Econometric Applications Research Articles

Q.E. (Quantification of Everything ) Method and Econometric Analysis

This paper is about the combination of the Q.E. (Quantification of Everything) method and its econometrical analysis. To be able an econometric analysis should applied some adjustments to tackle data that come from the Q.E. method. This is necessary in some cases that needed some changes to the data to permit a further analysis of them. The econometric theory in cooperation with the scrutiny of data is a crucial for the econometric application.

Analysis of consumer behavior in a small size market entity: case study for Vlora District, Albania

In standard econometric application all variables are analyzed statistically before being used in mathematical models. In this framework we considered non-stationary distribution as an starting procedure on the study of consumer behavior in a local market area whereof non-homogeneity of buyers and small size effect could be present. By evaluation of the degree of non-stationary of the actual state for particular variable as observed, we hope to be able to estimate and interpret the model outcomes. Assuming the non-stationary of variables as indicator of the overall stet itself, we argue that the state where observation were made is non-stationary too, and for that reason, models are expected to not fit well. In the other hand, by dropping the significance level in model fitting process we expect to count for this instability whereas the model remains valid. Herewith, the logistic model for consumer behavior in our system is applied and calculated using significance level 0.85-0.90. Under such limiting constraint assumption we identified the variables that mostly affected the proportion between expense categories and the characteristics of the expenses that mostly describe the market consumer behavior in the unity studied. We hope that methodically this procedure could be helpful for other similar market or socio-metric study as well.

Book Review. Application of Econometrics in Economics

Book Review. Application of Econometrics in Economics

News-Based Indices on Country Fundamentals: Do They Help Explain Sovereign Credit Spread Fluctuations?

We propose a novel method to extract information on macro fundamentals based on regular expressions and compare its performance vis-a-vis two popular alternatives in the current finance literature based on predefined dictionaries and supervised learning techniques. We create news indices about fundamentals according to these techniques on a news dataset by Reuters and compare how the techniques fare at (i) capturing observed economic surprises (macro announcements compared to Bloomberg survey expectations) and (ii) correctly predicting labels on a manually classified test sample of the news text corpus. We demonstrate that our methodology is better able to identify and discriminate among fundamentals than the alternative techniques. We further show the benefit of our fundamental news indices in an econometric application that investigates the fundamental content of asset prices in the sovereign credit risk arena.

Book Reviews

In Book Reviews, we review an extensive and diverse range of books. They cover theory and applications in operations research, statistics, management science, econometrics, mathematics, computers, and information systems. In addition, we include books in other fields that emphasize technical applications. The editor will be pleased to receive an email from those willing to review a book, with an indication of specific areas of interest. If you are aware of a specific book that you would like to review, or that you think should be reviewed, please contact the editor. The following books are reviewed in this issue of Interfaces, 48(1), January–February 2018: Portfolio Construction Measurement and Efficiency, John Guerard, Jr., ed.; and Contract Analysis and Design for Supply Chains with Stochastic Demand, Zhao Yingxue, Xiaoge Meng, Shouyang Wang, and T.C. Edwin Cheng.

A Comparison Between Direct and Indirect Seasonal Adjustment of the Chilean GDP 1986–2009 with X-12-ARIMA

It is well known among practitioners that the seasonal adjustment applied to economic time series involves several decisions to be made by the econometrician. As such, it would always be desirable to have an informed opinion on the risks taken by each of those decisions. In this paper, I assess which disaggregation strategy delivers the best results for the case of the Chilean 1986–2009 GDP quarterly dataset (base year: 2003). This is done by performing an aggregate-by-disaggregate analysis under different schemes, as the fixed base year dataset allows this fair comparison. The analysis is based on seasonal adjustment diagnostics contained in the X-12-ARIMA program plus some statistical tests for robustness. This exercise is relevant for conjunctural economic assessment, as it concerns signal extraction from seasonal, noisy series, direction of change detection, and econometric applications based on reliable and accurate unobserved variables. The results show that it is preferable, in terms of stability, to use the first block of supply-side disaggregation, while demand-side disaggregation tends to be less reliable. This result carries important implications for policymakers aiming to evaluate its short-term effectiveness in both households and firms.

Fundamentals of the Real Exchange Rate of the CFA Franc in WAEMU: An Application of Non-Stationary Panel Data Econometrics

Identifying the fundamentals of the real exchange rate of the CFA franc in WAEMU is the main objective of this paper. To achieve this, we used panel data over a period from 1984 to 2014. The results obtained using the Pooled Mean Group (PMG) method show that investment, government spending, trade openness and balance significantly influence the real exchange rate of the long-term CFA franc in WAEMU. With regard to the short-term relationship, the results show that only productivity and the trade balance are the fundamentals that significantly influence the real exchange rate of the CFA franc.

Confidence Intervals for Ratios: Econometric Examples with Stata

Ratios of parameter estimates are often used in econometric applications. However, the test of these ratios when estimated can cause difficulties since the ratio of asymptotically normally distributed random variables have a Cauchy distribution for which there are no finite moments. This paper presents a method for the estimation of confidence intervals based on the Fieller approach that has been shown to be preferable to the usual Delta method. Using example applications, we demonstrate that a few extra steps in the examination of the estimate of the ratio may provide a confidence interval with superior coverage.

AN ANALYSIS OF THE RELATIONSHIP BETWEEN HOUSEHOLD SAVINGS AND ECONOMIC GROWTH IN TURKEY

Objective- The household saving tendency has been accepted as one of the most important financial instruments in the development of the countries for hundred years. The impact of economic crisis have become much more intense, recently due to the disappearance of borders between the countiries. This situation, while increasing households' anxiety about the future, has also strengthened their saving tendencies. In Turkey, the decline in household savings, the negative effects on macroeconomic data, and the positive effects of savings on development have all come in to prominence lately. The purpose of study in this context is to investigate the effects causing increase and decrease in household savings of Turkey and to reveal their impact to economic growth. Methodology- In this study, the relationship between household savings and economic growth have been analyzed with the VAR model given in the quarterly frequency in 2002 / 1-2017 / 1 period data for the Turkish economy. The indicator of the inflation rate is selected as the TUFE price index which is accepted as the best reflector of the price movements. Concerning the interest rate, the weighted average interest rates applied to the deposit accounts of the banks are used. Financial deepening is included in the model by proportioning to M2 / GDP. The high level of this ratio indicates that the funds in the financial sector are able to meet the funding demands of the real sector. The credit volume, unemployment rate, real exchange rate, industrial production index and manufacturing industry capacity utilization rate data have been included in the study in order to make the model more sophisticated as they have considerable impact on savings. Finally, Eviews-9 program is used for econometric applications. Findings- According to the findings, there is a positive relationship between economic growth and savings in the relevant period for the Turkish economy, consistent with theoretical explanations and earlier empirical studies. However, according to the findings of the study, the most important factor determining household savings is real exchange rate. In this context, it seems difficult to increase the household savings in Turkey without stabilizing the exchange rates. The implementation of macroeconomic policies that will increase income and reduce structural vulnerabilities will raise the value of the Turkish lira in the medium to long term and will sustain the value of the Turkish lira in the short term thus will encourage savings. The impact of economic growth on savings comes after the unemployment rate, the inflation indicator, the TUFE price index and the industrial production index, representing the real sector. As a result, the sociological effects of changing consumption trends are observed. Conclusion- According to the results and inferences of the study; it might be advisable to implement policies that will mobilize market dynamics to improve savings at micro-scale in policy preferences for increased savings. In general, it might be worthy of recommendation to prioritize structural policies that might influence household investment habits. For example, awareness-raising projects regarding the benefits of saving can be developed in order to increase household savings. The saving culture could be explained via cooperation in technology and social media in order to disseminate the implementation of the project to the public. Trainings can be provided to enhance the financial literacy level of the households and increasing their cognizance with regard to the subject. It can be argued that dividing the increases in household incomes into conscious spending and individual pension systems on credit cards will play an important role in expanding the savings base and rendering the savings sustainable.

The Next Generation ETF Student-Managed Investment Program

Exchange-traded funds (ETFs) are well suited for trading in student-managed investment funds (SMIFs). Unlike other forms of security selection, ETF trading provides efficient trading of portfolios by asset classes, subclasses, investment style, countries, regions, and sectors. The learning experience from trading ETFs based on global macroeconomic themes enhances the learning experience of economics students by requiring application of macroeconomics, industrial organization, international economics, and econometrics. This article presents the structure, tools, and results of an ETF trading program implemented by the economics and finance departments at the University of Richmond. Although this SMIF example uses ETF funds as a learning medium for undergraduates, the investment process with ETFs is also well suited to small individual investors.

Book Reviews

In Book Reviews, we review an extensive and diverse range of books. They cover theory and applications in operations research, statistics, management science, econometrics, mathematics, computers, and information systems. In addition, we include books in other fields that emphasize technical applications. The editor will be pleased to receive an email from those willing to review a book, with an indication of specific areas of interest. If you are aware of a specific book that you would like to review, or that you think should be reviewed, please contact the editor. The following books are reviewed in this issue of Interfaces, 47(6), November–December: The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction, Richard Bookstaber; Working on the Dark Side of the Moon: Life Inside the National Security Agency, Thomas Reed Willemain.

WEAK CONVERGENCE TO STOCHASTIC INTEGRALS UNDER PRIMITIVE CONDITIONS IN NONLINEAR ECONOMETRIC MODELS

Limit theory with stochastic integrals plays a major role in time series econometrics. In earlier contributions on weak convergence to stochastic integrals, the literature commonly uses martingale and semi-martingale structures. Liang, Phillips, Wang, and Wang (2016) (see also Wang (2015), Chap. 4.5) currently extended weak convergence to stochastic integrals by allowing for a linear process or a α-mixing sequence in innovations. While these martingale, linear process and α-mixing structures have wide relevance, they are not sufficiently general to cover many econometric applications that have endogeneity and nonlinearity. This paper provides new conditions for weak convergence to stochastic integrals. Our frameworks allow for long memory processes, causal processes, and near-epoch dependence in innovations, which have applications in a wide range of econometric areas such as TAR, bilinear, and other nonlinear models.

Book Reviews

In Book Reviews, we review an extensive and diverse range of books. They cover theory and applications in operations research, statistics, management science, econometrics, mathematics, computers, and information systems. In addition, we include books in other fields that emphasize technical applications. The editor will be pleased to receive an email from those willing to review a book, with an indication of specific areas of interest. If you are aware of a specific book that you would like to review, or that you think should be reviewed, please contact the editor. The following books are reviewed in this issue of Interfaces, 47(5), September–October: The Social Footprints of Global Trade, Ali Alsamawi, Darian McBain, Joy Murray, Manfred Lenzen, and Kirsten S. Wiebe; Efficiency in Sustainable Supply Chain, Paulina Golinska-Dawson and Adam Kolinski, eds.; Unconventional Conflict: A Modeling Perspective, Dean S. Hartley, III.

Book Reviews

In Book Reviews, we review an extensive and diverse range of books. They cover theory and applications in operations research, statistics, management science, econometrics, mathematics, computers, and information systems. In addition, we include books in other fields that emphasize technical applications. The editor will be pleased to receive an email from those willing to review a book, with an indication of specific areas of interest. If you are aware of a specific book that you would like to review, or that you think should be reviewed, please contact the editor. The following books are reviewed in this issue of Interfaces, 47(4), July–August: Cross-Functional Inventory Research, Srinagesh Gavirneni, ed.; The Undoing Project: A Friendship That Changed Our Minds, Michael Lewis.

The impact of foreign trade issues on economic growth in some developing countries including Iran and Turkey

ABSTRACTThe issue of foreign trade and economic growth have been on the economic agenda for centuries. Foreign trade is a facilitator of goods and services exchange in the global marketplace and is an engine of economic growth in a country. Moreover, economic growth is a means to improve the output, employment opportunities, and welfare, which in turn could make a favorable impact on the positive foreign trade balance. Economic growth is also an essential component of country competitiveness in international markets. Yet, the objective of this study is to analyze the correlation between foreign trade and economic growth in some developing countries, including Iran and Turkey, by using econometrics applications (panel co-integration method and E-views software), also resting on credible national and international publications. Thus, it is estimated in the study that foreign trade has a positive impact on economic growth, resource allocation, energy and green energy consumption, human capital development, and physical capital consumption.

The Correctness Problems in Applying Inductive Statistics in Economics and Agriculture

Abstract In the article “Professor Tinbergen’s Method” (Keynes J. M. Professor Tinbergen’s Method. − The Economic Journal. 1939. Vol. 49. No. 195) John Maynard Keynes expressed critical notes concerning insufficient scientific level of the Jan Tinbergen’s results obtained with the help of econometric methods. The conclusion of present research is that the critical appraisal of econometric applying given by John Maynard Keynes in 1939 can be completely assigned to many published in Latvia research in economics and business done by inductive statistics because scientists carelessly apply the linear regression model in absence of the knowledge a priori required by proper theorems and algorithms. Moreover, many times there is no sense even to speak about stochastic experiment because the most important condition − ceteris paribus does not fulfil, namely, economic environment is not homogeneous enough. As the result, the causal inferences derived from Regression Report are not scientifically justified. The second conclusion is that the objective criticism in econometrics applications area in order to keep the satisfactory level of scientific correctness and scientific ethics in Latvia has to be established. We also assert that the applications of inductive econometrics in agriculture are much more justified due to possibility to repeat the stochastic experiments many times in constant circumstances like in physics and mechanics. The meta-target of present article is to remind the protests of John Maynard Keynes to the careless utilization of econometric theorems and to raise a wide discussion about the problems of correctness in applying inductive statistics in economics and agriculture in Latvia.

The endogenous grid method for discrete-continuous dynamic choice models with (or without) taste shocks

We present a fast and accurate computational method for solving and estimating a class of dynamic programming models with discrete and continuous choice variables. The solution method we develop for structural estimation extends the endogenous grid‐point method (EGM) to discrete‐continuous (DC) problems. Discrete choices can lead to kinks in the value functions and discontinuities in the optimal policy rules, greatly complicating the solution of the model. We show how these problems are ameliorated in the presence of additive choice‐specific independent and identically distributed extreme value taste shocks that are typically interpreted as “unobserved state variables” in structural econometric applications, or serve as “random noise” to smooth out kinks in the value functions in numerical applications. We present Monte Carlo experiments that demonstrate the reliability and efficiency of the DC‐EGM algorithm and the associated maximum likelihood estimator for structural estimation of a life‐cycle model of consumption with discrete retirement decisions. Life‐cycle model discrete and continuous choice Bellman equation Euler equation retirement choice endogenous grid‐point method nested fixed point algorithm extreme value taste shocks smoothed max function structural estimation C13 C63 D91

Book Reviews

In Book Reviews, we review an extensive and diverse range of books. They cover theory and applications in operations research, statistics, management science, econometrics, mathematics, computers, and information systems. In addition, we include books in other fields that emphasize technical applications. The editor will be pleased to receive an email from those willing to review a book, with an indication of specific areas of interest. If you are aware of a specific book that you would like to review, or that you think should be reviewed, please contact the editor. This issue of Interfaces, 47(3), May–June 2017, includes two book reviews. The first, Themed Book Review: Big Data and Social Media Analytics, comprises three books: Big Data at Work: Dispelling the Myths, Uncovering the Opportunities, Thomas H. Davenport; Human-Centered Social Media Analytics, Yun Fu, ed.; and Big Data Is Not a Monolith, Cassidy R. Sugimoto, Hamid R. Ekbia, and Michael Mattioli, eds. The second reviews Sustainability for a Warming Planet, Humberto Llavador, John E. Roemer, and Joaquim Silvestre.

The accuracy of spread decomposition models in capturing informed trades

PurposeThe purpose of this paper is to examine the empirical relationship between trades undertaken by informed agents (managers) and the proxies for informed trades computed by bid-ask spread decomposition models.Design/methodology/approachAn econometric application of spread decomposition models to data from the London Stock Exchange, with an examination of whether the model predictions are co-integrated with actual outcomes.FindingsThe authors find overwhelming evidence of non-stationary behaviour between the actual and predicted informed trade prices. The findings suggest that there is a clear need for an alternative to extant spread decomposition models perhaps incorporating findings from behavioural finance.Originality/valueGiven the importance of stock market liquidity and the extensive use of spread decomposition models in predicting informed trades, the authors believe that the research conducted in the paper is an important contribution to the market microstructure literature.

Book Reviews

In Book Reviews, we review an extensive and diverse range of books. They cover theory and applications in operations research, statistics, management science, econometrics, mathematics, computers, and information systems. In addition, we include books in other fields that emphasize technical applications. The editor will be pleased to receive an email from those willing to review a book, with an indication of specific areas of interest. If you are aware of a specific book that you would like to review, or that you think should be reviewed, please contact the editor. The following books are reviewed in this issue of Interfaces, 47(2), March–April 2017: Forest Value Chain Optimization and Sustainability, Sophie D’Amours, Mustapha Ouhimmou, Jean-François Audy, and Yan Feng, eds.; Rise of the Robots: Technology and the Threat of a Jobless Future, Martin Ford.