Quantile Inferences for Inflation and Its Variability: Does a Threshold Inflation Rate Exist?

Using quantile regressions and cross-sectional data from 152 countries, we examine the relationship between inflation and its variability. We consider two measures of inflation - the mean and median - and three different measures of inflation variability - the standard deviation, coefficient of variation, and median deviation. Using the mean and standard deviation or the median and the median deviation, the results support both the hypothesis that higher inflation creates more inflation variability and that inflation variability raises inflation across quantiles. Moreover, higher quantiles in both cases lead to larger marginal effects of inflation (inflation variability) on inflation variability (inflation). Using the mean and the coefficient of variation, however, the findings largely support no correlation between inflation and its variability. Finally, we also consider whether thresholds for inflation rate or inflation variability exist before finding such positive correlations. We find evidence of thresholds for inflation rates below 3 percent, but mixed results for thresholds for inflation variability.

Corruption and Growth Under Weak Identification

The goal of this paper is to revisit the influential work of Mauro [1995] focusing on the strength of his results under weak identification. He finds a negative impact of corruption on investment and economic growth that appears to be robust to endogeneity when using two-stage least squares (2SLS). Since the inception of Mauro [1995], much literature has focused on 2SLS methods revealing the dangers of estimation and thus inference under weak identification. We reproduce the original results of Mauro [1995] with a high level of confidence and show that the instrument used in the original work is in fact 'weak' as defined by Staiger and Stock [1997]. Thus we update the analysis using a test statistic robust to weak instruments. Our results suggest that under Mauro's original model there is a high probability that the parameters of interest are locally almost unidentified in multivariate specifications. To address this problem, we also investigate other instruments commonly used in the corruption literature and obtain similar results.

Lying, Integrity, and Cooperation

While talk is cheap to some, it is expensive to others for whom moral considerations come into play. We employ a simple two-stage modified prisoner's dilemma game where integrity is endowed on a continuum to analyze when agents will lie in random economic interactions. If there is sufficient integrity in the population, all agents make a promise in the first stage to cooperate in the second. Some agents always lie, some always tell the truth, and some behave conditionally. Enhanced cooperation is a byproduct of integrity.