Is the consumption-income ratio stationary? Evidence from linear and nonlinear panel unit root tests for OECD and non-OECD countries

This paper applies recently developed heterogeneous nonlinear and linear panel unit root tests that account for cross-sectional dependence to 24 OECD and 33 non-OECD countries’ consumption-income ratios over the period 1951–2003. We apply a recently developed methodology that facilitates the use of panel tests to identify which individual cross-sectional units are stationary and which are nonstationary. This extends evidence provided in the recent literature to consider both linear and nonlinear adjustment in panel unit root tests, to address the issue of cross-sectional dependence, and to substantially expand both time-series and cross sectional dimensions of the data analysed. We find that the majority (65%) of the series are nonstationary with slightly fewer OECD countries’ (61%) series exhibiting a unit root than non-OECD countries (68%).

Transmission of macro-liquidity shocks to liquidity-sorted stock portfolios’ returns: The role of the financial crisis

This study examines the impact of macro-liquidity shocks on the returns of UK stock portfolios sorted on the basis of a series of micro-liquidity measures. The macro-liquidity shocks are extracted on the meeting days of the Bank of England Monetary Policy Committee relative to market expectations embedded in futures contracts on the 3-month LIBOR during the period June 1999- December 2009. We report definitive evidence that these shocks are transmitted to the cross-section of liquidity-sorted portfolios, with most liquid stocks playing a very active role. Our results emphatically document that the shocks-returns relationship has reversed its sign during the recent financial crisis; the standard inverse relationship between interest rate surprises and portfolios’ returns before the crisis has turned into positive during the crisis. This finding confirms the inability of interest rate cuts to boost returns in the shortrun during the crisis, because these were perceived by market participants as a signal of a deteriorating economic outlook.

The names in Spain are mainly not in vain: Intergenerational mobility and the informational content of surnames

The paper presents a (genetic) model of the joint distribution of surnames and income. It shows that we can infer how important background is by looking at how informative surnames are. Extensions of the model allow for the possibility of assortative mating, and the introduction of ethnic differences in the income process (due to discrimination or any other reason).

Estimation of the Spatial Weights Matrix under Structural Constraints

While estimates of models with spatial interaction are very sensitive to the choice of spatial weights, considerable uncertainty surrounds de nition of spatial weights in most studies with cross-section dependence. We show that, in the spatial error model the spatial weights matrix is only partially identi ed, and is fully identifi ed under the structural constraint of symmetry. For the spatial error model, we propose a new methodology for estimation of spatial weights under the assumption of symmetric spatial weights, with extensions to other important spatial models. The methodology is applied to regional housing markets in the UK, providing an estimated spatial weights matrix that generates several new hypotheses about the economic and socio-cultural drivers of spatial di¤usion in housing demand.

The Impact of Population Ageing on House Prices: A Micro-simulation Approach

This paper attempts to estimate the impact of population ageing on house prices. There is considerable debate about whether population ageing puts downwards or upwards pressure on house prices. The empirical approach differs from earlier studies of this relationship, which are mainly regression analyses of macro time-series data. A micro-simulation methodology is adopted that combines a macro-level house price model with a micro-level household formation model. The case study is Scotland, a country that is expected to age rapidly in the future. The parameters of the household formation model are estimated with panel data from the British Household Panel Survey covering the period 1999-2008. The estimates are then used to carry out a set of simulations. The simulations are based on a set of population projections that represent a considerable range in the rate of population ageing. The main finding from the simulations is that population ageing—or more generally changes in age structure—is not likely a main determinant of house prices, at least in Scotland.

Stock Market Liquidity and Macro-Liquidity Shocks: Evidence from the 2007-2009 Financial Crisis

We develop an empirical framework that links micro-liquidity, macro-liquidity and stock prices. We provide evidence of a strong link between macro-liquidity shocks and the returns of UK stock portfolios constructed on the basis of micro-liquidity measures between 1999-2012. Specifically, macro-liquidity shocks, which are extracted on the meeting days of the Bank of England Monetary Policy Committee relative to market expectations embedded in 3-month LIBOR futures prices, are transmitted in a differential manner to the cross-section of liquidity-sorted portfolios, with liquid stocks playing the most active role. We also find that there is a significant increase in shares’ trading activity and a rather small increase in their trading cost on MPC meeting days. Finally, our results emphatically document that during the recent financial crisis the shocks-returns relationship has reversed its sign. Interest rate cuts during the crisis were perceived by market participants as a signal of deteriorating economic prospects and reinforced “flight to safety” trading.

Intergenerational Mobility and the Informative Content of Surnames

We propose a new methodology for measuring intergenerational mobility in economic wellbeing. Our method is based on the joint distribution of surnames and economic outcomes. It circumvents the need for intergenerational panel data, a long-standing stumbling block for understanding mobility. A single cross-sectional dataset is su cient. Our main idea is simple. If `inheritance' is important for economic outcomes, then rare surnames should predict economic outcomes in the cross-section. This is because rare surnames are indicative of familial linkages. Of course, if the number of rare surnames is small, this won't work. But rare surnames are abundant in the highly-skewed nature of surname distributions from most Western societies. We develop a model that articulates this idea and shows that the more important is inheritance, the more informative will be surnames. This result is robust to a variety of di erent assumptions about fertility and mating. We apply our method using the 2001 census from Catalonia, a large region of Spain. We use educational attainment as a proxy for overall economic well-being. Our main nding is that mobility has decreased among the di erent generations of the 20th century. A complementary analysis based on sibling correlations con rms our results and provides a robustness check on our method. Our model and our data allow us to examine one possible explanation for the observed decrease in mobility. We nd that the degree of assortative mating has increased over time. Overall, we argue that our method has promise because it can tap the vast mines of census data that are available in a heretofore unexploited manner.