Ruth Judson

Estimating dynamic panel data models: a guide for macroeconomists

Using a Monte Carlo approach, we find that the bias of LSDV for dynamic panel data models can be sizeable, even when T 5 20. A corrected LSDV estimator is the best choice overall, but practical considerations may limit its applicability. GMM is a second best solution and, for long panels, the computationally simpler Anderson- Hsiao estimator performs well.

Inflation, Volatility and Growth

This paper re-examines the relationship between inflation, inflation volatility and growth, using cross-country panel data for the past 30 years. With regard to the level of inflation, we find that exploiting the time dimension of the data reveals a strong negative correlation between inflation and income growth for all but low inflation countries. To examine the role of inflation uncertainty on growth, we use intra-year inflation data to construct an annual measure of inflation volatility. Using this measure, we find that inflation volatility is also robustly negatively correlated with growth, even after the effect of the level of inflation is controlled for. Copyright 1999 by Blackwell Publishers Ltd.

Economic Growth and Investment in Education: How Allocation Matters

This article proposes an approach to answering two questions: first, does investment in education help growth; second, does the allocation of investment in education matter? I develop a model where individual ability is heterogeneous and education both trains students and reveals their suitability for further training. I use UNESCO data on educational enrollments and spending to estimate the efficiency of existing educational allocations in a panel of countries. A cross-country growth decomposition regression shows that the correlation of human capital capital accumulation and GDP growth is not significant in countries with poor allocations but is significant and positive in countries with better allocations.

Measuring Human Capital Like Physical Capital: What Does It Tell Us?

In this paper, I develop a measure of human capital stock that is similar to measuring physical capital by its replacement cost. This measure builds on measures of average educational attainment of the labour force. While it is far from an ideal measure, it is an interesting complement to the educational attainment series and other existing measures of human capital accumulation. In cross-country panel regressions, use of this measure of human capital accumulation yields a positive and significant, but relatively small (about ten per cent) elasticity with per capita GDP growth. Unlike physical capital, the stock of human capital as a share of GDP increases with GDP. This is consistent with the Barro et al. (1995) model of growth with non-mobile human capital and with some predictions of Romers (1990) model of endogenous growth, but it is not consistent with the predictions of some other growth models. Copyright 2002 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Sticky Deposit Rates

We examine the dynamics of eleven different deposit rates for a panel of over 2,500 branches of about 900 depository institutions observed weekly over ten years. We replicate previous work showing that rates are downwards-flexible and upwards-sticky, and show that a simple menu cost model can generate this behavior. The degree of asymmetric rigidity varies substantially by deposit type, bank size, and across branches of the same bank. In the absence of such stickiness, depositors would have received as much as

Estimating the Worldwide Volume of Counterfeit U.S. Currency: Data and Extrapolation

100 billion more in interest per year during periods when market rates were rising. These results also suggest that deposit rates are likely to lag increases in policy and market rates in future tightening cycles.

Estimating Dynamic Panel Data Models: A Practical Guide Fo Macroeconomists

The incidence of currency counterfeiting and the possible total stock of counterfeits in circulation are popular topics of speculation and discussion in the press and are of substantial practical interest to the U.S. Treasury and the U.S. Secret Service. This paper assembles data from Federal Reserve and U.S. Secret Service sources and presents a range of estimates for the number of counterfeits in circulation. In addition, the paper presents figures on counterfeit passing activity by denomination, location, and method of production. The paper has two main conclusions: first, the stock of counterfeits in the world as a whole is likely on the order of 1 or fewer per 10,000 in both piece and value terms; second, losses to the U.S. public from the most commonly used note, the

International Dollar Flows

20, are relatively small, and are miniscule when only counterfeit notes of reasonable quality are considered.

Recent Euro-area Inflows into U.S. Bonds: Reconciling and Understanding New Data Sources

We use a Monte Carlo approach to investigate the performance of several different methods designed to reduce the bias of the estimated coefficients for dynamic panel data models estimated with the longer, narrower panels typical of macro data. We find that the bias of the least squares dummy variable approach can be significant, even when the time dimension of the panel is as large as 30. For panels with small time dimensions, we find a corrected least squares dummy variable estimator to be the best choice. However, as the time dimension of the panel increases, the computationally simpler Anderson-Hsiao estimator performs equally well.

Demand for M2 at the Zero Lower Bound: The Recent U.S. Experience

Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, explain the flows markedly well. Further, precautionary demand for U.S. banknotes is not episodic.