. Key words: Demography, ageng, openness, current account, general equlbrum JEL Classfcaton: F30, J10 a b c ETH Zürch, Swtzerland and Jacobs Unversty, Bremen, Germany Unversty of Queensland, Australa Natonal Unversty of Sngapore, Sngapore * Correspondng author. Prof. Dr. Mchael Graff ETH Zurch KOF, ETH Zentrum WEH CH8092 Zurch Swtzerland # The authors would lke to acknowledge the support from the Australan Research Councl's Dscovery Projects fundng scheme (project number DP ).
2 Does Demographc Change Affect the Current Account? A Reconsderaton # Mchael Graff, a,* Kam K Tang, b, Je Zhang c Abstract Ths paper reexamnes the mpact of demographc factors on the current account balance. To ths end, we develop an analytcal framework that s more general than the one commonly used n the lterature n three aspects. Frst, t accounts for the facts that the world current account balance must be equal to zero. Second, a bgger economy wll have greater mpacts on others, but be nfluenced less by them. Thrd, a more open economy wll have greater mpacts on others and at the same tme be more readly nfluenced by them. We then confront two alternatve emprcal specfcatons based on both the new and the conventonal framework wth a panel of data. In contrast to the fndngs based on the conventonal framework, our results wth the new framework ndcate that populaton ageng does not appear to have dscernble mpacts on the current account balance. Key words: Demography, ageng, openness, current account, general equlbrum JEL Classfcaton: F30, J10 a b c ETH Zürch, Swtzerland and Jacobs Unversty, Bremen, Germany Unversty of Queensland, Australa Natonal Unversty of Sngapore, Sngapore * Correspondng author. Prof. Dr. Mchael Graff ETH Zurch KOF, ETH Zentrum WEH CH8092 Zurch Swtzerland # The authors would lke to acknowledge the support from the Australan Research Councl's Dscovery Projects fundng scheme (project number DP ).
3 1. INTRODUCTION Motvated by the observaton that advanced economes are ageng rapdly and emergng economes are followng soon, there has been ncreasng nterest n the macroeconomc effects of ageng. 1 One recurrent topc of nterest n the lterature s the mpacts of ageng, and demography n general, on the current account balance. 2 Accordng to the lfe cycle hypothess of consumpton, young households borrow aganst ther future ncome, mddleage households save for relnqushng debts and retrement, and oldaged households dssave. Accordngly, countres wth a relatve young or old populaton are more lkely to run current account defcts (more on ths later). The focus of ths paper s on how to model demographc mpacts on the current account balance n a world of heterogeneous economc openness and szes. The htherto standard practce of accountng for these heterogenetes s to nclude measures of openness n the regressons and to normalse the current account balance wth Gross Domestc Product (GDP), respectvely. We show n ths paper, frst, that n a general equlbrum settng ths practce s nsuffcent and second, that the problem can be addressed by usng a new framework. Where crosscountry (ncludng panel) data are used as s typcally the case n the related lterature three factors need to be consdered n modellng the demographc mpacts on the current account balance. The frst factor s the general equlbrum condton. Snce the current account balances must sum to zero for the world as a whole, demographc changes that affect the home country s balance must affect the rest of the world s (ROW s) balance n the opposte drecton; conversely, demographc changes n the ROW must also affect the home country. Ths mples that t s not the home country s own pace of demographc changes that matters, but ts pace relatve to the ROW (Chnn and Prasad 2003). The second factor s country sze. Other thngs beng equal, the larger the home country s, the more nfluence t should have on others, whle at the same tme t should be less susceptble to external dsturbances. The last factor s openness. For a gven sze, a more open economy should have a more pronounced mpact on others and smultaneously be more readly nfluenced by the ROW. Wthout due consderaton of these three factors taken together, any emprcal estmaton of the effects of demography on the current account balance s lkely to be based n varous ways, de 1 Some mportant earler works nclude Hggns and Wllamson (1997) and Hggns (1998). Also see Edwards (1996) and L, Zhang and Zhang (2007). 2 Recent examples nclude Chnn and Prasad (2003), Chnn and Ito (2007), Gruber and Kamn (2007) and Legg, Prasad and Robnson (2007).
4 pendng on the dstrbutons of demographc measures, openness and szes n the sample. To the best of our knowledge, ths s the frst study that pertans to ths structural ssue n the related emprcal lterature. To llustrate our argument, we estmate the mpacts of demographc change on the current account balance usng both the conventonal and our proposed new framework, whch allows us to compare and contrast the results. Our panel dataset comprses 84 countres and 47 years from 1960 to Based on our data and methods, we fnd that the effect of populaton ageng on the current account balance s much more subdued than what has been recorded n prevous studes based on the conventonal framework. The rest of the paper s organsed as follows. Secton 2 revews the related lterature. Secton 3 derves the new modellng framework. Secton 4 descrbes the data used for our emprcal analyses. Secton 5 presents and dscusses the results, and the fnal secton concludes. 2. LITERATURE REVIEW Natonal account denttes dctate that the current account balance s equal to the excess of natonal savngs ( T  G + S) over domestc nvestment ( I ) or the excess of output ( Y ) over domestc absorpton ( C + I + G) : CA = ( T  G) + S  I = Y  ( C + I + G) (1) where CA, T, G, S and C represent, respectvely, the current account balance, tax revenue, government expendture, prvate savng and prvate consumpton. It s on the bass of ths dentty that demography s hypothessed to nfluence the current account balance. Accordng to Modglan s (1970) lfe cycle hypothess, households at workng age are the prme net savers of socetes, whle young households are lkely to be borrowers and oldage ones are lkely to be dssavers. Therefore, countres wth a relatve young or old populaton are more lkely to consume more than what they produce, resultng n a current account defct. Whle the majorty of the lterature adopts ths hypothess and thus expects youth and oldage dependency 3 to have negatve mpacts on the current account balance, ths s not the full story. Often mssng n the dscusson s the nvestment aspect. Snce the current account balance s equal to excess savng over nvestment, demography can only nfluence the current account balance to the extent that ts respectve effects on savng and nvestment do not net out each other. In 3 Here, youth and oldage dependency are defned as populaton aged 014 and 65+ to populaton aged
5 ths aspect, youth and oldage dependency could have opposte effects on the current account balance. Ths s because countres wth a young populaton wll see ther labour force growng n the future, makng longterm captal nvestment more attractve there than n countres wth an agng populaton (Cooper 2008). Another mssng pece s longevty. Populaton ageng s charactersed not only by rsng oldage dependency but also by rsng longevty, 4 yet the theoretcal mpacts of the two on savng are dfferent. As people expect to lve longer, they are nduced to save more, counterbalancng the mpacts of hgher oldage dependency (L, Zhang and Zhang 2007). Natonal account denttes also necesstate a country s current account balance to be equal to ts recepts from the ROW for goods, servces, nvestment ncome, and unlateral transfers mnus ts payment to the ROW. Thus, a current account surplus (defct) represents a net outflow (nflow) of captal. As such, the effects of demography on the current account balance must be casted n the lght of open economes. Clearly, these consderatons reflect the three factors dscussed n the ntroducton, namely general equlbrum, sze, and openness, and we shall consders these factors smultaneously n our modellng of the current account balances wthn the world economy. The paper s related to a strand of the lterature on the macroeconomc mpacts of populaton ageng. Wthn ths lterature, Hggns and Wllamson (1997) and Hggns (1998) fnd that countres wth relatvely young populatons are captal mporters, whereas those wth relatvely old populatons are captal exporters. Amongst these two studes, only Hggns (1998) controls for openness. He fnds that demography does not affect the balance of trade n economes classfed as closed based on the Sachs and Warner (1995) bnary measure of openness. Our study dffers from these two studes n that we take nto consderaton relatve rather than absolute demography shfts across countres, as well as the heterogenety of countres n terms of openness and relatve economc sze. In recent years, some studes examnng the macroeconomc effects of demography also ncorporate the condton that external balances must sum up to zero for the world economy as a whole. These nclude Ferol (2003), Domej and Flodén (2006), and Attanaso, Ktao, and Volante (2006). However, these studes use numercal smulatons as ther man nvestgaton tool, n contrast to the emprcal parameter estmaton by regresson analyses n the current paper. Another strand of related studes seeks to explan current account mbalances; e.g. Chnn and Prasad (2003), Chnn and Ito (2007), Gruber and Kamn (2007), and Legg, Prasad and Robn 4 Another aspect of populaton ageng s a fallng fertlty rate. However, n the short to medum term, a fallng fertlty rate means a lower youth dependency rate, but not a rsng oldage dependency. 2
6 son (2007). The last two mentoned above emphasse the effect of the Asan fnancal crss as a catalyst of the Asan economes compulson to buld up large foregn reserves, known as the global savng glut hypothess. Km and Lee (2007), runnng a VAR, fnd that for ten East Asan countres from , the dependency rato has a sgnfcantly negatve effect on the current account balance, thus provdng evdence that the effects of the present demographc transton are no longer restrcted to the wealthest economes. Whle these studes dffer vastly n terms of sample coverage and econometrc approaches, n general, t s far to summarse that they fnd that demography matters and that a hgher dependency rato tends to result n a smaller current account balance. In what follows, we shall challenge ths fndng. Importantly, the exstng body of lterature ndcates that crosscountry or panel data are more nstrumental than ndvdual country tme seres data n dentfyng demographc effects on savng, because the varaton of demographc varables s typcally more pronounced across countres than across tme (Masson, Bayoum and Same 1998). For ths reason, our analyses draw on a large panel data set rather than on a cross secton of countres or on longtudnal data for partcular countres. Another dfference between the current paper and the prevous lterature s that we estmate both statc and dynamcs models. Hggns (1998) and Gruber and Kamn (2007), for nstance, do not account for the strong persstence of the dependent varables n ther econometrc models and ther results are thus subject to severe omtted varable bas. 5 Hggns and Wllamson (1997) and Legg, Prasad and Robnson (2007) do take nto account the dynamc nature of the data, but use dfferent estmaton technques. In partcular, Hggns and Wllamson use a twostageleastsquare estmator, whle Legg, Prasad and Robnson use a varant of dynamc panel data estmaton from AndersonHsao (1981). For the dynamc modellng, our emprcal methods also nclude the generalsed methods of moments (GMM) estmators proposed by Arellano and Bover (1995) and Blundell and Bond (1998). 3. THE NEW MODELING FRAMEWORK Consder the followng general expresson of the current account balance: CA = l ( X, q ), (2) 5 Although Hggns (1998) uses 5year averages to try to smooth out short run volatlty, ths does not necessary remove the autocorrelaton of the data. 3
7 where CA s defned as the current account balance as a share of GDP n country ; q s a scalar measure of economc openness (1 for fully open, 0 for completely closed); and X s a vector of domestc factors n the home country that are expected to affect ts current account balance. In what follows, we modfy ths general framework to take nto account of, one at a tme, general equlbrum, openness and sze as dscussed prevously. Frstly, the general equlbrum condton mples that, f a domestc factor affects the home country s current account balance, t must affect the balance for the ROW n the opposte drecton. As such, t s the change n country relatve to that n the ROW that matters n determnng ts current account balance. To accommodate ths, we modfy (2) nto CA = l ( X  RWX, q ), (3) where RWX measures the value of the same varables as n X, but for the rest of the world (ROW): 6 RWX º average { X, j ¹ }. (4) Assumng X and j RWX enter l (.,.) addtvely s reasonable, when the arguments are ex pressed ether n percentage terms or as log term values. Secondly, the mpact of ( X  RWX ) on the home country s current account balance should be condtonal on ts openness. In partcular, the less open ts economy s, the less susceptble ts current account balance to both nternal and external dsturbances should be; for a completely closed economy, the current account balance must be equal to zero for any values of ( X  RWX ). Ths mples that (3) can be wrtten as where CA RWX s defned as n (4). = q f ( X  RWX ), (5) Ths specfcaton, however, stll neglects another aspect of openness. Not only has a country to be open to be nfluenced by others, but also that other countres have to be open to be able to exert ther nfluence. To account for ths, we replace the unweghted averagng functon n (4) wth an opennessweghted averagng functon: 6 Ths s the specfcaton n Chnn and Prasad (2003). However, we found that for our dataset X and ( X  RWX ) as specfed n (4) are correlated close to unty, meanng that just accountng for the general equlbrum condton alone would make lttle practcal dfferences to not consderng t at all. 4
8 RWX º / å q X q j j å. (6) j j¹ j¹ Assumng f (.) s a lnear functon of ts arguments, the correspondng regresson model of (5) s CA = a + q( X  RWX )' α + e, (7) 0 1 where e s the error term. Thrdly, for the same degree of openness, a larger economy wll have a more pronounced nfluence on others, but be less affected by others at the same tme. To account for ths sze factor, we need to modfy both (6) and (7) as follows: CA = a + qz ( X  RWX )' α + e (8) 0 1 RWX º / å q GDP X qgdp j j j å (9) j j Z º j¹ j¹ å j q GDP j j j j GDP The modfcaton to the dentfy functon for / å q. (10) RWX s straghtforward, as we merely re place the opennessweghted averagng functon n (6) wth an opennessgdp weghted averagng functon n (9). The latter means that shocks from larger and more open foregn countres wll be weghted hgher than those from smaller and less open ones n mputng the external dsturbances confronted by the home country. The modfcaton to the equaton for nteracton term q ( X  RWX ) wth a new term, Z. Ths new term CA s somewhat more complcated, as we multply the Z s the nverse of the rela tve sze of the domestc economy compared to the world average, and the sze of each foregn country s also weghted by ts openness. Z s a scalar, and t wll be larger than one for small economes and smaller than one for large economes. The reason for ths specfcaton s clear when we consder a world consstng of only two countres, n whch the home country s twce the sze of the foregn country j, and the vector of X has only one element. Then further suppose q = q = 1 and D( X  X ) = 1. In the counterfactual case that Z does not appear n equaton j j (8), D CA = a. Snce D( X  X ) =  1, D CA =  a holds smultaneously. In dollar terms, 1 j j 1 the current account surplus n country has to match the current account defct n country j. How 5
9 ever, snce CA s expressed as a rato to GDP a standard practce n the lterature to ensure that the world current account balance s zero, the effect of D( X  X ) on CA must be half as that of j D( X  X ) onca. That s, the margnal effect wll be smaller for the larger economy, and vce j j versa. In the absence of Z, the estmated margnal effect wll be somewhere between the actual margnal effects on CA andca. In a more general, multcountry settng, the error wll depend on the dstrbuton of economc szes. The ncluson of j Z n (8) provdes a soluton to ths problem and should hence lead to a more accurate estmaton of the effect of ( X  RWX ) on CA. 7 Fur thermore, the openness measure enters others only f t s open. Z because, lke that n RWX, an economy can nfluence 4 EXPLANATORY VARIABLES AND DATA 4.1 Explanatory varables Our objects of nterest are the demographc effects on the current account balance. Ths s related to but dfferent from studes of the determnants of the current account balance. The man dfference s that we focus on demographc factors and nclude a lmted number of control varables. Gven that the lterature has elcted numerous determnants of these two macro varables, a legtmate concern s how many of those determnants have to be ncluded as controls to avod based estmatons for the demographc effects. In ths aspect, t s useful to notce that the demographc structure of a country s shaped by ts fertlty and mortalty rates over decades, makng t deeply predetermned and most lkely exogenous wth respect to many other macroeconomc varables. Accordngly, the excluson of those varables should not cause omsson bas to the estmates for demography. On the other hand, t can be argued that demography and many other macroeconomc varables are all drven by even deeper determnants such as culture, and therefore models that are too parsmonous would stll be subject to omtted varable bas. Our strategy, therefore, s frst to estmate models wth only demographc varables, and then to add a number of control varables to test f the results of the more parsmonous specfcatons are robust. 7 There s a reason why we measure the sze of the home economy relatve to the world average, but not the average of the ROW. Consder the twocountry example n the text. If we use the average sze of the ROW, for the small country, ts relatve sze wll be equal to 2 and that of the bgger country wll be equal to ½. As a result, the margnal effect of the home country wll be a quarter of that of the foregn country, nstead of just half of t. 6
10 Followng common practce n the lterature, we measure demographc structure usng youth and oldage dependency ratos. For the control varables, snce the current account s equal to excess savng over nvestment and s assocated to nternatonal captal flows, factors pertanng to the lfecycle consumpton smoothng, nvestment return and rsk are partcularly relevant. Varables pertanng to consumpton smoothng nclude ncome growth, the rural populaton share, and labour partcpaton rate. Our controls pertanng to nvestment return nclude human captal (measured by average years of schoolng) and the busness cycle (measured by the output gap, lags of the dependent varables and year dummes). Factors pertanng to rsk nclude fnancal development (measured by a fnancal development ndex), nsttutonal qualty and poltcal stablty (measured by a composte rsk ndex), and a measure of economc openness. A number of these varables requre some elaboraton. Frst, we do not nclude ncome n levels because ncome s found to be nonstatonary 8, and ths would weaken the nternal nstruments used n GMM estmatons; as a result, only ts frstdfference,.e. the ncome growth rate, s used. 9 Second, the share of the rural populaton n the total populaton s ncluded as a control varable because rural households, especally those n developng countres, may not have as good access to fnancal ntermedaton as ther urban counterparts and thus have dfferent savng behavour. Lastly, a measure of economc openness s ncluded, manly to ease comparson wth the conventonal model, but we also nclude t n our alternatve model as a standalone control varable to avod the transformed varables from pckng up the effect of the openness measure. 4.2 Data The defntons, data sources and basc summary statstcs of the varables referred to are summarsed n Table 1. Most of the varables are measured accordng to standard practce n the related emprcal lterature that draws on crosscountry panel data. Yet, a few of our varables deserve some dscusson. Snce the current account balance s assocated wth nternatonal captal flows, we focus on fnancal openness n constructng the openness varable q. Ths varable s based on the ndex constructed by Chnn and Ito (2007), whch s the frst prncple component of three bnary varables on captal controls recorded n the IMF's Annual Report on Exchange Arrangements and Exchange Restrctons. Usng ths ndex nstead of a trade openness measure also has the advantage that t s n 8 Ths s based on the results of Fsher and ImPesaranShn panel unt root tests. 9 However, for nongmm estmatons such as fxed effects models, we have expermented wth ncludng ncome as well. 7
11 sttutonbased and therefore less susceptble to endogenety problems and varaton due to busness cycles. Notwthstandng, we also refer to a standard trade openness measure for robustness check. The usual proxes for fnancal development or actvty rely on money and credt volumes. 10 However, they suffer from a number of shortcomngs that cast doubt on ther usefulness n crosscountry and ntertemporal comparsons. 11 We therefore refer to a new multndcator measurement of fnancal actvty that captures not only the degree of monetzaton or fnancal ntermedaton, but n addton the share of resources a socety devotes to run ts fnancal system. In partcular, our measurement conssts of the followng four ndcators: the share of the labour force employed n the fnancal system; the number of banks and branches per capta; the share of the fnancal system n GDP; and the tradtonal measure M2/GDP. Whle each of these varables ndvdually s plagued wth a host of valdty problems, we trust that collectvely they can be transformed nto a reasonably relable measure for the ntended noton of fnancal actvty. To that end, the factor scores of the frst prncpal component of the four varables are taken as our numercal estmates for fnancal development. 12 Ths measure stands for a resourcebased concept of fnancal development. Ths noton of fnancal development s thus dfferent from the common noton of fnancal depth, as t sgnfes a real rather than a monetary phenomenon. For nsttutonal qualty and poltcal stablty (combned), we refer to the poltcal rsk ndex from the Internatonal Country Rsk Gude. A hgher value of ths ndex mples better nsttutonal qualty and hgher poltcal stablty. For smplcty, we refer to the varable as nsttutonal qualty. The coverage of the panel results from a pragmatc approach. We started wth the broadest crosssecton allowed for by data avalablty; yet to curb samplng effects due to excessve unbalancedness of the panel, we excluded those countres for whch data are avalable for recent years 10 Both Gruber and Kamn (2007) and Chnn and Ito (2007) use the rato of prvate credt to GDP, expressed as a devaton from ts GDPweghted sample means as a proxy for fnancal development. Legg et al. (2007) use the annual stock market turnover as a proporton of share market captalsaton as a proxy for fnancal depth. 11 The standard varable s M2/GDP (e.g. see Kng and Levne, 1993). However, due to defntonal nstablty and dffcultes n nternatonal comparablty, the selecton of a sutable monetary aggregate creates a serous problem (Sklos and Barton, 2001). Moreover, monetary aggregates may be hghly msleadng as they ndcate monetsaton rather than fnancal sophstcaton (Lynch, 1996). Another standard proxy s credt wthn the prvate sector/gdp, whch s used by Kng and Levne (1993). The measure, however suffers from the fact that hghly benefcal credts are lumped together wth nonperformng loans. In addton, ths varable refers to bankbased fnance rather than total ntermedaton, and thereby may be a msleadng ndcator of fnancal development n countres where a substantal part of nvestment s rased through the prmary captal market. 12 Specfcally, the data of these four varables for all countres and nne ponts n tme (1960, 1965,..., 2000) were pooled nto a panel, and the frst prncpal component was extracted. The frst component already accounts for 75% of total varance, and all communaltes are 0.69 or hgher, ndcatng a onedmensonal data space. For a comparable approach to measure fnancal development, see Graff (2005). 8
12 only. 13 Moreover, followng common practce n crosscountry studes, we dsregarded very small countres, 14 as ther ntegraton nto the global economy can be assumed to dffer substantally from larger economes, as well as OPEC countres whose natonal ncome derves manly from exportng crude ol. The remanng 84 countres are lsted n the Appendx. The longtudnal dmenson of the panel conssts of yearly data that gven the coverage n most nternatonal data sets referred to n ths lterature start n We extended the data collecton to 2006, resultng n a maxmum of 47 yearly observatons. 15 As can be expected, there s a consderable number of mssng observatons for the maxmum of 3948 data ponts. The dataset s hence an unbalanced panel. A typcal sample sze for our regressons comprses slghtly more than 2700 observatons. 16 The most severe constrant on the sample sze comes from the nsttutonal qualty measure and then the labour partcpaton rate. Includng these two varables means a loss of more than 1000 observatons. Therefore, we shall frst estmate our models wthout these two varables to take advantage of the maxmum sze of the dataset, and then add them to the models to test for the senstvty of our estmates. 5. EMPIRICAL RESULTS Whle our objects of nterest are the demographc effects on the current account balance, a premse of the paper s that our suggested framework s theoretcally sounder than the conventonal one. Nonetheless, whether the new framework would lead to dfferent fndngs n practce s a dfferent matter. Thus, n what follows we focus on the comparson between the results regardng demography obtaned usng the new and conventonal frameworks respectvely. Although the new framework s more elaborated than the conventonal one, ther comparson s straghtforward once we notce that both can be represented n smlar ways: CA = a + Xˆ α + e (new) (11) t, 0 t, 1 t, CA = b + X β + e (conventonal), (12) Ths s manly because these countres became ndependent enttes only recently, partcularly after the collapse of the Sovet Unon and Yugoslava. 14 Our cutoff s 1 mllon nhabtants durng any year from as recorded n the Penn World Tables, Mark Notce that we delberately refran from pushng the sample perod to the latest avalable years (2009 for most countres), as ths would nclude the 2008/2009 recesson as well as the bubble economy of Durng these years, current accounts were frst nflated and later plunged as never before snce the end of World War II, and ths spectacular varance was certanly not drven by the longterm determnants, n whch we are nterested. 16 For a strctly balanced panel, the sample coverage drops to 75 countres and 22 years from year 1985 to
13 where X ˆ º q Z ( X  RWX ) can be consdered as a transformed verson of X. Snce X ˆ and have dfferent means and standard devatons, to make the comparson of ther coeffcents meanngful, they are standardsed before enterng the regressons. X 5.1 Fxed effects estmatons wthn the conventonal framework We frst estmate the conventonal model usng twoway fxed effects (.e. country and year fxed effects). The country fxed effects are to control for tme nvarant country heterogenety lke geography or culture, and the year fxed effect are to control for country common but tme varyng factors lke the global busness cycle. The results are reported n Table 2. Fgures n parentheses are robust standard errors. [Table 2] When only the two demographc varables are ncluded n the model (2a), both coeffcents pont estmates are negatve, but nsgnfcant at standard levels. Recall that whle most of the lterature assumes an expected negatve sgn for the two demographc varables based on the lfe cycle theory, the lterature revew n secton 2 suggests that a more comprehensve consderaton wll lead to no conclusve presumpton regardng ther sgns. Accordngly, we assess statstcal sgnfcance for these varables wth twosded tests. In model (2b), a number of control varables are added to the model, ncludng the rural populaton share, average years of schoolng, fnancal development, ncome growth, the output gap and fnancal openness. Now oldage dependency becomes sgnfcant at the 10% level, retanng the negatve sgn. In model (2c), two more control varables are added, namely the labour partcpaton rate and nsttutonal qualty. Ths cuts the sample sze by more than onethrd. However, the fndngs regardng the two demographc varables reman the same n qualtatve terms, albet that the coeffcent of oldage dependency becomes somewhat larger. Thus, nterpretng these results mechancally, an ncrease n the oldage dependency rato by one standard devaton may reduce the current account balance by some 0.4 standard devatons. In what follows, we take ths as the baselne model for the senstvty analyses. We also estmated the baselne model usng random rather than fxed effects (2d). The results are smlar to those of the fxed effects model n qualtatve terms. However, the Hausman test strongly rejects the null hypothess that the random effects estmates are consstent. Thus, we mantan the fxed effects framework. 10
14 As a robustness check, n model (2e), we add yet another demographc varable, namely lfe expectancy, to the baselne model. The reason of ncludng ths varable s that populaton ageng s charactersed not only by hgher oldage dependency, but also by rsng lfe expectancy. 17 Snce these two aspects are hghly correlated, whle havng opposte expected effects on savng, omttng lfe expectancy may lead to based estmaton for oldage dependency. On the other hand, snce the nformaton content of the three demographc varables overlaps substantally, ncludng all of them mples multcollnearty problems. Despte ths concern, the results are almost dentcal to those of the baselne model (.e. 2c), and the lfe expectancy varable s not sgnfcant at any conventonal level. Another robustness check s to nclude ncome n the model (2f). Although ths varable s nonstatonary, that s less an ssue for the fxed effects estmatons than for GMM. The results reman vrtually the same as n the baselne case. Overall, the fndngs based on the conventonal framework ndcate that after controllng for a reasonable number of confounders both youth and oldage dependency appear to have negatve effects on the current account balance, but only the effect of the oldage dependency s statstcally sgnfcant. Ths would therefore suggest that populaton ageng ndeed has dscernble negatve mpacts on the current account balance, whle a queston mark s n order regardng youth dependency. Prevous studes also tended to fnd negatve effects for both age dependency ratos, 18 even though not all record both of them as statstcally sgnfcant. So, n general, our results are consstent wth prevous fndngs based on a smlar framework, whch s reassurng as a startng pont. Let us now proceed to our new specfcaton. 5.2 Fxed effects estmatons wthn the new framework Wthn the new framework, we start wth reestmatng the baselne model (3a). The results are reported n Table 3. Both dependency ratos are now nsgnfcant at even most moderate standard levels,.e. referrng to statstcal nference, the coeffcents are not dstngushable from zero. We also estmated the model usng random effects (3b) but, once agan, the Hausman test strongly rejects the null hypothess that the random effects estmates are consstent. We also repeat the two ro 17 In L, Zhang and Zhang (2007), the fertlty rate nstead of youth dependency s used as a measure of demography, along wth lfe expectancy and oldage dependency. Yet, n lowncome countres, nfant and chld mortalty rates are often regrettably hgh, so the youth dependency rate s more accurate to capture the demographc structure, as t reflects both fertlty and mortalty. 18 However, n some of ther estmatons, Chnn and Prasad (2003) record a postve effect of oldage dependency rato on the current account balance. 11
15 bustness tests of addng lfe expectancy (3c) and ncome (3d), respectvely, to the model and fnd the results remanng the same as n the baselne case. [Table 3] The key message we get from these results s that the new framework leads to very dfferent conclusons regardng the effects of demographc factors on the current account balance. Specfcally, compared to the results from the conventonal framework, the new results do not support the hypothess that populaton ageng would have unambguous and negatve mpacts on the current account balance. 5.3 Dynamc panel estmatons wthn the new framework Gven that the current account balance s charactersed by strong nerta, 19 omttng ts lagged values n the fxed effects models could result n nconsstent estmaton of the coeffcents for demography and other explanatory varables (Bond 2002). To address ths ssue, we nclude lagged values of the current account balance nto the model and estmate t usng GMM estmators. The Dfference (DIFF) GMM estmator followng HoltzEakn, Newey and Rosen (1988) and Arellano and Bond (1991) nvolves frst dfferencng the equaton to remove the cross sectonal fxed effects: å D CA = D Xˆ α + D CA + D v + D e (new) (13) g t, t, 1 k= 1 k t,  k t t, and then usng lagged level varables as nstruments. The conventonal framework s obtaned by substtutng X for X ˆ. t, t, Arellano and Bover (1995) and Blundell and Bond (1998) mprove the DIFF GMM estmators by smultaneously estmatng the level equaton usng the lagged frstdfference of a varable as an nstrument. The modfed verson s commonly referred to as the System (SYS) GMM estmator. Postestmaton DfferencenHansen tests are performed to assess f the addtonal moment condtons wth the SYS GMM estmator as compared to the DIFF GMM estmator are vald. Both estmators requre the frstdfferenced errors to be serally uncorrelated, whch can be tested postestmaton. The number of lags for the dependent varable s extended untl ths condton s fulflled. The estmatons are performed usng a twostep process, as ths does not requre homoskedastcty of the error term, and the standard errors are corrected for small sample bas followng Wndmejer (2005). Snce the twostep GMM estmaton presupposes that the errors are not corre 19 For our dataset, the frst order autocorrelaton of the current account balance s
16 lated across countres, the year fxed effects are retaned n the model to remove unversal tmerelated shocks from the errors (Roodman 2009a). The youth dependency rato, the oldage dependency rato, the rural populaton share, average years of schoolng, and fnancal openness are treated as exogenous, as they are slowly evolvng stock or level varables. Fnancal development s treated as a predetermned varable, meanng that ts frst and deeper lags are used as nstruments. The remanng varables are treated as endogenous, meanng that only ther second and deeper lags are used as nstruments. Usng too many nstruments can lead to downward bas of the standard errors. Therefore, we lmt the number of lags to two n generatng nstruments, unless a postestmaton dagnostc test results n a demand for longer lags, as well as collapsng the moment condtons. 20 The results are reported n Table 4. All estmatons reported n the table pass the autocorrelaton and overdentfcaton tests descrbed above. For the conventonal model (4a), the lagged value of the current account balance s sgnfcant and shows a szable coeffcent, vndcatng ts ncluson. 21 The ncorporaton of short run dynamcs n the model sees some substantal changes to the results compared to the statc model. Both dependency ratos are now sgnfcantly negatve at the 5% level. Ths fndng thus would delver support for the lfecycle hypothess descrbed n the ntroducton. [Table 4] For the new model (4b), once agan, the lagged value of the current account balance s sgnfcant and szable. Moreover, there are notceable changes to the demographc effects as compared to the statc models. Youth dependency s now sgnfcantly negatve. On the other hand, oldage dependency has a postve pont estmate, but remans nsgnfcant, as n the other specfcatons based on our suggested new framework. We furthermore conducted a number of robustness tests for the dynamc panel model. To keep the dscusson focused, we only go through the results regardng the new framework. 22 Frstly, when lfe expectancy s added to the model (4c), the youth dependency rato gets nsgnfcant. Ths s probably due to multcollnearty. Secondly, snce some szeable OECD countres tend to have comparatvely low savng ratos, and at the same tme attract a lot of nternatonal captal, one may also queston f ther current account balances respond to demographc changes dfferently from other countres. To examne ths, we splt the sample nto an OECD and a nonoecd subsample. However, as n the OECD subsam 20 For a detaled dscusson, see Roodmand (2009b). 21 Results from dagnostc tests suggest that one lag term s suffcent. 22 The other results can be obtaned from the correspondng authors upon request. 13
17 ple, there s severe multcollnearty between regressors, ncludng the youth dependency rato, we can only report meanngful results for the nonoecd subsample (4d). Importantly, excludng the OECD countres does not change the man fndngs from the baselne case n that only the youthage dependency rato s sgnfcantly negatve. Thrdly, we dvde the dataset nto two 10year perods, one from 1986 to 1995, and the other one from 1996 to There are two consderatons leadng to ths robustness check. Frstly, t allows us to examne whether the demographc effects on the current account balance change over tme. Secondly, the SYS GMM estmator s desgned for datasets of large N, but small T. For the perod of (4e), both dependency ratos are nsgnfcant, whereas for the perod of (4f), the key results are agan the same as n the full sample n that only the youth dependency rato s sgnfcant and negatve. Lastly, we refer to a standard measure of trade openness n place of fnancal openness n constructng X %. The most commonly used measure of trade openness s total trade normalsed wth GDP. Ths measure, however, s senstve to the busness cycle. Therefore, we extract the long run trend usng the HodrckPrescott flter and treat t as a predetermned rather than exogenous varable. The youth dependency rato retans the negatve sgn, as before, but ts standard error has ncreased somewhat such that ts sgnfcance level falls out of the two sde 10% range (p=0.12) (4g). 5.4 Dscusson What can we take from the reported regressons? Although the detals vary from estmaton to estmaton, as expected, a number of general observatons regardng the demographc effects on the current account balance s n order. Frstly, accountng for the nerta of the current account balance makes substantal dfferences to the results wthn the new and conventonal frameworks. Accordngly, when dscussng the prncpal fndngs on the demographc effects on the current account balance, t s mportant to emphasse whether the results are based on statc or dynamc models. Secondly, for ether the statc or the dynamc models, our results based on the new framework are notceably dfferent from those based on the conventonal approach. Ths suggests that at the very least, accountng for general equlbrum, relatve sze and openness s mportant n modellng the current account balance; and that at the very most, all prevous estmatons based on the conventonal framework are based. 23 There are nsuffcent data to estmate the full model before
18 Thrdly, for ether the statc or the dynamc models, the results based on the new framework ndcate that the effect of populaton ageng on the current account balance s much more subdue than reported n prevous studes usng the conventonal framework. As dscussed n the lterature revew, ths s not contradctory to the theoretcal arguments, because populaton ageng could affect both savng and nvestment, leavng ts effect on excess savng over nvestment (.e. the current account balance) ambguous. Furthermore, people movng toward retrement may save more, and retrees may dssave more slowly due to longevty uncertanty. In ths regard, t s plausble for populaton ageng to have ether a postve or a negatve mpact on the current account balance, or no dscernble mpacts at all as found n ths study. 6. CONCLUSION Ths paper reexamnes the effects of demography on the current account balance. A key departure of the paper from, and hence ts contrbuton to, the current lterature s ts consderaton of the general equlbrum nature of the current account balance n a world of heterogeneous economc sze and openness. Our modellng framework dffers from the conventonal one n three aspects. Frstly, t recognses that n a general equlbrum settng, t s the relatve pace of demographc changes across countres rather than the absolute pace of changes n a partcular country that contrbutes to determnng ts current account balance. Secondly, t acknowledges the fact that a country can nfluence others and lkewse be nfluenced by others only up to the extent that t s economcally open. Thrdly, t accounts for the fact that the nfluence of one country on another depends on ther relatve szes. Ths new framework s put to test referrng to a large panel dataset. The emprcal strategy s to estmate the new and conventonal models and contrast ther dfferences. It s demonstrated that the new framework leads to notceable changes n some conclusons based on the conventonal one. The new evdence ndcates that populaton ageng as measured by oldage dependency does not have dscernble mpacts on the current account balance, and thus suggestng that dfferent fndngs n the prevous lterature may be due to the neglgence of the general equlbrum, sze and openness factors. In a nutshell, the effects of demographc factors on the current account balance may comprse more and sometmes conflctng drvng forces than prevously consdered, whch calls for more research along the lnes suggested here. Last but not the least, although the current study focuses on demography, the key ratonale behnd the new framework s qute general and hence applcable to emprcal studes of many other open economy ssues. 15
19 REFERENCES Arellano, Manuel and Stephen Bond (1991). Some tests of specfcaton for panel data: Monte Carlo evdence and an applcaton to employment equatons. Revew of Economc Studes, 58(2): Arellano, Manuel. and Olympa Bover (1995). Another look at the nstrumental varables estmaton of error components models. Journal of Econometrcs, 68(1): Attanaso, Orazo P., Sagr Ktao, Govann L. Volante (2006) Quantfyng the effects of the demographc transton n developng economes. Advances n Macroeconomcs 6(1): Artcle 2. Barro, J. Robert, and JongWha Lee (2001) Internatonal data on educaton attanment: updates and mplcatons. Oxford Economc Papers 53(3): Bond, Stephen (2002), Dynamc panel data models: A gude to mcro data methods and practce. CEMMAP Workng Paper CWP09/02. The Insttute for Fscal Studes, Department of Economcs, Unversty College of London. Blundell, Rchard. and Stephen Bond (1998). Intal condtons and moment restrctons n dynamc panel data models. Journal of Econometrcs, 87(1): Chnn, Menze D., and Hro Ito (2007) Trade account balances, fnancal development and nsttutons: assayng the world savng glut. Journal of Internatonal Money and Fnance 26(4): Chnn, Menze D., and Eswar S. Prasad (2003) Medumterm determnants of current accounts n ndustral and developng countres: an emprcal exploraton. Journal of Internatonal Economcs 59(1): Cooper, Rchard N. (2008) Global mbalances: globalzaton, demography, and sustanablty. Journal of Economc Perspectve 22(3): Domej, Davd, and Martn Flodén (2006) Populaton agng and nternatonal captal flows. Internatonal Economc Revew 47 (3): Edwards, Sebastan (1996) Why are Latn Amerca's savng rates so low? An nternatonal comparatve analyss. Journal of Development Economcs 51: Ferol, Mchael (2003) Captal flows among the G7 natons: A demographc perspectve. Fnance and Economcs Dscusson Seres , Board of Governors of the Federal Reserve System. Graff, Mchael (1999) Educaton mbalance, socoeconomc nequalty, poltcal freedom, and economc development Journal of Economc Development, 24(2): 118 Graff, Mchael (2005) SocoEconomc Factors and the FnanceGrowth Nexus. European Journal of Fnance 11 (3): Gruber, Joseph W., and Steven B. Kamn (2007) Explanng the global pattern of current account mbalances. Journal of Internatonal Money and Fnance, 26(4): Hggns, Matthew (1998) Demography, natonal savngs and nternatonal captal flows. Internatonal Economc Revew, 39 (2): Hggns, Matthew and Jeffrey G. Wllamson (1997) Age structure dynamcs n Asa and dependency on foregn captal. Populaton and Development Revew, 23 (2): HoltzEakn, Douglas, Whtney Newey and Harvey S. Rosen (1988). Estmatng vector autoregressons wth panel data. Econometrca, 56(6):
20 Km, Soyoung and JongWha Lee (2007) Demographc changes, savng, and current account n East Asa. Asan Economc Papers 6 (2): Kng, Robert. G. and Ross Levne (1993) Fnance and Growth. Schumpeter Mght Be Rght. Quarterly Journal of Economcs, 108 (3): L, Hongbn, Je Zhang and Junsen Zhang (2007) Effects of longevty and dependency rates on savng and growth: Evdence from a panel of cross countres. Journal of Development Economcs, 84 (1): Legg, Anthony, Naln Prasad and Tm Robnson (2007) Global mbalances and the global savng glut a panel data assessment. Research Dscusson Paper, Reserve Bank of Australa, Lynch, Davd (1996) Measurng Fnancal Sector Development: A Study of Selected Asa Pacfc Countres. The Developng Economes, 34 (1): Masson, Paul R., Tamn Bayoum, Hossen Same (1998) Internatonal evdence on the determnants of prvate savng. The World Bank Economc Revew, 12(3): Modglan, Franco (1970) The lfe cycle hypothess of consumpton. n: W. A. Elts, M. F. G. Scott, and J. N. Wolfe, eds., Inducton, growth, and trade: Essays n Honour of Sr Roy Harrod, Oxford Unversty Press: Obstfeld, Maurce, and Kenneth Rogoff (2000) The sx major puzzles n nternatonal macroeconomcs: s there s a common cause? NBER Macroeconomcs Annual. The MIT Press. Roodman, Davd (2009a) How to do xtabond2: an ntroducton to dfference and system GMM n Stata. The Stata Journal, 9 (1): Roodman, Davd (2009b) A note on the theme of too many nstruments. Oxford Bulletn of Economcs and Statstcs, 71 (1): Sachs, Jeffrey, and Andrew Warner (1995) Economc reform and the process of global ntegraton. Brookngs Papers on Economc Actvty 1, pp Sklos, Perre L. and Andrew G. Barton (2001) Monetary Aggregates as Indcators of Economc Actvty n Canada: Emprcal Evdence. Canadan Journal of Economcs, 34(1): Wndmejer, Frank (2005). A fnte sample correcton for the varance of lnear effcent twostep GMM estmators. Journal of Econometrcs, 126 (1):
Can Auto Liability Insurance Purchases Signal Risk Attitude?
Internatonal Journal of Busness and Economcs, 2011, Vol. 10, No. 2, 159164 Can Auto Lablty Insurance Purchases Sgnal Rsk Atttude? ChuShu L Department of Internatonal Busness, Asa Unversty, Tawan ShengChang
More informationHOUSEHOLDS DEBT BURDEN: AN ANALYSIS BASED ON MICROECONOMIC DATA*
HOUSEHOLDS DEBT BURDEN: AN ANALYSIS BASED ON MICROECONOMIC DATA* Luísa Farnha** 1. INTRODUCTION The rapd growth n Portuguese households ndebtedness n the past few years ncreased the concerns that debt
More informationAnswer: A). There is a flatter IS curve in the high MPC economy. Original LM LM after increase in M. IS curve for low MPC economy
4.02 Quz Solutons Fall 2004 MultpleChoce Questons (30/00 ponts) Please, crcle the correct answer for each of the followng 0 multplechoce questons. For each queston, only one of the answers s correct.
More informationStudy on CET4 Marks in China s Graded English Teaching
Study on CET4 Marks n Chna s Graded Englsh Teachng CHE We College of Foregn Studes, Shandong Insttute of Busness and Technology, P.R.Chna, 264005 Abstract: Ths paper deploys Logt model, and decomposes
More informationAn Alternative Way to Measure Private Equity Performance
An Alternatve Way to Measure Prvate Equty Performance Peter Todd Parlux Investment Technology LLC Summary Internal Rate of Return (IRR) s probably the most common way to measure the performance of prvate
More informationbenefit is 2, paid if the policyholder dies within the year, and probability of death within the year is ).
REVIEW OF RISK MANAGEMENT CONCEPTS LOSS DISTRIBUTIONS AND INSURANCE Loss and nsurance: When someone s subject to the rsk of ncurrng a fnancal loss, the loss s generally modeled usng a random varable or
More informationInequality and The Accounting Period. Quentin Wodon and Shlomo Yitzhaki. World Bank and Hebrew University. September 2001.
Inequalty and The Accountng Perod Quentn Wodon and Shlomo Ytzha World Ban and Hebrew Unversty September Abstract Income nequalty typcally declnes wth the length of tme taen nto account for measurement.
More informationAnalysis of Premium Liabilities for Australian Lines of Business
Summary of Analyss of Premum Labltes for Australan Lnes of Busness Emly Tao Honours Research Paper, The Unversty of Melbourne Emly Tao Acknowledgements I am grateful to the Australan Prudental Regulaton
More informationMarginal Benefit Incidence Analysis Using a Single Crosssection of Data. Mohamed Ihsan Ajwad and Quentin Wodon 1. World Bank.
Margnal Beneft Incdence Analyss Usng a Sngle Crosssecton of Data Mohamed Ihsan Ajwad and uentn Wodon World Bank August 200 Abstract In a recent paper, Lanjouw and Ravallon proposed an attractve and smple
More informationGender differences in revealed risk taking: evidence from mutual fund investors
Economcs Letters 76 (2002) 151 158 www.elsever.com/ locate/ econbase Gender dfferences n revealed rsk takng: evdence from mutual fund nvestors a b c, * Peggy D. Dwyer, James H. Glkeson, John A. Lst a Unversty
More informationCalculation of Sampling Weights
Perre Foy Statstcs Canada 4 Calculaton of Samplng Weghts 4.1 OVERVIEW The basc sample desgn used n TIMSS Populatons 1 and 2 was a twostage stratfed cluster desgn. 1 The frst stage conssted of a sample
More information! # %& ( ) +,../ 0 1 2 3 4 0 4 # 5##&.6 7% 8 # 0 4 2 #...
! # %& ( ) +,../ 0 1 2 3 4 0 4 # 5##&.6 7% 8 # 0 4 2 #... 9 Sheffeld Economc Research Paper Seres SERP Number: 2011010 ISSN 17498368 Sarah Brown, Aurora OrtzNúñez and Karl Taylor Educatonal loans and
More informationPSYCHOLOGICAL RESEARCH (PYC 304C) Lecture 12
14 The Chsquared dstrbuton PSYCHOLOGICAL RESEARCH (PYC 304C) Lecture 1 If a normal varable X, havng mean µ and varance σ, s standardsed, the new varable Z has a mean 0 and varance 1. When ths standardsed
More informationPRIVATE SCHOOL CHOICE: THE EFFECTS OF RELIGIOUS AFFILIATION AND PARTICIPATION
PRIVATE SCHOOL CHOICE: THE EFFECTS OF RELIIOUS AFFILIATION AND PARTICIPATION Danny CohenZada Department of Economcs, Benuron Unversty, BeerSheva 84105, Israel Wllam Sander Department of Economcs, DePaul
More informationVISA REQUIREMENTS AND FEES BY COUNTRY
1 VISA REQUIREMENTS AND FEES BY COUNTRY Sngapore means Employment Pass, Dependant Pass, Student Pass or any other Pass whch allows ts holder to stay more than 90 consecutve days n Sngapore. Natonals of
More informationInstitute of Informatics, Faculty of Business and Management, Brno University of Technology,Czech Republic
Lagrange Multplers as Quanttatve Indcators n Economcs Ivan Mezník Insttute of Informatcs, Faculty of Busness and Management, Brno Unversty of TechnologCzech Republc Abstract The quanttatve role of Lagrange
More informationTHE DETERMINANTS OF THE TUNISIAN BANKING INDUSTRY PROFITABILITY: PANEL EVIDENCE
THE DETERMINANTS OF THE TUNISIAN BANKING INDUSTRY PROFITABILITY: PANEL EVIDENCE Samy Ben Naceur ERF Research Fellow Department of Fnance Unversté Lbre de Tuns Avenue Khéreddne Pacha, 002 Tuns Emal : sbennaceur@eudoramal.com
More information9.1 The Cumulative Sum Control Chart
Learnng Objectves 9.1 The Cumulatve Sum Control Chart 9.1.1 Basc Prncples: Cusum Control Chart for Montorng the Process Mean If s the target for the process mean, then the cumulatve sum control chart s
More informationDEFINING %COMPLETE IN MICROSOFT PROJECT
CelersSystems DEFINING %COMPLETE IN MICROSOFT PROJECT PREPARED BY James E Aksel, PMP, PMISP, MVP For Addtonal Informaton about Earned Value Management Systems and reportng, please contact: CelersSystems,
More informationThe Current Employment Statistics (CES) survey,
Busness Brths and Deaths Impact of busness brths and deaths n the payroll survey The CES probabltybased sample redesgn accounts for most busness brth employment through the mputaton of busness deaths,
More informationThe DAX and the Dollar: The Economic Exchange Rate Exposure of German Corporations
The DAX and the Dollar: The Economc Exchange Rate Exposure of German Corporatons Martn Glaum *, Marko Brunner **, Holger Hmmel *** Ths paper examnes the economc exposure of German corporatons to changes
More informationMarginal Returns to Education For Teachers
The Onlne Journal of New Horzons n Educaton Volume 4, Issue 3 MargnalReturnstoEducatonForTeachers RamleeIsmal,MarnahAwang ABSTRACT FacultyofManagementand Economcs UnverstPenddkanSultan Idrs ramlee@fpe.ups.edu.my
More informationOn the correct model specification for estimating the structure of a currency basket
On the correct model specfcaton for estmatng the structure of a currency basket JyhDean Hwang Department of Internatonal Busness Natonal Tawan Unversty 85 Roosevelt Road Sect. 4, Tape 106, Tawan jdhwang@ntu.edu.tw
More informationCriminal Justice System on Crime *
On the Impact of the NSW Crmnal Justce System on Crme * Dr Vasls Sarafds, Dscplne of Operatons Management and Econometrcs Unversty of Sydney * Ths presentaton s based on jont work wth Rchard Kelaher 1
More informationThe covariance is the two variable analog to the variance. The formula for the covariance between two variables is
Regresson Lectures So far we have talked only about statstcs that descrbe one varable. What we are gong to be dscussng for much of the remander of the course s relatonshps between two or more varables.
More informationThe Development of Web Log Mining Based on ImproveKMeans Clustering Analysis
The Development of Web Log Mnng Based on ImproveKMeans Clusterng Analyss TngZhong Wang * College of Informaton Technology, Luoyang Normal Unversty, Luoyang, 471022, Chna wangtngzhong2@sna.cn Abstract.
More informationQuestions that we may have about the variables
Antono Olmos, 01 Multple Regresson Problem: we want to determne the effect of Desre for control, Famly support, Number of frends, and Score on the BDI test on Perceved Support of Latno women. Dependent
More informationRecurrence. 1 Definitions and main statements
Recurrence 1 Defntons and man statements Let X n, n = 0, 1, 2,... be a MC wth the state space S = (1, 2,...), transton probabltes p j = P {X n+1 = j X n = }, and the transton matrx P = (p j ),j S def.
More informationCommunication Networks II Contents
8 / 1  Communcaton Networs II (Görg)  www.comnets.unbremen.de Communcaton Networs II Contents 1 Fundamentals of probablty theory 2 Traffc n communcaton networs 3 Stochastc & Marovan Processes (SP
More informationCHAPTER 7 THE TWOVARIABLE REGRESSION MODEL: HYPOTHESIS TESTING
CHAPTER 7 THE TWOVARIABLE REGRESSION MODEL: HYPOTHESIS TESTING QUESTIONS 7.1. (a) In the regresson contet, the method of least squares estmates the regresson parameters n such a way that the sum of the
More informationThe impact of hard discount control mechanism on the discount volatility of UK closedend funds
Investment Management and Fnancal Innovatons, Volume 10, Issue 3, 2013 Ahmed F. Salhn (Egypt) The mpact of hard dscount control mechansm on the dscount volatlty of UK closedend funds Abstract The mpact
More informationUsing Series to Analyze Financial Situations: Present Value
2.8 Usng Seres to Analyze Fnancal Stuatons: Present Value In the prevous secton, you learned how to calculate the amount, or future value, of an ordnary smple annuty. The amount s the sum of the accumulated
More informationMultivariate EWMA Control Chart
Multvarate EWMA Control Chart Summary The Multvarate EWMA Control Chart procedure creates control charts for two or more numerc varables. Examnng the varables n a multvarate sense s extremely mportant
More informationExhaustive Regression. An Exploration of RegressionBased Data Mining Techniques Using Super Computation
Exhaustve Regresson An Exploraton of RegressonBased Data Mnng Technques Usng Super Computaton Antony Daves, Ph.D. Assocate Professor of Economcs Duquesne Unversty Pttsburgh, PA 58 Research Fellow The
More informationThe Effects of Tax Rate Changes on Tax Bases and the Marginal Cost of Public Funds for Canadian Provincial Governments
The Effects of Tax Rate Changes on Tax Bases and the Margnal Cost of Publc Funds for Canadan Provncal Governments Bev Dahlby a and Ergete Ferede b a Department of Economcs, Unversty of Alberta, Edmonton,
More informationTrafficlight a stress test for life insurance provisions
MEMORANDUM Date 006097 Authors Bengt von Bahr, Göran Ronge Traffclght a stress test for lfe nsurance provsons Fnansnspetonen P.O. Box 6750 SE113 85 Stocholm [Sveavägen 167] Tel +46 8 787 80 00 Fax
More informationNasdaq Iceland Bond Indices 01 April 2015
Nasdaq Iceland Bond Indces 01 Aprl 2015 Fxed duraton Indces Introducton Nasdaq Iceland (the Exchange) began calculatng ts current bond ndces n the begnnng of 2005. They were a response to recent changes
More informationSimple Interest Loans (Section 5.1) :
Chapter 5 Fnance The frst part of ths revew wll explan the dfferent nterest and nvestment equatons you learned n secton 5.1 through 5.4 of your textbook and go through several examples. The second part
More informationKiel Institute for World Economics Duesternbrooker Weg 120 24105 Kiel (Germany) Kiel Working Paper No. 1120
Kel Insttute for World Economcs Duesternbrooker Weg 45 Kel (Germany) Kel Workng Paper No. Path Dependences n enture Captal Markets by Andrea Schertler July The responsblty for the contents of the workng
More informationSTAMP DUTY ON SHARES AND ITS EFFECT ON SHARE PRICES
STAMP UTY ON SHARES AN ITS EFFECT ON SHARE PRICES Steve Bond Mke Hawkns Alexander Klemm THE INSTITUTE FOR FISCAL STUIES WP04/11 STAMP UTY ON SHARES AN ITS EFFECT ON SHARE PRICES Steve Bond (IFS and Unversty
More informationWORKING PAPER. C.D. Howe Institute. The Effects of Tax Rate Changes on Tax Bases and the Marginal Cost of Public Funds for Provincial Governments
MARCH 211 C.D. Howe Insttute WORKING PAPER FISCAL AND TAX COMPETITIVENESS The Effects of Tax Rate Changes on Tax Bases and the Margnal Cost of Publc Funds for Provncal Governments Bev Dahlby Ergete Ferede
More informationCHAPTER 14 MORE ABOUT REGRESSION
CHAPTER 14 MORE ABOUT REGRESSION We learned n Chapter 5 that often a straght lne descrbes the pattern of a relatonshp between two quanttatve varables. For nstance, n Example 5.1 we explored the relatonshp
More informationOn the Optimal Control of a Cascade of HydroElectric Power Stations
On the Optmal Control of a Cascade of HydroElectrc Power Statons M.C.M. Guedes a, A.F. Rbero a, G.V. Smrnov b and S. Vlela c a Department of Mathematcs, School of Scences, Unversty of Porto, Portugal;
More information1. Measuring association using correlation and regression
How to measure assocaton I: Correlaton. 1. Measurng assocaton usng correlaton and regresson We often would lke to know how one varable, such as a mother's weght, s related to another varable, such as a
More informationStatistical Methods to Develop Rating Models
Statstcal Methods to Develop Ratng Models [Evelyn Hayden and Danel Porath, Österrechsche Natonalbank and Unversty of Appled Scences at Manz] Source: The Basel II Rsk Parameters Estmaton, Valdaton, and
More informationMAPP. MERIS level 3 cloud and water vapour products. Issue: 1. Revision: 0. Date: 9.12.1998. Function Name Organisation Signature Date
Ttel: Project: Doc. No.: MERIS level 3 cloud and water vapour products MAPP MAPPATBDClWVL3 Issue: 1 Revson: 0 Date: 9.12.1998 Functon Name Organsaton Sgnature Date Author: Bennartz FUB Preusker FUB Schüller
More informationChapter 4 Financial Markets
Chapter 4 Fnancal Markets ECON2123 (Sprng 2012) 14 & 15.3.2012 (Tutoral 5) The demand for money Assumptons: There are only two assets n the fnancal market: money and bonds Prce s fxed and s gven, that
More informationStaff Paper. Farm Savings Accounts: Examining Income Variability, Eligibility, and Benefits. Brent Gloy, Eddy LaDue, and Charles Cuykendall
SP 200502 August 2005 Staff Paper Department of Appled Economcs and Management Cornell Unversty, Ithaca, New York 148537801 USA Farm Savngs Accounts: Examnng Income Varablty, Elgblty, and Benefts Brent
More informationHigh Correlation between Net Promoter Score and the Development of Consumers' Willingness to Pay (Empirical Evidence from European Mobile Markets)
Hgh Correlaton between et Promoter Score and the Development of Consumers' Wllngness to Pay (Emprcal Evdence from European Moble Marets Ths paper shows that the correlaton between the et Promoter Score
More informationOverview of monitoring and evaluation
540 Toolkt to Combat Traffckng n Persons Tool 10.1 Overvew of montorng and evaluaton Overvew Ths tool brefly descrbes both montorng and evaluaton, and the dstncton between the two. What s montorng? Montorng
More informationIDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS
IDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS Chrs Deeley* Last revsed: September 22, 200 * Chrs Deeley s a Senor Lecturer n the School of Accountng, Charles Sturt Unversty,
More informationI. SCOPE, APPLICABILITY AND PARAMETERS Scope
D Executve Board Annex 9 Page A/R ethodologcal Tool alculaton of the number of sample plots for measurements wthn A/R D project actvtes (Verson 0) I. SOPE, PIABIITY AD PARAETERS Scope. Ths tool s applcable
More informationHealth Insurance and Household Savings
Health Insurance and Household Savngs Mnchung Hsu Job Market Paper Last Updated: November, 2006 Abstract Recent emprcal studes have documented a puzzlng pattern of household savngs n the U.S.: households
More informationModule 2 LOSSLESS IMAGE COMPRESSION SYSTEMS. Version 2 ECE IIT, Kharagpur
Module LOSSLESS IMAGE COMPRESSION SYSTEMS Lesson 3 Lossless Compresson: Huffman Codng Instructonal Objectves At the end of ths lesson, the students should be able to:. Defne and measure source entropy..
More informationx f(x) 1 0.25 1 0.75 x 1 0 1 1 0.04 0.01 0.20 1 0.12 0.03 0.60
BIVARIATE DISTRIBUTIONS Let be a varable that assumes the values { 1,,..., n }. Then, a functon that epresses the relatve frequenc of these values s called a unvarate frequenc functon. It must be true
More informationRiskbased Fatigue Estimate of Deep Water Risers  Course Project for EM388F: Fracture Mechanics, Spring 2008
Rskbased Fatgue Estmate of Deep Water Rsers  Course Project for EM388F: Fracture Mechancs, Sprng 2008 Chen Sh Department of Cvl, Archtectural, and Envronmental Engneerng The Unversty of Texas at Austn
More informationTHE EFFECT OF PREPAYMENT PENALTIES ON THE PRICING OF SUBPRIME MORTGAGES
THE EFFECT OF PREPAYMENT PENALTIES ON THE PRICING OF SUBPRIME MORTGAGES Gregory Ellehausen, Fnancal Servces Research Program George Washngton Unversty Mchael E. Staten, Fnancal Servces Research Program
More informationStructural Estimation of Variety Gains from Trade Integration in a Heterogeneous Firms Framework
Journal of Economcs and Econometrcs Vol. 55, No.2, 202 pp. 7893 SSN 20329652 ESSN 20329660 Structural Estmaton of Varety Gans from Trade ntegraton n a Heterogeneous Frms Framework VCTOR RVAS ABSTRACT
More informationRisk Model of LongTerm Production Scheduling in Open Pit Gold Mining
Rsk Model of LongTerm Producton Schedulng n Open Pt Gold Mnng R Halatchev 1 and P Lever 2 ABSTRACT Open pt gold mnng s an mportant sector of the Australan mnng ndustry. It uses large amounts of nvestments,
More informationIs There A Tradeoff between EmployerProvided Health Insurance and Wages?
Is There A Tradeoff between EmployerProvded Health Insurance and Wages? Lye Zhu, Southern Methodst Unversty October 2005 Abstract Though most of the lterature n health nsurance and the labor market assumes
More informationADVERSE SELECTION IN INSURANCE MARKETS: POLICYHOLDER EVIDENCE FROM THE U.K. ANNUITY MARKET *
ADVERSE SELECTION IN INSURANCE MARKETS: POLICYHOLDER EVIDENCE FROM THE U.K. ANNUITY MARKET * Amy Fnkelsten Harvard Unversty and NBER James Poterba MIT and NBER * We are grateful to Jeffrey Brown, PerreAndre
More informationManagement Quality, Financial and Investment Policies, and. Asymmetric Information
Management Qualty, Fnancal and Investment Polces, and Asymmetrc Informaton Thomas J. Chemmanur * Imants Paegls ** and Karen Smonyan *** Current verson: December 2007 * Professor of Fnance, Carroll School
More information17 Capital tax competition
17 Captal tax competton 17.1 Introducton Governments would lke to tax a varety of transactons that ncreasngly appear to be moble across jursdctonal boundares. Ths creates one obvous problem: tax base flght.
More informationShortrun and Longrun structural international tourism demand modeling based on Dynamic AIDS model An empirical research in Japan
hortrun and ongrun structural nternatonal toursm demand modelng based on Dynamc AID model An emprcal research n Japan Atsush KOIKE a, Dasuke YOHINO b a Graduate chool of Engneerng, Kobe Unversty, Kobe,
More informationCHAPTER 5 RELATIONSHIPS BETWEEN QUANTITATIVE VARIABLES
CHAPTER 5 RELATIONSHIPS BETWEEN QUANTITATIVE VARIABLES In ths chapter, we wll learn how to descrbe the relatonshp between two quanttatve varables. Remember (from Chapter 2) that the terms quanttatve varable
More informationFinancial Instability and Life Insurance Demand + Mahito Okura *
Fnancal Instablty and Lfe Insurance Demand + Mahto Okura * Norhro Kasuga ** Abstract Ths paper estmates prvate lfe nsurance and Kampo demand functons usng householdlevel data provded by the Postal Servces
More informationLocation Factors for NonFerrous Exploration Investments
Locaton Factors for NonFerrous Exploraton Investments Irna Khndanova Unversty of Denver Ths paper analyzes the relatve mportance of geologcal potental and nvestment clmate for nonferrous mnerals exploraton
More informationCHOLESTEROL REFERENCE METHOD LABORATORY NETWORK. Sample Stability Protocol
CHOLESTEROL REFERENCE METHOD LABORATORY NETWORK Sample Stablty Protocol Background The Cholesterol Reference Method Laboratory Network (CRMLN) developed certfcaton protocols for total cholesterol, HDL
More informationManagement Quality and Equity Issue Characteristics: A Comparison of SEOs and IPOs
Management Qualty and Equty Issue Characterstcs: A Comparson of SEOs and IPOs Thomas J. Chemmanur * Imants Paegls ** and Karen Smonyan *** Current verson: November 2009 (Accepted, Fnancal Management, February
More informationTrade Adjustment and Productivity in Large Crises. Online Appendix May 2013. Appendix A: Derivation of Equations for Productivity
Trade Adjustment Productvty n Large Crses Gta Gopnath Department of Economcs Harvard Unversty NBER Brent Neman Booth School of Busness Unversty of Chcago NBER Onlne Appendx May 2013 Appendx A: Dervaton
More informationDoes Higher Education Enhance Migration?
DISCUSSION PAPER SERIES IZA DP No. 7754 Does Hgher Educaton Enhance Mgraton? Mka Haapanen Petr Böckerman November 2013 Forschungsnsttut zur Zukunft der Arbet Insttute for the Study of Labor Does Hgher
More informationSolutions to First Midterm
rofessor Chrstano Economcs 3, Wnter 2004 Solutons to Frst Mdterm. Multple Choce. 2. (a) v. (b). (c) v. (d) v. (e). (f). (g) v. (a) The goods market s n equlbrum when total demand equals total producton,.e.
More informationPROFIT RATIO AND MARKET STRUCTURE
POFIT ATIO AND MAKET STUCTUE By Yong Yun Introducton: Industral economsts followng from Mason and Ban have run nnumerable tests of the relaton between varous market structural varables and varous dmensons
More informationMacro Factors and Volatility of Treasury Bond Returns
Macro Factors and Volatlty of Treasury Bond Returns Jngzh Huang Department of Fnance Smeal Colleage of Busness Pennsylvana State Unversty Unversty Park, PA 16802, U.S.A. Le Lu School of Fnance Shangha
More informationWhat is Candidate Sampling
What s Canddate Samplng Say we have a multclass or mult label problem where each tranng example ( x, T ) conssts of a context x a small (mult)set of target classes T out of a large unverse L of possble
More informationNumber of Levels Cumulative Annual operating Income per year construction costs costs ($) ($) ($) 1 600,000 35,000 100,000 2 2,200,000 60,000 350,000
Problem Set 5 Solutons 1 MIT s consderng buldng a new car park near Kendall Square. o unversty funds are avalable (overhead rates are under pressure and the new faclty would have to pay for tself from
More informationSection 5.4 Annuities, Present Value, and Amortization
Secton 5.4 Annutes, Present Value, and Amortzaton Present Value In Secton 5.2, we saw that the present value of A dollars at nterest rate per perod for n perods s the amount that must be deposted today
More informationStress test for measuring insurance risks in nonlife insurance
PROMEMORIA Datum June 01 Fnansnspektonen Författare Bengt von Bahr, Younes Elonq and Erk Elvers Stress test for measurng nsurance rsks n nonlfe nsurance Summary Ths memo descrbes stress testng of nsurance
More informationIntrayear Cash Flow Patterns: A Simple Solution for an Unnecessary Appraisal Error
Intrayear Cash Flow Patterns: A Smple Soluton for an Unnecessary Apprasal Error By C. Donald Wggns (Professor of Accountng and Fnance, the Unversty of North Florda), B. Perry Woodsde (Assocate Professor
More informationWage inequality and returns to schooling in Europe: a semiparametric approach using EUSILC data
MPRA Munch Personal RePEc Archve Wage nequalty and returns to schoolng n Europe: a semparametrc approach usng EUSILC data Marco Bagett and Sergo Sccchtano Unversty La Sapenza Rome, Mnstry of Economc
More informationChapter XX More advanced approaches to the analysis of survey data. Gad Nathan Hebrew University Jerusalem, Israel. Abstract
Household Sample Surveys n Developng and Transton Countres Chapter More advanced approaches to the analyss of survey data Gad Nathan Hebrew Unversty Jerusalem, Israel Abstract In the present chapter, we
More informationIntegration Of Smaller European Equity Markets : A TimeVarying Integration Score Analysis
IIIS Dscusson Paper No.136/Aprl 2006 Integraton Of Smaller European Equty Markets : A TmeVaryng Integraton Score Analyss Gregory Brg School of Busness Studes and Insttute for Internatonal Integraton,
More informationSearching and Switching: Empirical estimates of consumer behaviour in regulated markets
Searchng and Swtchng: Emprcal estmates of consumer behavour n regulated markets Catherne Waddams Prce Centre for Competton Polcy, Unversty of East Angla Catherne Webster Centre for Competton Polcy, Unversty
More informationHeterogeneous Paths Through College: Detailed Patterns and Relationships with Graduation and Earnings
Heterogeneous Paths Through College: Detaled Patterns and Relatonshps wth Graduaton and Earnngs Rodney J. Andrews The Unversty of Texas at Dallas and the Texas Schools Project Jng L The Unversty of Tulsa
More informationThe Application of Fractional Brownian Motion in Option Pricing
Vol. 0, No. (05), pp. 738 http://dx.do.org/0.457/jmue.05.0..6 The Applcaton of Fractonal Brownan Moton n Opton Prcng Qngxn Zhou School of Basc Scence,arbn Unversty of Commerce,arbn zhouqngxn98@6.com
More informationTraditional versus Online Courses, Efforts, and Learning Performance
Tradtonal versus Onlne Courses, Efforts, and Learnng Performance KuangCheng Tseng, Department of Internatonal Trade, ChungYuan Chrstan Unversty, Tawan ShanYng Chu, Department of Internatonal Trade,
More informationReturns to Experience in Mozambique: A Nonparametric Regression Approach
Returns to Experence n Mozambque: A Nonparametrc Regresson Approach Joel Muzma Conference Paper nº 27 Conferênca Inaugural do IESE Desafos para a nvestgação socal e económca em Moçambque 19 de Setembro
More informationErrorPropagation.nb 1. Error Propagation
ErrorPropagaton.nb Error Propagaton Suppose that we make observatons of a quantty x that s subject to random fluctuatons or measurement errors. Our best estmate of the true value for ths quantty s then
More informationForecasting the Direction and Strength of Stock Market Movement
Forecastng the Drecton and Strength of Stock Market Movement Jngwe Chen Mng Chen Nan Ye cjngwe@stanford.edu mchen5@stanford.edu nanye@stanford.edu Abstract  Stock market s one of the most complcated systems
More informationJournal of International Economics
Journal of Internatonal Economcs 79 (009) 31 41 Contents lsts avalable at ScenceDrect Journal of Internatonal Economcs journal homepage: www.elsever.com/locate/je Composton and growth effects of the current
More informationEvaluating credit risk models: A critique and a new proposal
Evaluatng credt rsk models: A crtque and a new proposal Hergen Frerchs* Gunter Löffler Unversty of Frankfurt (Man) February 14, 2001 Abstract Evaluatng the qualty of credt portfolo rsk models s an mportant
More informationEvaluating the Effects of FUNDEF on Wages and Test Scores in Brazil *
Evaluatng the Effects of FUNDEF on Wages and Test Scores n Brazl * Naérco MenezesFlho Elane Pazello Unversty of São Paulo Abstract In ths paper we nvestgate the effects of the 1998 reform n the fundng
More informationSection 5.3 Annuities, Future Value, and Sinking Funds
Secton 5.3 Annutes, Future Value, and Snkng Funds Ordnary Annutes A sequence of equal payments made at equal perods of tme s called an annuty. The tme between payments s the payment perod, and the tme
More informationQuality Adjustment of Secondhand Motor Vehicle Application of Hedonic Approach in Hong Kong s Consumer Price Index
Qualty Adustment of Secondhand Motor Vehcle Applcaton of Hedonc Approach n Hong Kong s Consumer Prce Index Prepared for the 14 th Meetng of the Ottawa Group on Prce Indces 20 22 May 2015, Tokyo, Japan
More informationTesting for imperfect competition on EU deposit and loan markets. with Bresnahan s market power model
Testng for mperfect competton on EU depost and loan markets wth Bresnahan s market power model J.A. Bkker 1 February 2003 Research Seres Supervson no. 52 Secton Bankng and Supervsory Strateges, Drectorate
More informationBrigid Mullany, Ph.D University of North Carolina, Charlotte
Evaluaton And Comparson Of The Dfferent Standards Used To Defne The Postonal Accuracy And Repeatablty Of Numercally Controlled Machnng Center Axes Brgd Mullany, Ph.D Unversty of North Carolna, Charlotte
More informationBank Credit Conditions and their Influence on Productivity Growth: Companylevel Evidence
Bank Credt Condtons and ther Influence on Productvty Growth: Companylevel Evdence Rebecca Rley*, Chara Rosazza Bondbene* and Garry Young** *Natonal Insttute of Economc and Socal Research & Centre For
More informationWORKING PAPERS. The Impact of Technological Change and Lifestyles on the Energy Demand of Households
ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG WORKING PAPERS The Impact of Technologcal Change and Lfestyles on the Energy Demand of Households A Combnaton of Aggregate and Indvdual Household Analyss
More informationEducational Expansion and its Heterogeneous Returns for Wage Workers
Dscusson Paper No. 07010 Educatonal Expanson and ts Heterogeneous Returns for Wage Workers Mchael Gebel and Fredhelm Pfeffer Dscusson Paper No. 07010 Educatonal Expanson and ts Heterogeneous Returns
More informationThe Relationship between Exchange Rates and Stock Prices: Studied in a Multivariate Model Desislava Dimitrova, The College of Wooster
Issues n Poltcal Economy, Vol. 4, August 005 The Relatonshp between Exchange Rates and Stock Prces: Studed n a Multvarate Model Desslava Dmtrova, The College of Wooster In the perod November 00 to February
More information