Richard Pierse

Estimating Missing Observations in Economic Time Series

Abstract Two related problems are considered. The first concerns the maximum likelihood estimation of the parameters in an ARIMA model when some of the observations are missing or subject to temporal aggregation. The second concerns the estimation of the missing observations. Both problems can be solved by setting up the model in state space form and applying the Kalman filter.

PERSISTENCE, COINTEGRATION AND AGGREGATION: A DISAGGREGATED ANALYSIS OF OUTPUT FLUCTUATIONS IN THE U.S. ECONOMY

Abstract A framework is developed for measuring the persistence of shocks to aggregate output in the context of a multisectoral model. It is argued that persistence coefficients can be estimated more precisely using a disaggregated model of output growths rather than univariate representations. The effect of cointegration among sectoral output series on the persistence measure is also analysed, and a decomposition of the persistent effect of output innovations into ‘monetary’ and ‘other’ shocks provided. The framework is applied to U.S. data, and although ‘money’ shocks are shown to be statistically significant, their contribution to the total persistence of output fluctuations is found to be relatively unimportant.

Temporal aggregation and the power of tests for a unit root

Abstract The asymptotic local power of unit root tests with the same data span is shown to be independent of sampling frequency. A measure of the power trade-off between sampling frequency and time span for distinct alternatives is derived using an approximate slopes approach. Only small span increases are generally required to maintain power when reducing sampling frequency. Monte Carlo results support the asymptotic analysis for finite samples. An application is made to a consumption function for the UK. Cointegration of consumption and wealth is rejected with quarterly data but convincingly accepted with a longer span of annual data.

Persistence of Shocks and Their

This paper develops a multisectoral framework for the measurement of persistence of shocks to sectoral and aggregate output, and provides a decomposition of the contribution of shocks from different sources to the overall persistence measure. The framework is applied to U.K. output data, distinguishing four types of macroeconomic shocks: innovations in money supply growth, stock returns, exchange rates, and oil prices. Among the macro shocks, exchange-rate shocks have the largest persistence effects on aggregate output, through their effects on manufacturing sectors. The contribution of the identified macro shocks to total persistence was small, however, compared to that of sector-specific shocks. Copyright 1992 by Royal Economic Society.

Testing for Aggregation Bias in Linear Models

This paper discusses alternative methods of testing for aggregation bias and proposes direct tests of the discrepancy of the macroparameters from the average of the corresponding microparameters, and derives tests of aggregation bias in the general case where the parameters of interest may possibly be nonlinear functions of the microparameters. The paper also develops a Durbin-Hausman type misspecification test of the disaggregate model. These tests are then applied to disaggregate and aggregate specifications of employment functions for the U.K. economy disaggregated by forty industries. Copyright 1990 by Royal Economic Society.

Stability of a U.K. Money Demand Equation: A Bayesian Approach to Testing Exogeneity

The paper analyses an M3 demand for money equation for the United Kingdom. Attention is paid to the policy change that occurred in 1971 with the introduction of the measure known as Competition and Credit Control. Classical and Bayesian single equation instrumental variables procedures are developed to investigate the exogeneity of the short-term interest rate and the constancy of the parameters of the underlying relationships. The parameters of the short-term equation have changed as well as the exogeneity status of the interest rate variable but the parameters of the long-term equation appear to be less affected by the policy change.

Choice Between Disaggregate and Aggregate Specifications Estimated by Instrumental Variables Methods

A choice criterion is proposed for discriminating between disaggregate and aggregate models estimated by the instrumental variables method. The criterion, based on prediction errors, represents a generalization of criteria developed in the context of classical regression models. The article also derives general tests for aggregation bias in the instrumental variables context The criterion and the tests are applied in an analysis of U.K. employment demand. It is shown that a model disaggregated by 40 industries predicts aggregate employment better than an aggregate model and that significant biases exist in estimates of the long-run wage and output elasticities obtained from the aggregate model.

GROWTH AND WELFARE EFFECTS OF WORLD MIGRATION

Using a two-bloc endogenous growth model calibrated to two generic sending and receiving countries of equal size, we assess the growth and welfare impact of world migration flows of different skill compositions. The sending country (East) has a lower total factor productivity and a lower endowment of skilled labour. Migration can induce two growth-enhancing effects: an efficiency effect from the more efficient use of labour in the receiving country (West) and a sectoral reallocation effect from a fall in the host country skilled–unskilled wage rates. Despite growth gains, there are both winners (migrants, the representative Western non-migrant household) and losers (the representative Eastern household remaining). Remittances can see the latter group joining the winners.

Whatever Happened to Goldilocks? The Role of Expectations in Estimates of the NAIRU in the US and the UK

During the second half of the 1990s the US economy was characterized as the Goldilocks economy: not too hot, nor too cold, but just right. It was argued that this represented a new paradigm, enabling unemployment to remain low without igniting inflationary pressure. We examine the evidence for a change in the relationship between inflation and unemployment for the US and UK using Phillips curve models. The impact of including explicit inflation expectations is also considered. Inflation expectations are found to play an important role, particularly in the US. When expectations are included there is still evidence that the non-accelerating inflation rate of unemployment (NAIRU) steadily declined during the late 1990s, although this decline in the US NAIRU is not found solely in the 1990s.

A proof of the asymptotic validity of a test for perfect aggregation

Abstract An asymptotic proof is presented for a test of perfect aggregation in linear models developed in Pesaran, Pierse and Kumar (1989). The limiting distribution is derived by letting the degree of disaggregation increase without bound for a fixed sample size.