TESTING FOR LINEARITY IN REGRESSIONS WITH I(1) PROCESSES (2016)

TESTING FOR LINEARITY IN REGRESSIONS WITH I(1) PROCESSES (2016)

  8:04 AM    Journal

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Author: Yoichi Arai

Abstract

We propose a generalized version of the RESET test for linearity in regressions with I(1) processes against various nonlinear alternatives and no cointegration. The proposed test statistic for linearity is given by the Wald statistic and its limiting distribution under the null hypothesis is shown to be a x² distribution with a "leads and lags" estimation technique. We show that the test is consistent against a class of nonlinear alternatives and no cointegration. Finite-sample simulations show that the empirical size is close to the nominal one and the test succeeds in detecting both nonlinearity and no cointegration.

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A NOTE ON ENVY AND EARNINGS INEQUALITY UNDER LIMITED LIABILITY CONTRACTS (2016)

A NOTE ON ENVY AND EARNINGS INEQUALITY UNDER LIMITED LIABILITY CONTRACTS (2016)

  8:04 AM    Journal

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Author: Kangsik Cho

Abstract

The paper analyzes an ex-ante contracting with limited liability constraints when agents feel envious of others' higher wages. We show that depending on the degree of limited liability constraints, the principal requires various distortions in output at both the top and bottom productivity levels for agent's type. Compared to the result without envy, the output gap between efficient and inefficient agents is less spread out. Moreover, when the degree of envy is sufficiently large, bunching can always occur. Hence, the first-best solutions for both types of agent are never obtained with envy regardless of the burden of limited liability.

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THE INCOME PENALTY OF VERTICAL AND HORIZONTAL EDUCATION-JOB MISMATCHES IN THE KOREAN YOUTH LABOR MARKET: A QUANTILE REGRESSION APPROACH (2016)

THE INCOME PENALTY OF VERTICAL AND HORIZONTAL EDUCATION-JOB MISMATCHES IN THE KOREAN YOUTH LABOR MARKET: A QUANTILE REGRESSION APPROACH (2016)

  8:03 AM    Journal

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Author: Hong-Kyun Kim, Seung C. Ahn and Jihye Kim

Abstract

In this paper we estimate the income effects of over-education and horizontal educationjob mismatch jointly by quantile regressions using a data set of Korean college graduates. We find that over-education and horizontal mismatch are positively correlated. Thus, the income loss by over-education (horizontal mismatch) is overestimated if it is estimated ignoring horizontal mismatch (over-education). This overestimation problem is particularly prevalent for workers at low and near-median deciles of the conditional income distribution. We also find that the income penalty on over-education is prevalent for most all quantiles, whereas the income penalty on horizontal mismatch is significant for lower quantiles.

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MERGER SIMULATION IN AN OPEN ECONOMY (2016)

MERGER SIMULATION IN AN OPEN ECONOMY (2016)

  8:02 AM    Journal

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Author: Jay Pil Choi and Jae Nahm

Abstract

Recently, competition authorities use merger simulation tools to predict the effects of a merger on price, consumer welfare and social welfare. However, since standard merger simulation tools are developed to predict those effects in a closed economy, they do not consider the role of exports in evaluating merger effects. In an open economy or exportoriented economy, a typical manufacturing industry exhibits quite high shares of export volumes. The welfare effects of merger could be quite different between an open economy and a closed economy. In an open economy, we need to consider exports in evaluating merger effects, and this article provides a framework on how to incorporate the role of exports in a standard Cournot merger simulation model.

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PRICE DISCRIMINATION THROUGH GROUP BUYING (2016)

PRICE DISCRIMINATION THROUGH GROUP BUYING (2016)

  8:01 AM    Journal

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Author: Chien-Wei Wu and Hsien-Hung Chiu

Abstract

This paper argues that when consumers are heterogeneous in group-buying costs, a monopolist seller may practice price discrimination through inducing certain consumers to participate in group buying. In contrast to the standard model, the optimal quantity/quality level for low valuation consumers without group buying is further distorted downward, whereas the levels for other consumers are socially optimal. Inducing group buying is more favorable when the proportion of high valuation consumers is higher, or the valuation differential is larger. We also discuss two extensions: one allowing for consumers' arbitrage behavior and the other one allowing for more potential group buying consumers.

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CAPACITY CONSTRAINT, MERGER PARADOX AND WELFARE-IMPROVING PRO-MERGER POLICY (2016)

CAPACITY CONSTRAINT, MERGER PARADOX AND WELFARE-IMPROVING PRO-MERGER POLICY (2016)

  8:00 AM    Journal

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Author: Baomin Dong, Guixia Guo, Xiaolin Qian and Frank Yong Wang

Abstract

In this paper, we show that the "Merger Paradox" (Salant, Switzer and Reynolds, 1983) is mitigated when capacity constraint is considered. This is because outside firms who do not participate in a merger cannot expand their output beyond their existing capacity, and therefore, Stigler type of free riding is alleviated. When overcapacity is socially costly, it is also shown that a pro-merger fiscal policy may discourage ex ante capacity investment and hence alleviate overcapacity, if capacity building is not too costly. Furthermore, it can be shown that the optimal pro-merger subsidy is always welfare improving when it discourages capacity building.

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Household micro-data, regulation and financial stability: the case of Denmark in the 1950s (2016)

Household micro-data, regulation and financial stability: the case of Denmark in the 1950s (2016)

  8:41 AM    Journal

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Author(s):

Kim Abildgren (Department of Economics, Danmarks Nationalbank, Copenhagen, Denmark)

Abstract:

Purpose

The 1950s was characterised by pronounced stability of the banking sector in many countries, which the existing literature has attributed to tight regulation. However, other factors than regulation are important for financial stability. The purpose of this paper is to consider the case of Denmark and investigate whether the absence of banking crises was due to robustness of the banking sector’s customers rather than tight regulation.

Design/methodology/approach

The paper analyses the resilience of Danish wage and salary earners to adverse economic shocks in the 1950s based on household-level data on income, consumption, savings and wealth from the Danish Expenditure and Saving Survey of 1955.

Findings

The paper finds that the Danish household sector in the 1950s had a high debt payment ability and was very robust to even large income shocks. The results indicate that the stability of the Danish financial sector was not only due to tight regulation but also reflected a high credit quality of the banking sector’s loan portfolio.

Originality/value

During the past decade or so, a micro-data-based framework has become the “state of the art” approach among central banks to analyse the financial robustness of the household sector. However, such an approach has so far not been applied in studies on historical financial-stability issues. The paper adds to the literature by using granular household-level data to assess the financial resilience of the Danish household sector in the 1950s.

Keywords:

Regulation, Financial stability, Household micro-data, Household stress indicators

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