Economics Department Seminar Series

Seminar Series
Copies may be downloaded by clicking on the title of the paper, or hard copies may be picked up in Room 419, Business and Economics Building, the day of the seminar.
For more information you may contact Jon Vilasuso, the Seminar Series Coordinator.

2001

If you do not have Acrobat Reader for your browser, you can download it freely from Adobe's Web site. Download Adobe Acrobat Reader
Select pdf to view and print file:

September 7, 2001 BALVERS, RONALD; West Virginia University, Department of Economics. "Momentum and Mean Reversion Across National Equity Markets."
Abstract:A number of studies have separately identified mean reversion and momentum. This paper considers these effects jointly: potential for mean reversion and momentum is combined into one index, interpretable as an expected return. Employing monthly data from MSCI on equity index returns of eighteen developed national markets, momentum is found at frequencies of up to twelve months and mean reversion occurs with a half life of around three years; consistent with previous studies. A trading strategy exploiting both effects simultaneously produces excess returns that exceed those of strategies based on momentum or mean reversion separately. The results support the behavioralist overreaction view vis-à-vis an efficient markets view. They also support a "bubbles" perspective relative to one of gradual mean reversion.

September 14, 2001 TELMER, Chris; Carnegie Mellon University. "Asset Pricing with Idiosyncratic Risk and Overlapping Generations."
Abstract: Constantinides and Duffie (1996) show that for idiosyncratic risk to matter for asset pricing the shocks must (i) be highly persistent and (ii) become more volatile during economic contractions. We show that data from the Panel Study on Income Dynamics (PSID) are consistent with these requirements. Our results are based on econometric methods, which incorporate macroeconomic information going beyond the time horizon of the PSID, dating back to 1910. We do on to argue that life-cycle effects are fundamental for how idiosyncratic risk affects asset pricing. We use a stationary overlapping-generations model to show the life-cycle effects can either mitigate or accentuate the equity premium, the critical ingredient being whether agents accumulate or deccumulate risky assets as they age. Our model predicts the latter and is able to account for both the average equity premium and the Sharpe ratio observed on the U.S. stock market.

September 21, 2001 VOGELSANG, Tim; Cornell University. "Applications of Trend Function Testing."
Professor Vogelsang's talk will cover three applied papers. The Law of Demand paper is published, "A Simple Test of the Law of Demand for the United States," Econometrica 68 (2000), 1013-1022. The other two papers are forthcoming in the Journal of Climate and Empirical Economics, respectively. These papers can be downloaded from http://www.people.cornell.edu/pages/tjv2/papjclim2.pdf and http://www.people.cornell.edu/pages/tjv2/regional.pdf . For those of you more interested in the empirical methodology, the techniques covered were developed in the published paper, "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica 66 (1998), 123-148.

September 28, 2001 BOND, Eric; Pennsylvania State University."Gradualism in Trade Agreements with Asymmetric Countries."
Abstract: This paper uses recursive methods to characterize the payoff frontier of self-enforcing trade agreements between countries of asymmetric size. We show that at points on the frontier where only one country's incentive constraint binds, the efficient agreement will be a non-stationary one that starts with a positive trade distortion but eventually reaches free trade. Our analysis illustrates how (i) relative country size, (ii) consumption smoothing incentives, and (iii) sunk investments affect the form of efficient trade agreements. In contrast to previous work on gradualism, our results are obtained from a model in which the economic environment is stationary.

October 12, 2001 Today's Seminar Has Been Canceled.

October 19, 2001 Today's Seminar Has Been Canceled.

October 26, 2001 DeJONG, David; University of Pittsburgh. "Divergence."
Abstract: We use population data from the U.S. Census to track regional patterns of growth from 1790 through 1990. At the county level, we find that an initial general tendency towards population convergence lasting roughly through the 1800s becomes reversed: particularly in the post-WWII period, regional populations have diverged. The finding of divergence hinges on two factors: the exclusion of transition dynamics and the level of aggregation. Regarding the former, state-level populations exhibit consistent patterns of transitional population growth over roughly two- to six-decade periods surrounding the admission of states to the union, followed by long periods of relatively steady growth. When transitional periods are included in our county-level analysis, divergent steady state patterns of growth become masked. Regarding the latter, when we aggregate to the state level, divergent county-level patterns of growth are again masked: even when transitional periods are excluded, state-level populations exhibit tendencies towards convergence.

November 2, 2001 BINDER, Michael; University of Maryland. "Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration"
This paper considers estimation and inference in panel vector autoregressions (PVARs) where (i) the individual effects are either random or fixed, (ii) the time-series properties of the model variables are unknown a priori and may feature unit roots and cointegrating relations, and (iii) the time dimension of the panel is finite and it cross-sectional dimension is large. Generalized Method of Moments (GMM), Quasi Maximum Likelihood (QML), and Minimum Distance (MD) estimators are obtained and then compared in terms of their asymptotic and finite sample properties. It is shown that GMM estimators based only on standard orthogonality conditions break down if the underlying time series contain unit roots. Extended GMM estimators making use of further moment conditions are not subject to this problem. However, they are found to be outperformed in finite sample by the QML estimators. The same is true for the MD estimators. Since furthermore the random and fixed effects QML estimators are documented to perform on par in finite samples, our findings favor the use of the fixed effects QML estimator, given that it imposes no restrictions on the individual effects. The paper also show how the fixed effects QML estimator can be used for unit root and cointegration tests in short panels.

November 8*, 2001 BERGSTRAND, Jeffrey; University of Notre Dame. "On the Economic Determinants of Free Trade Agreements."
Abstract: The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium theoretical model of world trade with two factors of production, two monopolistically-competitive product markets, and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents. The empirical model correctly predicts, based solely upon economic characteristics, 83 percent of the 289 FTAs existing in 1996 among 1431 pairs of countries and 97 percent of the remaining 1142 pairs with no FTAs.

November 16, 2001 KAMINSKY, Graciela; George Washington University. "TBA"

November 30, 2001 LASTRAPES, William; University of Georgia. "The Real Price of Housing and Money Supply shocks: Time Series Evidence and Theoretical Simulations."
Abstract: I estimate the dynamic response of aggregate owner-occupied housing prices to money supply shocks, and interpret these responses using a dynamic equilibrium model of the housing market that relies on the asset view of housing demand. Money supply shocks are identified empirically from a vector autoregression (VAR) using restrictions that are consistent with a wide class of theoretical models. Using monthly data, I find that money shocks have real effects on the housing market: both real housing prices and housing sales (new starts and exiting homes) rise in the short-run in response to positive shocks to the money supply. Simulations of the theoretical model suggest that, for reasonable parameter values, the estimated price responses are generally consistent with the theory.

December 7, 2001 Today Seminar Has Been Canceled.

*Thursday Seminar

	Seminar Series Copies may be downloaded by clicking on the title of the paper, or hard copies may be picked up in Room 419, Business and Economics Building, the day of the seminar. For more information you may contact Jon Vilasuso, the Seminar Series Coordinator. 2001 If you do not have Acrobat Reader for your browser, you can download it freely from Adobe's Web site. Download Adobe Acrobat Reader Select pdf to view and print file:
September 7, 2001	BALVERS, RONALD; West Virginia University, Department of Economics. "Momentum and Mean Reversion Across National Equity Markets." Abstract:A number of studies have separately identified mean reversion and momentum. This paper considers these effects jointly: potential for mean reversion and momentum is combined into one index, interpretable as an expected return. Employing monthly data from MSCI on equity index returns of eighteen developed national markets, momentum is found at frequencies of up to twelve months and mean reversion occurs with a half life of around three years; consistent with previous studies. A trading strategy exploiting both effects simultaneously produces excess returns that exceed those of strategies based on momentum or mean reversion separately. The results support the behavioralist overreaction view vis-à-vis an efficient markets view. They also support a "bubbles" perspective relative to one of gradual mean reversion.
September 14, 2001	TELMER, Chris; Carnegie Mellon University. "Asset Pricing with Idiosyncratic Risk and Overlapping Generations." Abstract: Constantinides and Duffie (1996) show that for idiosyncratic risk to matter for asset pricing the shocks must (i) be highly persistent and (ii) become more volatile during economic contractions. We show that data from the Panel Study on Income Dynamics (PSID) are consistent with these requirements. Our results are based on econometric methods, which incorporate macroeconomic information going beyond the time horizon of the PSID, dating back to 1910. We do on to argue that life-cycle effects are fundamental for how idiosyncratic risk affects asset pricing. We use a stationary overlapping-generations model to show the life-cycle effects can either mitigate or accentuate the equity premium, the critical ingredient being whether agents accumulate or deccumulate risky assets as they age. Our model predicts the latter and is able to account for both the average equity premium and the Sharpe ratio observed on the U.S. stock market.
September 21, 2001	VOGELSANG, Tim; Cornell University. "Applications of Trend Function Testing." Professor Vogelsang's talk will cover three applied papers. The Law of Demand paper is published, "A Simple Test of the Law of Demand for the United States," Econometrica 68 (2000), 1013-1022. The other two papers are forthcoming in the Journal of Climate and Empirical Economics, respectively. These papers can be downloaded from http://www.people.cornell.edu/pages/tjv2/papjclim2.pdf and http://www.people.cornell.edu/pages/tjv2/regional.pdf . For those of you more interested in the empirical methodology, the techniques covered were developed in the published paper, "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica 66 (1998), 123-148.
September 28, 2001	BOND, Eric; Pennsylvania State University."Gradualism in Trade Agreements with Asymmetric Countries." Abstract: This paper uses recursive methods to characterize the payoff frontier of self-enforcing trade agreements between countries of asymmetric size. We show that at points on the frontier where only one country's incentive constraint binds, the efficient agreement will be a non-stationary one that starts with a positive trade distortion but eventually reaches free trade. Our analysis illustrates how (i) relative country size, (ii) consumption smoothing incentives, and (iii) sunk investments affect the form of efficient trade agreements. In contrast to previous work on gradualism, our results are obtained from a model in which the economic environment is stationary.
October 12, 2001	Today's Seminar Has Been Canceled.
October 19, 2001	Today's Seminar Has Been Canceled.
October 26, 2001	DeJONG, David; University of Pittsburgh. "Divergence." Abstract: We use population data from the U.S. Census to track regional patterns of growth from 1790 through 1990. At the county level, we find that an initial general tendency towards population convergence lasting roughly through the 1800s becomes reversed: particularly in the post-WWII period, regional populations have diverged. The finding of divergence hinges on two factors: the exclusion of transition dynamics and the level of aggregation. Regarding the former, state-level populations exhibit consistent patterns of transitional population growth over roughly two- to six-decade periods surrounding the admission of states to the union, followed by long periods of relatively steady growth. When transitional periods are included in our county-level analysis, divergent steady state patterns of growth become masked. Regarding the latter, when we aggregate to the state level, divergent county-level patterns of growth are again masked: even when transitional periods are excluded, state-level populations exhibit tendencies towards convergence.
November 2, 2001	BINDER, Michael; University of Maryland. "Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration" This paper considers estimation and inference in panel vector autoregressions (PVARs) where (i) the individual effects are either random or fixed, (ii) the time-series properties of the model variables are unknown a priori and may feature unit roots and cointegrating relations, and (iii) the time dimension of the panel is finite and it cross-sectional dimension is large. Generalized Method of Moments (GMM), Quasi Maximum Likelihood (QML), and Minimum Distance (MD) estimators are obtained and then compared in terms of their asymptotic and finite sample properties. It is shown that GMM estimators based only on standard orthogonality conditions break down if the underlying time series contain unit roots. Extended GMM estimators making use of further moment conditions are not subject to this problem. However, they are found to be outperformed in finite sample by the QML estimators. The same is true for the MD estimators. Since furthermore the random and fixed effects QML estimators are documented to perform on par in finite samples, our findings favor the use of the fixed effects QML estimator, given that it imposes no restrictions on the individual effects. The paper also show how the fixed effects QML estimator can be used for unit root and cointegration tests in short panels.
*November 8, 2001**	BERGSTRAND, Jeffrey; University of Notre Dame. "On the Economic Determinants of Free Trade Agreements." Abstract: The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium theoretical model of world trade with two factors of production, two monopolistically-competitive product markets, and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents. The empirical model correctly predicts, based solely upon economic characteristics, 83 percent of the 289 FTAs existing in 1996 among 1431 pairs of countries and 97 percent of the remaining 1142 pairs with no FTAs.
November 16, 2001	KAMINSKY, Graciela; George Washington University. "TBA"
November 30, 2001	LASTRAPES, William; University of Georgia. "The Real Price of Housing and Money Supply shocks: Time Series Evidence and Theoretical Simulations." Abstract: I estimate the dynamic response of aggregate owner-occupied housing prices to money supply shocks, and interpret these responses using a dynamic equilibrium model of the housing market that relies on the asset view of housing demand. Money supply shocks are identified empirically from a vector autoregression (VAR) using restrictions that are consistent with a wide class of theoretical models. Using monthly data, I find that money shocks have real effects on the housing market: both real housing prices and housing sales (new starts and exiting homes) rise in the short-run in response to positive shocks to the money supply. Simulations of the theoretical model suggest that, for reasonable parameter values, the estimated price responses are generally consistent with the theory.
December 7, 2001	Today Seminar Has Been Canceled.
*Thursday Seminar