Jaya Krishnakumar

Full Information Estimations of a System of Simultaneous Equations with Error Component Structure

In this paper we develop full information methods for estimating the parameters of a system of simultaneous equations with error component structure and establish relationships between the various structural estimators.

Going Beyond Functionings to Capabilities: an Econometric Model to Explain and Estimate Capabilities

Any attempt to operationalize the capability approach necessitates an adequate framework for the measurement of the abstract unobservable multidimensional concept that the term ‘capability’ stands for. One such attempt is the latent variable approach, which considers the different dimensions of capability or human development as unobserved variables (factors) manifesting themselves through measurable indicators. In this paper, we propose a structural equation econometric model that accounts for the interdependence among the latent dimensions and other observed endogenous factors and includes causal exogenous variables affecting the latent dimensions and their indicators. We estimate the model using data on a cross‐section of countries across the world and use our empirical model to derive capability indicators in different dimensions.

Robust estimators for simultaneous equations models

This paper presents a class of robust estimators for linear and non-linear simultaneous equations models, which are a direct generalization of the maximum likelihood estimator. The new estimators are obtained as solutions of a generalized likelihood equation. They are resistant to deviations from the model distribution, to outlying observations, and to some model misspecifications. An optimality principle leads to the construction of an optimal robust estimator which is the best trade-off between efficiency at the model and robustness.

Chapter 5 Time Invariant Variables and Panel Data Models: A Generalised Frisch–Waugh Theorem and its Implications

Mundlak (1978) showed that when individual effects are correlated with the explanatory variables in an error component (EC) model, the GLS estimator is given by the within. In this paper we bring out some additional interesting properties of the within estimator in Mundlak’s model and go on to show that the within estimator remains valid in an extended EC model with time invariant variables and correlated specific effects. Adding an auxiliary regression to take account of possible correlation between the explanatory variables and the individual effects, we find that not only the elegant results obtained by Mundlak but also the above mentioned special features carry over to the extended case with interesting interpretations. We obtain these results using a generalised version of the Frisch-Waugh theorem, stated and proved in the paper. Finally, for both the EC models with and without time invariant variables we have shown that the estimates of the coefficients of the auxiliary variables can also be arrived at by following a two-step procedure.

Explaining Fiscal Balances with a Simultaneous Equation Model of Revenue and Expenditure: A Case Study of Swiss Cantons Using Panel Data

Empirical literature on the analysis of the efficiency of measures for reducing persistent government deficits has mainly focused on the direct explanation of deficit. By contrast, this paper aims at modeling government revenue and expenditure within a simultaneous framework and deriving the fiscal balance (surplus or deficit) equation as the difference between the two variables. This setting enables one to not only judge how relevant the explanatory variables are in explaining the fiscal balance but also understand their impact on revenue and/or expenditure. Our empirical results, obtained by using a panel data set on Swiss Cantons for the period 1980–2002, confirm the relevance of the approach followed here, by providing unambiguous evidence of a simultaneous relationship between revenue and expenditure. They also reveal strong dynamic components in revenue, expenditure, and fiscal balance. Among the significant determinants of public fiscal balance we not only find the usual business cycle elements, but also and more importantly institutional factors such as the number of administrative units, and the ease with which people can resort to political (direct democracy) instruments, such as public initiatives and referendum.

Testing Uncovered Interest Rate Parity and Term Structure Using a Three-Regime Threshold Unit Root VECM: An Application to the Swiss 'Isle' of Interest Rates

In this article, a three-regime multivariate threshold vector error correction model with a ‘band of inaction’ is formulated to examine uncovered interest rate parity (UIRP) and expectation hypothesis of the term structure (EHTS) of interest rates for Switzerland. Combining both UIRP and EHTS in a model that allows for nonlinearities, we investigate whether the Swiss advantage is disappearing with respect to Europe. Our results favour threshold cointegration and show that both hypotheses hold, at least in one of the three regimes of the process for Switzerland/Germany. The same is not true between Switzerland and the United States.

Capability deprivation of people with Alzheimer's disease: An empirical analysis using a national survey

How can one assess the quality of life of older people--particularly those with Alzheimers disease--from the point of view of their opportunities to do valued things in life? This paper is an attempt to answer this question using as a theoretical framework the capability approach. We use data collected on 8841 individuals above 60 living in France (the 2008 Disability and Health Household Survey) and propose a latent variable modelling framework to analyse their capabilities in two fundamental dimensions: freedom to perform self-care activities and freedom to participate in the life of the household. Our results show that living as a couple, having children, being mobile and having access to local shops, health facilities and public services enhance both capabilities. Age, household size and male gender (for one of the two capabilities) act as impediments while the number of impairments reduces both capabilities. We find that people with Alzheimers disease have a lower level and a smaller range of capabilities (freedom) when compared to those without, even when the latter have several impairments. Hence they need a special attention in policy-making.

Disability and Work: Empirical Evidence from Italy

This essay is an empirical study of the working conditions of people with disability using Italian microdata collected through a survey carried out by ISTAT in 2004. Our analysis is guided by the theoretical framework of the capability approach, allowing us to consider various conversion factors including those associated with different types of disability for explaining the capability of work. Our results are also relevant from a policy point of view, as they focus on a country (Italy) which is considered a flagship model in the international context given its specific legislation in favour of the job placement of disabled people. We find that the impact of disability is different according to the type of disability. Among the other personal and environmental characteristics, age, gender, education and place of residence are significant determinants of being in the labour force.

The Impact of Oportunidades on Inequality of Opportunity in Rural and Urban Areas in Mexico

The analysis of inequality of opportunity has become an important issue in recent economic literature, especially in Latin America. This study proposes a link to the capability approach and analyzes the performance of the Mexican conditional cash transfer program Oportunidades in terms of inequality of opportunity. A MIMIC framework is used to estimate childrens latent development capabilities and their dependence on family background variables. The results suggest that Oportunidades increases overall capabilities and is able to reduce significantly the dependence of capabilities on circumstances, mostly family background variables, hence reducing inequality of opportunity. The findings of this study suggest that the use of conditional cash transfer programs might be a very useful tool to reduce inequality of opportunity.

Testing Uncovered Interest Rate Parity and Term Structure Using Multivariate Threshold Cointegration

A multivariate threshold vector error correction model (TVECM) is formulated to examine the expectation hypothesis of the term structure (EHTS) of interest rates and uncovered interest rate parity (UIRP) for U.S. and Swiss rates. Tests for no cointegration, for the number of cointegrating relations and for the presence of threshold effects are discussed within the framework of this TVECM with more than one cointegrating relationship, allowing for the possibility of a fewer number of cointegrating relations in one regime compared to the other. The results conclude that all the three possible cointegrating relations are accepted. This is consistent with both the UIRP and the EHTS hypothesis. A strong evidence for a threshold effect is also found.