This paper reconsiders the question of testing for the presence of Pareto suboptimal capital overaccumulation in overlapping generations economies. The paper allows generation-specific technology shocks to evolve over time according to a stationary Markov chain, and assumes that an econometrician observes a finite sample of aggregate quantities. In this setting, any statistical test of the null hypothesis of capital overaccumulation with size less than one also has zero power against the alternative hypothesis of a dynamically efficient steady state. This result means that the standard assessments of capital overaccumulation based on US aggregate quantity data should be viewed as inconclusive.
{"title":"Difficulties in testing for capital overaccumulation","authors":"Narayana R. Kocherlakota","doi":"10.3982/qe2413","DOIUrl":"https://doi.org/10.3982/qe2413","url":null,"abstract":"This paper reconsiders the question of testing for the presence of Pareto suboptimal capital overaccumulation in overlapping generations economies. The paper allows generation-specific technology shocks to evolve over time according to a stationary Markov chain, and assumes that an econometrician observes a finite sample of aggregate quantities. In this setting, any statistical test of the null hypothesis of capital overaccumulation with size less than one also has zero power against the alternative hypothesis of a dynamically efficient steady state. This result means that the standard assessments of capital overaccumulation based on US aggregate quantity data should be viewed as inconclusive.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"15 1","pages":""},"PeriodicalIF":1.8,"publicationDate":"2024-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139680315","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a new permutation test for inference on a subvector of coefficients in linear models. The test is exact when the regressors and the error terms are independent. Then we show that the test is asymptotically of correct level, consistent, and has power against local alternatives when the independence condition is relaxed, under two main conditions. The first is a slight reinforcement of the usual absence of correlation between the regressors and the error term. The second is that the number of strata, defined by values of the regressors not involved in the subvector test, is small compared to the sample size. The latter implies that the vector of nuisance regressors is discrete. Simulations and empirical illustrations suggest that the test has good power in practice if, indeed, the number of strata is small compared to the sample size.
{"title":"A robust permutation test for subvector inference in linear regressions","authors":"Xavier D'Haultfœuille, Purevdorj Tuvaandorj","doi":"10.3982/qe2269","DOIUrl":"https://doi.org/10.3982/qe2269","url":null,"abstract":"We develop a new permutation test for inference on a subvector of coefficients in linear models. The test is exact when the regressors and the error terms are independent. Then we show that the test is asymptotically of correct level, consistent, and has power against local alternatives when the independence condition is relaxed, under two main conditions. The first is a slight reinforcement of the usual absence of correlation between the regressors and the error term. The second is that the number of strata, defined by values of the regressors not involved in the subvector test, is small compared to the sample size. The latter implies that the vector of nuisance regressors is discrete. Simulations and empirical illustrations suggest that the test has good power in practice if, indeed, the number of strata is small compared to the sample size.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"168 1","pages":""},"PeriodicalIF":1.8,"publicationDate":"2024-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139680197","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Roc Armenter, Michèle Müller-Itten, Zachary R. Stangebye
We present a geometric approach to the finite Rational Inattention (RI) model, recasting it as a convex optimization problem with reduced dimensionality that is well suited to numerical methods. We provide an algorithm that outperforms existing RI computation techniques in terms of both speed and accuracy in both static and dynamic RI problems. We further introduce methods to quantify the impact of numerical inaccuracy on the model's outcomes and to produce robust predictions regarding the most frequently implemented actions.
我们针对有限理性注意力不集中（RI）模型提出了一种几何方法，将其重塑为一个非常适合数值方法的降维凸优化问题。在静态和动态 RI 问题上，我们提供的算法在速度和精度上都优于现有的 RI 计算技术。我们进一步介绍了量化数值误差对模型结果影响的方法，并对最常实施的行动进行了稳健预测。
{"title":"Geometric methods for finite rational inattention","authors":"Roc Armenter, Michèle Müller-Itten, Zachary R. Stangebye","doi":"10.3982/qe2050","DOIUrl":"https://doi.org/10.3982/qe2050","url":null,"abstract":"We present a geometric approach to the finite Rational Inattention (RI) model, recasting it as a convex optimization problem with reduced dimensionality that is well suited to numerical methods. We provide an algorithm that outperforms existing RI computation techniques in terms of both speed and accuracy in both static and dynamic RI problems. We further introduce methods to quantify the impact of numerical inaccuracy on the model's outcomes and to produce robust predictions regarding the most frequently implemented actions.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"11 1","pages":""},"PeriodicalIF":1.8,"publicationDate":"2024-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139644947","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a novel way of measuring trust in institutions, which draws on the experimental method used to elicit time preferences. Our measure is provided in the meaningful metric of the subjective probability of trustworthiness of the trustee. In a lab-in-the-field setting in the Philippines, we measure trust in two different financial institutions. Additionally, we exploit exogenous variation in the eligibility for a future payment to examine whether a promise fulfilled by the institution increases trust and changes individual financial behavior. We find that eligible individuals significantly increase savings held with the institution.
{"title":"Measuring trust in institutions and its causal effect","authors":"Stefan P. Penczynski, Maria Isabel Santana","doi":"10.3982/qe1914","DOIUrl":"https://doi.org/10.3982/qe1914","url":null,"abstract":"We propose a novel way of measuring trust in institutions, which draws on the experimental method used to elicit time preferences. Our measure is provided in the meaningful metric of the subjective probability of trustworthiness of the trustee. In a lab-in-the-field setting in the Philippines, we measure trust in two different financial institutions. Additionally, we exploit exogenous variation in the eligibility for a future payment to examine whether a promise fulfilled by the institution increases trust and changes individual financial behavior. We find that eligible individuals significantly increase savings held with the institution.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"94 1","pages":""},"PeriodicalIF":1.8,"publicationDate":"2024-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139645339","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies inference for the realized Laplace transform (RLT) of volatility in a fixed-span setting using bootstrap methods. Specifically, since standard wild bootstrap procedures deliver inconsistent inference, we propose a local Gaussian (LG) bootstrap, establish its first-order asymptotic validity, and use Edgeworth expansions to show that the LG bootstrap inference achieves second-order asymptotic refinements. Moreover, we provide new Laplace transform-based estimators of the spot variance as well as the covariance, correlation, and beta between two semimartingales, and adapt our bootstrap procedure to the requisite scenario. We establish central limit theory for our estimators and first-order asymptotic validity of their associated bootstrap methods. Simulations demonstrate that the LG bootstrap outperforms existing feasible inference theory and wild bootstrap procedures in finite samples. Finally, we illustrate the use of the new methods by examining the coherence between stocks and bonds during the global financial crisis of 2008 as well as the COVID-19 pandemic stock sell-off during 2020, and by a forecasting exercise.
{"title":"Bootstrapping Laplace transforms of volatility","authors":"Ulrich Hounyo, Zhi Liu, Rasmus T. Varneskov","doi":"10.3982/qe1929","DOIUrl":"https://doi.org/10.3982/qe1929","url":null,"abstract":"This paper studies inference for the realized Laplace transform (RLT) of volatility in a fixed-span setting using bootstrap methods. Specifically, since standard wild bootstrap procedures deliver inconsistent inference, we propose a local Gaussian (LG) bootstrap, establish its first-order asymptotic validity, and use Edgeworth expansions to show that the LG bootstrap inference achieves second-order asymptotic refinements. Moreover, we provide new Laplace transform-based estimators of the spot variance as well as the covariance, correlation, and beta between two semimartingales, and adapt our bootstrap procedure to the requisite scenario. We establish central limit theory for our estimators and first-order asymptotic validity of their associated bootstrap methods. Simulations demonstrate that the LG bootstrap outperforms existing feasible inference theory and wild bootstrap procedures in finite samples. Finally, we illustrate the use of the new methods by examining the coherence between stocks and bonds during the global financial crisis of 2008 as well as the COVID-19 pandemic stock sell-off during 2020, and by a forecasting exercise.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":" 27","pages":""},"PeriodicalIF":1.8,"publicationDate":"2023-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138494414","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We introduce a novel simulated certainty equivalent approximation (SCEQ) method for solving dynamic stochastic problems. Our examples show that SCEQ can quickly solve high‐dimensional finite‐ or infinite‐horizon, stationary or nonstationary dynamic stochastic problems with hundreds of state variables, a wide state space, and occasionally binding constraints. With the SCEQ method, a desktop computer will suffice for large problems, but it can also use parallel tools efficiently. The SCEQ method is simple, stable, and can utilize any solver, making it suitable for solving complex economic problems that cannot be solved by other algorithms.
{"title":"A simple but powerful simulated certainty equivalent approximation method for dynamic stochastic problems","authors":"Yongyang Cai, Kenneth L. Judd","doi":"10.3982/qe1835","DOIUrl":"https://doi.org/10.3982/qe1835","url":null,"abstract":"We introduce a novel simulated certainty equivalent approximation (SCEQ) method for solving dynamic stochastic problems. Our examples show that SCEQ can quickly solve high‐dimensional finite‐ or infinite‐horizon, stationary or nonstationary dynamic stochastic problems with hundreds of state variables, a wide state space, and occasionally binding constraints. With the SCEQ method, a desktop computer will suffice for large problems, but it can also use parallel tools efficiently. The SCEQ method is simple, stable, and can utilize any solver, making it suitable for solving complex economic problems that cannot be solved by other algorithms.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"182 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135734288","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Iván Fernández‐Val, A. Vuuren, F. Vella, Franco Peracchi
We analyze the role of selection bias in generating changes in the observed distribution of female hourly wages in the United States using CPS data for the years 1975 to 2020. We account for selection bias from the employment decision by modeling the distribution of the number of working hours and estimating a nonseparable model of wages. We decompose changes in the wage distribution into composition, structural, and selection effects. Composition effects increased wages at all quantiles while the impact of the structural effects varied by time period and quantile. Changes in the role of selection only appeared at the lower quantiles of the wage distribution. The evidence suggests that there was positive selection in the 1970s, which diminished until the later 1990s. This reduced wages at lower quantiles and increased wage inequality. Post 2000 there appears to be an increase in positive sorting, which reduced the selection effects on wage inequality.
{"title":"Selection and the distribution of female real hourly wages in the United States","authors":"Iván Fernández‐Val, A. Vuuren, F. Vella, Franco Peracchi","doi":"10.3982/qe1777","DOIUrl":"https://doi.org/10.3982/qe1777","url":null,"abstract":"We analyze the role of selection bias in generating changes in the observed distribution of female hourly wages in the United States using CPS data for the years 1975 to 2020. We account for selection bias from the employment decision by modeling the distribution of the number of working hours and estimating a nonseparable model of wages. We decompose changes in the wage distribution into composition, structural, and selection effects. Composition effects increased wages at all quantiles while the impact of the structural effects varied by time period and quantile. Changes in the role of selection only appeared at the lower quantiles of the wage distribution. The evidence suggests that there was positive selection in the 1970s, which diminished until the later 1990s. This reduced wages at lower quantiles and increased wage inequality. Post 2000 there appears to be an increase in positive sorting, which reduced the selection effects on wage inequality.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"21 1","pages":""},"PeriodicalIF":1.8,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70361442","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mixed‐strategy Nash equilibrium is the cornerstone of our understanding of strategic situations that require decision makers to be unpredictable. Using data from nearly half a million serves over 3000 tennis matches, and data on player rankings from the ATP and WTA, we examine whether the behavior of professional tennis players is consistent with equilibrium. We find that win rates conform remarkably closely to the theory for men, but conform somewhat less neatly for women. We show that the behavior in the field of more highly ranked (i.e., better) players conforms more closely to theory. We show that the statistical tests used in the prior related literature are not valid for large samples like ours; we develop a novel statistical test that is valid and show, via Monte Carlo simulations, that it is more powerful against the alternative that receivers follows a nonequilibrium mixture.
{"title":"Expertise, gender, and equilibrium play","authors":"Romain Gauriot, Lionel Page, J. Wooders","doi":"10.3982/qe1563","DOIUrl":"https://doi.org/10.3982/qe1563","url":null,"abstract":"Mixed‐strategy Nash equilibrium is the cornerstone of our understanding of strategic situations that require decision makers to be unpredictable. Using data from nearly half a million serves over 3000 tennis matches, and data on player rankings from the ATP and WTA, we examine whether the behavior of professional tennis players is consistent with equilibrium. We find that win rates conform remarkably closely to the theory for men, but conform somewhat less neatly for women. We show that the behavior in the field of more highly ranked (i.e., better) players conforms more closely to theory. We show that the statistical tests used in the prior related literature are not valid for large samples like ours; we develop a novel statistical test that is valid and show, via Monte Carlo simulations, that it is more powerful against the alternative that receivers follows a nonequilibrium mixture.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"1 1","pages":""},"PeriodicalIF":1.8,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70360584","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is well known that Local Projections (LP) residuals are autocorrelated. Conventional wisdom says that LP have to be estimated by OLS and that GLS is not possible because the autocorrelation process is unknown and/or because the GLS estimator would be inconsistent. I show that the autocorrelation process of LP can be written as a Vector Moving Average (VMA) process of the Wold errors and impulse responses and that autocorrelation can be corrected for using a consistent GLS estimator. Monte Carlo simulations show that estimating LP with GLS can lead to more efficient estimates.
{"title":"Local projections, autocorrelation, and efficiency","authors":"Amaze Lusompa","doi":"10.3982/qe1988","DOIUrl":"https://doi.org/10.3982/qe1988","url":null,"abstract":"It is well known that Local Projections (LP) residuals are autocorrelated. Conventional wisdom says that LP have to be estimated by OLS and that GLS is not possible because the autocorrelation process is unknown and/or because the GLS estimator would be inconsistent. I show that the autocorrelation process of LP can be written as a Vector Moving Average (VMA) process of the Wold errors and impulse responses and that autocorrelation can be corrected for using a consistent GLS estimator. Monte Carlo simulations show that estimating LP with GLS can lead to more efficient estimates.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135561038","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops a sufficient statistics approach for estimating the role of search frictions in wage dispersion and life‐cycle wage growth. We show how the wage dynamics of displaced workers are directly informative of both for a large class of search models. Specifically, the correlation between pre‐ and post‐displacement wages is informative of frictional wage dispersion. Furthermore, the fraction of displaced workers who suffer a wage loss is informative of frictional wage growth and job‐to‐job mobility, independent of the job‐offer distribution and other labor‐market parameters. Applying our methodology to US data, we find that search frictions account for less than 20% of wage dispersion. In addition, we estimate that between 40 to 80% of workers experience no frictional wage growth during an employment spell. Our approach allows us to estimate how frictions change over time. We find that frictional wage dispersion has declined substantially since 1980 and that frictional wage growth, while low, is more important toward the end of expansionary periods. We finish by estimating two versions of a random search model to show how at least two different mechanisms—involuntary job transitions or compensating differentials—can reconcile our results with the job‐to‐job mobility seen in the data. Regardless of the mechanism, the estimated models show that frictional wage growth accounts for about 15% of life‐cycle wage growth.
{"title":"Sufficient statistics for frictional wage dispersion and growth","authors":"Rune Vejlin, Gregory F. Veramendi","doi":"10.3982/qe1485","DOIUrl":"https://doi.org/10.3982/qe1485","url":null,"abstract":"This paper develops a sufficient statistics approach for estimating the role of search frictions in wage dispersion and life‐cycle wage growth. We show how the wage dynamics of displaced workers are directly informative of both for a large class of search models. Specifically, the correlation between pre‐ and post‐displacement wages is informative of frictional wage dispersion. Furthermore, the fraction of displaced workers who suffer a wage loss is informative of frictional wage growth and job‐to‐job mobility, independent of the job‐offer distribution and other labor‐market parameters. Applying our methodology to US data, we find that search frictions account for less than 20% of wage dispersion. In addition, we estimate that between 40 to 80% of workers experience no frictional wage growth during an employment spell. Our approach allows us to estimate how frictions change over time. We find that frictional wage dispersion has declined substantially since 1980 and that frictional wage growth, while low, is more important toward the end of expansionary periods. We finish by estimating two versions of a random search model to show how at least two different mechanisms—involuntary job transitions or compensating differentials—can reconcile our results with the job‐to‐job mobility seen in the data. Regardless of the mechanism, the estimated models show that frictional wage growth accounts for about 15% of life‐cycle wage growth.","PeriodicalId":46811,"journal":{"name":"Quantitative Economics","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135733717","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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