Quantitative Economics, Volume 10, Issue 3 (July 2019)
TABLE OF CONTENTS, July 2019, Volume 10, Issue 3
Full Issue
Articles
Abstracts follow the listing of articles.
The aggregate effects of labor market frictions
Michael W. L. Elsby, Ryan Michaels, David Ratner
Nonstationary dynamic models with finite dependence
Peter Arcidiacono, Robert A. Miller
Dynamic selection and distributional bounds on search costs in dynamic unit‐demand models
Jason R. Blevins, Garrett T. Senney
On uniform asymptotic risk of averaging GMM estimators
Xu Cheng, Zhipeng Liao, Ruoyao Shi
Normality tests for latent variables
Martín Almuzara, Dante Amengual, Enrique Sentana
Estimation and inference with a (nearly) singular Jacobian
Sukjin Han, Adam McCloskey
Exiting from quantitative easing
Fumio Hayashi, Junko Koeda
Long‐term government debt and household portfolio composition
Andreas Tischbirek
Food for fuel: The effect of the US biofuel mandate on poverty in India
Ujjayant Chakravorty, Marie‐Hélène Hubert, Beyza Ural Marchand
Effects of parental leave policies on female career and fertility choices
Shintaro Yamaguchi
College choice, selection, and allocation mechanisms: A structural empirical analysis
José Raimundo Carvalho, Thierry Magnac, Qizhou Xiong
HIP, RIP, and the robustness of empirical earnings processes
Florian Hoffmann
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The aggregate effects of labor market frictions
Michael W. L. Elsby, Ryan Michaels, David Ratner
Abstract
Labor market frictions are able to induce sluggish aggregate employment dynamics. However, these frictions have strong implications for the source of this propagation: they distort the path of aggregate employment by impeding the flow of labor across firms. For a canonical class of frictions, we show how observable measures of such flows can be used to assess the effect of frictions on aggregate employment dynamics. Application of this approach to establishment microdata for the United States reveals that the empirical flow of labor across firms deviates markedly from the predictions of canonical labor market frictions. Despite their ability to induce persistence in aggregate employment, firm‐size flows in these models are predicted to respond aggressively to aggregate shocks, but react sluggishly in the data. The paper therefore concludes that the propagation mechanism embodied in standard models of labor market frictions fails to account for the sources of observed employment dynamics. Labor market frictions firm dynamics adjustment costs E32 J63 J64
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Nonstationary dynamic models with finite dependence
Peter Arcidiacono, Robert A. Miller
Abstract
The estimation of nonstationary dynamic discrete choice models typically requires making assumptions far beyond the length of the data. We extend the class of dynamic discrete choice models that require only a few‐period‐ahead conditional choice probabilities, and develop algorithms to calculate the finite dependence paths. We do this both in single agent and games settings, resulting in expressions for the value functions that allow for much weaker assumptions regarding the time horizon and the transitions of the state variables beyond the sample period. Dynamic discrete choice finite dependence conditional choice probabilities C33 C35
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Dynamic selection and distributional bounds on search costs in dynamic unit‐demand models
Jason R. Blevins, Garrett T. Senney
Abstract
This paper develops a dynamic model of consumer search that, despite placing very little structure on the dynamic problem faced by consumers, allows us to exploit intertemporal variation in price distributions to estimate the distribution from which consumer search costs are initially drawn. We show that static approaches to estimating this distribution may suffer from dynamic sample selection bias. This can happen if consumers are forward‐looking and delay their purchases in a way that systematically depends on their individual search costs. We consider identification of the population search cost distribution using only price data and develop estimable nonparametric upper and lower bounds on the distribution function, as well as a nonlinear least squares estimator for parametric models. We also consider the additional identifying power of weak, theoretical assumptions such as monotonicity of purchase probabilities in search costs. We apply our estimators to analyze the online market for two widely used econometrics textbooks. Our results suggest that static estimates of the search cost distribution are biased upwards, in a distributional sense, relative to the true population distribution. We illustrate this and other forms of bias in a small‐scale simulation study. Nonsequential search consumer search dynamic selection nonparametric bounds C14 C57 D43 D83
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On uniform asymptotic risk of averaging GMM estimators
Xu Cheng, Zhipeng Liao, Ruoyao Shi
Abstract
This paper studies the averaging GMM estimator that combines a conservative GMM estimator based on valid moment conditions and an aggressive GMM estimator based on both valid and possibly misspecified moment conditions, where the weight is the sample analog of an infeasible optimal weight. We establish asymptotic theory on uniform approximation of the upper and lower bounds of the finite‐sample truncated risk difference between any two estimators, which is used to compare the averaging GMM estimator and the conservative GMM estimator. Under some sufficient conditions, we show that the asymptotic lower bound of the truncated risk difference between the averaging estimator and the conservative estimator is strictly less than zero, while the asymptotic upper bound is zero uniformly over any degree of misspecification. The results apply to quadratic loss functions. This uniform asymptotic dominance is established in non‐Gaussian semiparametric nonlinear models. Asymptotic risk finite‐sample risk generalized shrinkage estimator GMM misspecification model averaging nonstandard estimator uniform approximation C13 C36 C52
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Normality tests for latent variables
Martín Almuzara, Dante Amengual, Enrique Sentana
Abstract
We exploit the rationale behind the Expectation Maximization algorithm to derive simple to implement and interpret LM normality tests for the innovations of the latent variables in linear state space models against generalized hyperbolic alternatives, including symmetric and asymmetric Student ts. We decompose our tests into third and fourth moment components, and obtain one‐sided likelihood ratio analogues, whose asymptotic distribution we provide. When we apply our tests to a common trend model which combines the expenditure and income versions of US aggregate real output to improve its measurement, we reject normality if the sample period extends beyond the Great Moderation. Cointegration gross domestic product gross domestic income kurtosis Kuhn–Tucker test skewness supremum test Wiener–Kolmogorov–Kalman smoother C32 C52 E01
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Estimation and inference with a (nearly) singular Jacobian
Sukjin Han, Adam McCloskey
Abstract
This paper develops extremum estimation and inference results for nonlinear models with very general forms of potential identification failure when the source of this identification failure is known. We examine models that may have a general deficient rank Jacobian in certain parts of the parameter space. When identification fails in one of these models, it becomes underidentified and the identification status of individual parameters is not generally straightforward to characterize. We provide a systematic reparameterization procedure that leads to a reparametrized model with straightforward identification status. Using this reparameterization, we determine the asymptotic behavior of standard extremum estimators and Wald statistics under a comprehensive class of parameter sequences characterizing the strength of identification of the model parameters, ranging from nonidentification to strong identification. Using the asymptotic results, we propose hypothesis testing methods that make use of a standard Wald statistic and data‐dependent critical values, leading to tests with correct asymptotic size regardless of identification strength and good power properties. Importantly, this allows one to directly conduct uniform inference on low‐dimensional functions of the model parameters, including one‐dimensional subvectors. The paper illustrates these results in three examples: a sample selection model, a triangular threshold crossing model, and a collective model for household expenditures. Reparameterization deficient rank Jacobian asymptotic size uniform inference subvector inference extremum estimators identification nonlinear models Wald test weak identification underidentification C12 C15
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Exiting from quantitative easing
Fumio Hayashi, Junko Koeda
Abstract
We propose an empirical framework for analyzing the macroeconomic effects of quantitative easing (QE) and apply it to Japan. The framework is a regime‐switching structural vector autoregression in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. QE is modeled as one of the regimes. The model incorporates an exit condition for terminating QE. We find that higher reserves at the effective lower bound raise inflation and output, and that terminating QE may be contractionary or expansionary, depending on the state of the economy at the point of exit. Effective lower bound structural vector autoregression monetary policy Taylor rule impulse responses Bank of Japan C13 C32 C54 E52 E58
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Long‐term government debt and household portfolio composition
Andreas Tischbirek
Abstract
Formal dynamic analyses of household portfolio choice in the literature focus on holdings of equity and a risk‐free asset or bonds of different maturities, neglecting the interdependence of the decisions to invest in equity, short‐term and long‐term bonds made by households. Data from the Survey of Consumer Finances is used to derive stylized facts about participation in the long‐term government‐debt market and conditional portfolio shares. To explain the mechanisms underlying these facts, I draw on a life‐cycle model in which investors have access to three financial assets—equity, long‐term debt, and a riskless short‐term bond—and are exposed to uninsurable idiosyncratic risk through nonfinancial income as well as aggregate risk through the asset returns. An application shows that the low Treasury returns observed in the US between 2009 and 2013 have quantitatively significant yet transitory effects on the composition of household portfolios. In combination with the observed rise in stock returns, they lead to persistent changes in the participation rate, the conditional portfolio shares, and the distribution of wealth. Dynamic portfolio choice life cycle long‐term government debt asset‐market participation survey of consumer finances D10 D15 E21 G11
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Food for fuel: The effect of the US biofuel mandate on poverty in India
Ujjayant Chakravorty, Marie‐Hélène Hubert, Beyza Ural Marchand
Abstract
More than of US grain is used for energy due to the Renewable Fuel Mandate (RFS). There are no studies of the global distributional consequences of this purely domestic policy. Using micro‐level survey data, we trace the effect of the RFS on world food prices and their impact on household level consumption and wage incomes in India. We first develop a partial equilibrium model to estimate the effect of the RFS on the price of selected food commodities—rice, wheat, corn, sugar, and meat and dairy, which together provide almost of Indian food calories. Our model predicts that world prices for these commodities rise by 8– due to the RFS. We estimate the price pass‐through to domestic Indian prices and the effect of the price shock on household welfare through consumption and wage incomes. Poor rural households suffer significant welfare losses due to higher prices of consumption goods, which are regressive. However, they benefit from a rise in wage incomes, mainly because most of them are employed in agriculture. Urban households also bear the higher cost of food, but do not see a concomitant rise in wages because only a small fraction of them work in food‐related industries. Welfare losses are greater among urban households. However, more poor people in India live in villages, so rural poverty impacts are larger in magnitude. We estimate that the mandate leads to about 25 million new poor: 21 million in rural and 4 million in the urban population. Biofuels distributional effects household welfare renewable fuel standard poverty D31 O12 Q24 Q42
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Effects of parental leave policies on female career and fertility choices
Shintaro Yamaguchi
Abstract
This paper constructs and estimates a dynamic discrete choice structural model of female employment and fertility decisions that incorporates job protection and cash benefits of parental leave legislation. The structural model is used for ex ante evaluation of policies that change the duration of job protection and/or the arrangement for cash benefits. Counterfactual simulations indicate that introducing an initial 1‐year job protection policy increases maternal employment significantly, but extending the existing job protection period from 1 to 3 years has little effect. In addition, the employment effects of cash benefits seem modest. Overall, parental leave policies have little effect on fertility. Parental leave female labor supply discrete choice model structural estimation J13 J22 J24
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College choice, selection, and allocation mechanisms: A structural empirical analysis
José Raimundo Carvalho, Thierry Magnac, Qizhou Xiong
Abstract
We use rich microeconomic data on performance and choices of students at college entry to analyze interactions between the selection mechanism, eliciting college preferences through exams, and the allocation mechanism. We set up a framework in which success probabilities and student preferences are shown to be identified from data on their choices and their exam grades under exclusion restrictions and support conditions. The counterfactuals we consider balance the severity of congestion and the quality of the match between schools and students. Moving to deferred acceptance or inverting the timing of choices and exams are shown to increase welfare. Redistribution among students and among schools is also sizeable in all counterfactual experiments. Education two‐sided matching school allocation mechanism policy evaluation C57 D47 I21
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HIP, RIP, and the robustness of empirical earnings processes
Florian Hoffmann
Abstract
The dispersion of individual returns to experience, often referred to as heterogeneity of income profiles (HIP), is a key parameter in empirical human capital models, in studies of life‐cycle income inequality, and in heterogeneous agent models of life‐cycle labor market dynamics. It is commonly estimated from age variation in the covariance structure of earnings. In this study, I show that this approach is invalid and tends to deliver estimates of HIP that are biased upward. The reason is that any age variation in covariance structures can be rationalized by age‐dependent heteroscedasticity in the distribution of earnings shocks. Once one models such age effects flexibly the remaining identifying variation for HIP is the shape of the tails of lag profiles. Credible estimation of HIP thus imposes strong demands on the data since one requires many earnings observations per individual and a low rate of sample attrition. To investigate empirically whether the bias in estimates of HIP from omitting age effects is quantitatively important, I thus rely on administrative data from Germany on quarterly earnings that follow workers from labor market entry until 27 years into their career. To strengthen external validity, I focus my analysis on an education group that displays a covariance structure with qualitatively similar properties like its North American counterpart. I find that a HIP model with age effects in transitory, persistent and permanent shocks fits the covariance structure almost perfectly and delivers small and insignificant estimates for the HIP component. In sharp contrast, once I estimate a standard HIP model without age‐effects the estimated slope heterogeneity increases by a factor of thirteen and becomes highly significant, with a dramatic deterioration of model fit. I reach the same conclusions from estimating the two models on a different covariance structure and from conducting a Monte Carlo analysis, suggesting that my quantitative results are not an artifact of one particular sample. Income processes heterogeneity human capital returns identification robustness C23 D31 E24 J24 J31
