Pareto or log-normal? A recursive-truncation approach to the distribution of (all) cities

Traditionally, it is assumed that the population size of cities in a country follows a Pareto distribution. This assumption is typically supported by nding evidence of Zipf's Law. Recent studies question this nding, highlighting that, while the Pareto distribution may t reasonably well when the data is truncated at the upper tail, i.e. for the largest cities of a country, the log-normal distribution may apply when all cities are considered. Moreover, conclusions may be sensitive to the choice of a particular truncation threshold, a yet overlooked issue in the literature. In this paper, then, we reassess the city size distribution in relation to its sensitivity to the choice of truncation point. In particular, we look at US Census data and apply a recursive-truncation approach to estimate Zipf's Law and a non-parametric alternative test where we consider each possible truncation point of the distribution of all cities. Results con rm the sensitivity of results to the truncation point. Moreover, repeating the analysis over simulated data con rms the di culty of distinguishing a Pareto tail from the tail of a log-normal and, in turn, identifying the city size distribution as a false or a weak Pareto law.

Co-movements in Real Effective Exchange Rates: Evidence from the Dynamic Hierarchical Factor Model

We analyze and quantify co-movements in real effective exchange rates while considering the regional location of countries. More specifically, using the dynamic hierarchical factor model (Moench et al. (2011)), we decompose exchange rate movements into several latent components; worldwide and two regional factors as well as country-specific elements. Then, we provide evidence that the worldwide common factor is closely related to monetary policies in large advanced countries while regional common factors tend to be captured by those in the rest of the countries in a region. However, a substantial proportion of the variation in the real exchange rates is reported to be country-specific; even in Europe country-specific movements exceed worldwide and regional common factors.