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| 0701 |
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A Consistent Model Specification Test with Mixed Discrete and Continuous Data
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Cheng Hsiao
Department of Economics
University of Southern California
Qi Li
Private Enterprise Research Center
Department of Economics
Texas A&M University
Jeff Racine
Department of Economics
McMaster University
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In this paper we propose a nonparametric kernel-based model specification test that can be
used when the regression model contains both discrete and continuous regressors. We employ
discrete variable kernel functions and we smooth both the discrete and continuous regressors
using least squares cross-validation methods. The test statistic is shown to have an asymptotic
normal null distribution. We also prove the validity of using the wild bootstrap method to
approximate the null distribution of the test statistic, the bootstrap being our preferred
method for obtaining the null distribution in practice. Simulations show that the proposed
test has significant power advantages over conventional kernel tests which rely upon frequency-based
nonparametric estimators that require sample splitting to handle the presence of discrete regressors.
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Published in Journal of Econometrics, 2007
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| 0702 |
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Mortality Risk and Educational Attainment of Black and White Men
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Li Gan
Private Enterprise Research Center
Department of Economics
Texas A&M University
Guan Gong
School of Economics
Shanghai University of Finance and Economics
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This paper investigates to what extent the differences in education between black
and white men can be explained by the differences in their mortality. We examine
a dynamic optimal stopping-point life-cycle model in which group-level mortality
plays an important role in determining individual-level mortality and schooling.
Using the black and white male populations as the respective groups for black
men and white men, our calibration results show that the mortality can explain
more than two-thirds of the observed educational differences between black and
white males. This conclusion is robust to a set of plausible parameters values.
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| 0703 |
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Nonparametric Estimation and Testing of Fixed Effects Panel Data Models
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Daniel J. Henderson
Department of Economics
State University of New York at Binghamton
Raymond J. Carroll
Department of Statistics
Texas A&M University
Qi Li
Private Enterprise Research Center
Department of Economics
Texas A&M University
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In this paper we consider the problem of estimating nonparametric panel data models
with so-called fixed effects, i.e., random effects that are correlated with the
predictors in an unspecified manner. We derive the rate of convergence and asymptotic
distribution of an iterative nonparametric kernel estimator. We further propose
a test statistic for testing the null hypothesis of random effects against fixed
effects in a nonparametric panel data regression model. We also extend the estimation
method to the case of a semiparametric partially linear fixed effects model. Simulations
are used to support the asymptotic development. We apply the methods to estimate
the relationship between caloric intake and income using data obtained from the
China Health and Nutrition Survey. With this data, a standard analysis ignoring
the possibility of fixed effects suggests the implausible finding that at low levels
of income, increases in income are not related to increases in caloric intake: the
fixed effect approach gives estimates that are in accord with economic theory.
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| 0704 |
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Fiscal Policy and Asset Markets: A Semiparametric Analysis
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Dennis W. Jansen
Private Enterprise Research Center
Department of Economics
Texas A&M University
Qi Li
Private Enterprise Research Center
Department of Economics
Texas A&M University
Zijun Wang
Private Enterprise Research Center
Texas A&M University
Jian Yang
Department of Accounting, Finance, and MIS
Prairie View A&M University
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Using a flexible semiparametric varying coefficient model specification, this paper
examines the role of fiscal policy on the US asset markets (stock, corporate and
treasury bonds). We consider two possible roles: as a separate direct information
variable and as a (indirect) conditioning information variable indicating binding
constraints on monetary policy actions. The results show that the impact of monetary
policy on the stock market varies, depending on the condition of fiscal deficits
or surpluses. The impact of fiscal policy on corporate and treasury bond yields
also follow similar patterns as in the equity market. The results are consistent
with the notion of strong interdependence between monetary and fiscal policies.
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Forthcoming in Journal of Econometrics
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| 0705 |
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Nonparametric Estimation of Varying Coefficient Dynamic Panel Data Models
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Zongwu Cai
University of North Carolina at Charlotte
Xiamen University, Xiamen, China
Qi Li
Private Enterprise Research Center
Department of Economics
Texas A&M University
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We suggest using a class of semiparametric dynamic panel data models to capture
individual variations in panel data. The model assumes linearity in some continuous/
discrete variables which can be exogenous/endogenous, and allows for nonlinearity
in other weakly exogenous variables. We propose a nonparametric generalized method
of moments (NPGMM) procedure to estimate the functional coefficients, and we establish
the consistency and asymptotic normality of the resulting estimators. |
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Forthcoming in Econometric Theory, 2008
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| 0706 |
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Simultaneous versus Sequential Public Good Provision and the Role of Refunds—An Experimental Study
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Jennifer C. Coats
Colorado State University
Timothy J. Gronberg
Private Enterprise Research Center
Department of Economics
Texas A&M University
Brit Grosskopf
Department of Economics
Texas A&M University
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We experimentally study contributing behavior to a threshold public good under simultaneous
and sequential voluntary contribution mechanisms and investigate how refund policies
interact with the institution by either allowing for full refund in case the group's
contribution does not meet the target level or not. We find that, for a given refund
rule, efficiency is greater under a sequential contribution institution than under
a simultaneous contribution institution. Furthermore, for a given order of contributions,
full refund achieves higher efficiency by reducing the variance in individual contributions. |
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| 0707 |
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Price Dispersion under Costly Capacity and Demand Uncertainty
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Diego Escobari
Department of Economics
Texas A&M University
Li Gan
Private Enterprise Research Center
Department of Economics
Texas A&M University
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This paper tests the empirical importance of the price dispersion predictions of
the Prescott-Eden-Dana (PED) models. Equilibrium price dispersion is derived in
a setting with costly capacity and demand uncertainty where different fares can
be explained by the different selling probabilities. The PED models predict that
a lower selling probability leads to a higher price. Moreover, this effect is larger
in more competitive markets. Despite its applications to several important market
phenomena, there exists little empirical evidence supporting the PED models, mostly
because of the difficulty of coming up with an appropriate measure of the selling
probabilities. Using a unique panel of U.S. airline fares and seat inventories,
we find evidence that strongly supports both predictions of the models. After controlling
for the effect of aggregate demand uncertainty on fares, we also obtain evidence
of second degree price discrimination in the form of advance-purchase discounts.
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| 0708 |
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Earnings Dynamics and Early Retirement
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Andrew J. Rettenmaier
Private Enterprise Research Center
Texas A&M University
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This paper analyzes the relationship between lifetime earnings dynamics and the
decision to begin claiming Social Security benefits at the early retirement age.
The paper utilizes lifetime Social Security earnings data from the 2004 Benefits
and Earnings Public Use File (BE-PUF). Because the earnings data are top coded at
the Social Security taxable maximum, several procedures to impute earnings above
the taxable maximum are first explored and compared to recent related studies. The
imputed earnings histories along with other descriptors of lifetime earnings are
then used in explaining the decision to claim Social Security benefits at the early
retirement age. Higher annual income workers are less likely to claim benefits early,
particularly those who have high earnings later in their careers. Given that the
replacement rate due to the Security benefit formula is higher for low income workers
than it is for high income workers, the lower lifetime earners are found to claim
benefit early. Also, workers with fewer years of work are more likely to delay claiming
benefits when replacement rates or lifetime wages are simultaneously controlled
for. This finding is a function of the Social Security benefit formula that is based
on a worker's 35 highest earning years. The marginal effect of continued work on
one's Social Security benefit is highest for workers who had low or no earnings
during some of the 35 years. |
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| 0709 |
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Health Shocks, Village Elections, and Long-Term Income: Evidence from Rural China
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Li Gan
Department of Economics
Private Enterprise Research Center
Texas A&M University
Lixin Colin Xu
Research Group
The World Bank
Yang Yao
China Center for Economic Research
Peking University
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Using a sample of 1,354 households in 48 Chinese villages for the period
1987-2002, this paper studies the dynamic effects of major health shocks
on household income and the role played by village elections in mitigating
these effects. Our results show that in the first 16 years after a shock,
a shock-hit household on average falls short of its normal income trajectory
by 12.3%. Various methods aiming at correcting possible composition biases
in the reports of health shocks find larger effects. We also find that even
by a conservative estimation, village elections reduce the negative effects
of health shocks by 41.7%. |
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