Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico

This paper shows that introducing weak property rights in the standard real business cycle (RBC) model can help to explain economic fluctuations. This is motivated by the empirical observation that changes in institutions in emerging markets are related to the evolution of the main macroeconomic variables. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights only - without technology shocks - can match the second moments in the data for Mexico well. In particular, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data, especially those related to labor. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980-1994, which is a feature that the neoclassical model cannot match.

Structural Interactions in Spatial Panels

Until recently, much effort has been devoted to the estimation of panel data regression models without adequate attention being paid to the drivers of diffusion and interaction across cross section and spatial units. We discuss some new methodologies in this emerging area and demonstrate their use in measurement and inferences on cross section and spatial interactions. Specifically, we highlight the important distinction between spatial dependence driven by unobserved common factors and those based on a spatial weights matrix. We argue that, purely factor driven models of spatial dependence may be somewhat inadequate because of their connection with the exchangeability assumption. Limitations and potential enhancements of the existing methods are discussed, and several directions for new research are highlighted.

Understanding Interactions in Social Networks and Committees

While much of the literature on cross section dependence has focused mainly on estimation of the regression coefficients in the underlying model, estimation and inferences on the magnitude and strength of spill-overs and interactions has been largely ignored. At the same time, such inferences are important in many applications, not least because they have structural interpretations and provide useful interpretation and structural explanation for the strength of any interactions. In this paper we propose GMM methods designed to uncover underlying (hidden) interactions in social networks and committees. Special attention is paid to the interval censored regression model. Our methods are applied to a study of committee decision making within the Bank of England’s monetary policy committee.

Spatial Interactions in Hedonic Pricing Models: The Urban Housing Market of Aveiro, Portugal

Spatial heterogeneity, spatial dependence and spatial scale constitute key features of spatial analysis of housing markets. However, the common practice of modelling spatial dependence as being generated by spatial interactions through a known spatial weights matrix is often not satisfactory. While existing estimators of spatial weights matrices are based on repeat sales or panel data, this paper takes this approach to a cross-section setting. Specifically, based on an a priori definition of housing submarkets and the assumption of a multifactor model, we develop maximum likelihood methodology to estimate hedonic models that facilitate understanding of both spatial heterogeneity and spatial interactions. The methodology, based on statistical orthogonal factor analysis, is applied to the urban housing market of Aveiro, Portugal at two different spatial scales.

Empirical testing of genuine savings as an indicator of weak sustainability: a three-country analysis of long run trends

Genuine Savings has emerged as a widely-used indicator of sustainable development. In this paper, we use long-term data stretching back to 1870 to undertake empirical tests of the relationship between Genuine Savings (GS) and future well-being for three countries: Britain, the USA and Germany. Our tests are based on an underlying theoretical relationship between GS and changes in the present value of future consumption. Based on both single country and panel results, we find evidence supporting the existence of a cointegrating (long run equilibrium) relationship between GS and future well-being, and fail to reject the basic theoretical result on the relationship between these two macroeconomic variables. This provides some support for the GS measure of weak sustainability. We also show the effects of modelling shocks, such as World War Two and the Great Depression.

Ecological-economic modelling of interactions between wild and commercial bees and pesticide use

The decline in extent of wild pollinators in recent years has been partly associated with changing farm practices and in particular with increase of pesticide use. In this paper we combine ecological modelling with economic analysis of a single farm output under the assumption that both pollination and pest control are essential inputs. We show that the drive to increase farm output can lead to a local decline in the wild bee population. Commercial bees are often considered an alternative to wild pollinators, but we show that their introduction can lead to further decline and finally local extinction of wild bees. The transitions between different outcomes are characterised by threshold behaviour and are potentially difficult to predict and detect in advance. Small changes in economic (input prices) and ecological (wild bees carrying capacity and effect of pesticides on bees) can move the economic-ecological system beyond the extinction threshold. We also show that increasing the pesticide price or decreasing the commercial bee price might lead to reestablishment of wild bees following their local extinction. Thus, we demonstrate the importance of combining ecological modelling with economics to study the provision of ecosystem services and to inform sustainable management of ecosystem service providers.