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1. Estimation of Nonlinear Exchange Rate Dynamics in Evolving Regimes

Author:
Jeffrey Frankel, Yao Hou, and Danxia Xie
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This paper develops a new econometric framework to estimate and classify exchange rate regimes. They are classified into four distinct categories: fixed exchange rates, BBC (band, basket and crawl), managed floating, and freely floating. The procedure captures the patterns of exchange rate dynamics and the interventions by authorities under each of the regimes. We pay particular attention to the BBC and offer a new approach to parameter estimation by utilizing a three-regime Threshold Auto Regressive (TAR) model to reveal the nonlinear nature of exchange rate dynamics. We further extend our benchmark framework to allow the evolution of exchange rate regimes over time by adopting the minimum description length (MDL) principle, to overcome the challenge of simultaneous two-dimensional inference of nonlinearity in the state dimension and structural breaks in the time dimension. We apply our framework to 26 countries. The results suggest that exchange rate dynamics under different regimes are well captured by our new framework.
Topic:
Economy, Econometrics, and Exchange Rates
Political Geography:
Global Focus

2. The Perils of Antitrust Econometrics: Unrealistic Engel Curves, Inadequate Data, and Aggregation Bias

Author:
Gabriel A. Lozada
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Some economists argue antitrust policy should be based on empirical methods used by the Industrial Organization subdiscipline of economics, but non-economists must understand that those methods contain certain highly restrictive assumptions. Those assumptions involve econometric “identification,” and treating aggregate demand as if it were generated by a representative consumer (Muellbauer’s “generalized linear” preferences). We derive new results illustrating how restrictive the representative consumer assumption is; we explain aggregation bias in Almost Ideal Demand System models; and we show that data limitations make it even harder to justify economists’ restricting aggregate demands as one would the demand of a single individual.
Topic:
Economics, Antitrust Law, Data, and Econometrics
Political Geography:
Global Focus

3. Public and Private Pension Systems and Macroeconomic Volatility in OECD Countries

Author:
Mario Holzner, Stefan Jestl, and David Pichler
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses the impact of public pension expenditures and pension funds’ assets as well as their benefits on economic volatility. To do so, we use panel data for 35 OECD countries for the period 1980-2018 and apply a set of state-of-the-art econometric estimators. Our results show weak evidence of a negative impact of public pension expenditures as well as weak evidence of a positive impact of pension funds’ benefits on volatility. Results were, however, found not to be very robust. In contrast, pension funds’ assets do not show any evidence of being associated with economic volatility. Unsystematic fiscal policy, banking crises and political (in)stability, however, are revealed to be somewhat more robust determinants of economic volatility.
Topic:
Economics, Public Sector, Econometrics, and Organisation for Economic Co-operation and Development
Political Geography:
Global Focus