A Cointegration Approach to Topics in Empirical Macroeconomics (summary section only)

Mikael Juselius’ doctoral dissertation covers a range of significant issues in modern macroeconomics by empirically testing a number of important theoretical hypotheses. The first essay presents indirect evidence within the framework of the cointegrated VAR model on the elasticity of substitution between capital and labor by using Finnish manufacturing data. Instead of estimating the elasticity of substitution by using the first order conditions, he develops a new approach that utilizes a CES production function in a model with a 3-stage decision process: investment in the long run, wage bargaining in the medium run and price and employment decisions in the short run. He estimates the elasticity of substitution to be below one. The second essay tests the restrictions implied by the core equations of the New Keynesian Model (NKM) in a vector autoregressive model (VAR) by using both Euro area and U.S. data. Both the new Keynesian Phillips curve and the aggregate demand curve are estimated and tested. The restrictions implied by the core equations of the NKM are rejected on both U.S. and Euro area data. These results are important for further research. The third essay is methodologically similar to essay 2, but it concentrates on Finnish macro data by adopting a theoretical framework of an open economy. Juselius’ results suggests that the open economy NKM framework is too stylized to provide an adequate explanation for Finnish inflation. The final essay provides a macroeconometric model of Finnish inflation and associated explanatory variables and it estimates the relative importance of different inflation theories. His main finding is that Finnish inflation is primarily determined by excess demand in the product market and by changes in the long-term interest rate. This study is part of the research agenda carried out by the Research Unit of Economic Structure and Growth (RUESG). The aim of RUESG it to conduct theoretical and empirical research with respect to important issues in industrial economics, real option theory, game theory, organization theory, theory of financial systems as well as to study problems in labor markets, macroeconomics, natural resources, taxation and time series econometrics. RUESG was established at the beginning of 1995 and is one of the National Centers of Excellence in research selected by the Academy of Finland. It is financed jointly by the Academy of Finland, the University of Helsinki, the Yrjö Jahnsson Foundation, Bank of Finland and the Nokia Group. This support is gratefully acknowledged.

Cointegration analysis of money demand in the Euro Area

The analysis of the evolution of the M3 money aggregate is an important element in the definition and implementation of monetary policy for the ECB. A well-defined and stable long run demand function is an essential requisite for M3 to be a valid monetary tool. Therefore, this paper analyzes based in cointegration techniques the existence of a long run money demand, estimating it and testing its stability for the Euro Area and for ten of its member countries. Specifically, bearing in mind the high degree of monetary instability that the current economic crisis has created in the Euro Area, we also test whether this has had a noticeable impact in the cointegration among real money demand and its determinants. The analysis gives evidence of the existence of a long run relationship when the aggregated Euro Area and six of the ten countries are considered. However, these relationships are highly instable since the outbreak of the financial crisis, leading in some cases to even rejecting cointegration. All this suggests that the ECB’s strategy of focusing in the M3 monetary aggregates could not be a convenient approach under the current circumstances

Significantly improved PCR-based clonality testing in B-cell malignancies by use of multiple immunoglobulin gene targets: Report of the BIOMED-2 Concerted Action BHM4-CT98-3936.

Polymerase chain reaction (PCR) assessment of clonal immunoglobulin (Ig) and T-cell receptor (TCR) gene rearrangements is an important diagnostic tool in mature B-cell neoplasms. However, lack of standardized PCR protocols resulting in a high level of false negativity has hampered comparability of data in previous clonality studies. In order to address these problems, 22 European laboratories investigated the Ig/TCR rearrangement patterns as well as t(14;18) and t(11;14) translocations of 369 B-cell malignancies belonging to five WHO-defined entities using the standardized BIOMED-2 multiplex PCR tubes accompanied by international pathology panel review. B-cell clonality was detected by combined use of the IGH and IGK multiplex PCR assays in all 260 definitive cases of B-cell chronic lymphocytic leukemia (n¼56), mantle cell lymphoma (n¼54), marginal zone lymphoma (n¼41) and follicular lymphoma (n¼109). Two of 109 cases of diffuse large B-cell lymphoma showed no detectable clonal marker. The use of these techniques to assign cell lineage should be treated with caution as additional clonal TCR gene rearrangements were frequently detected in all disease categories. Our study indicates that the BIOMED-2 multiplex PCR assays provide a powerful strategy for clonality assessment in B-cell malignancies resulting in high Ig clonality detection rates particularly when IGH and IGK strategies are combined.

Panel unit root tests in the presence of cross-sectional dependence: finite sample performance and an application

This paper examines the finite sample properties of three testing regimes for the null hypothesis of a panel unit root against stationary alternatives in the presence of cross-sectional correlation. The regimes of Bai and Ng (2004), Moon and Perron (2004) and Pesaran (2007) are assessed in the presence of multiple factors and also other non-standard situations. The behaviour of some information criteria used to determine the number of factors in a panel is examined and new information criteria with improved properties in small-N panels proposed. An application to the efficient markets hypothesis is also provided. The null hypothesis of a panel random walk is not rejected by any of the tests, supporting the efficient markets hypothesis in the financial services sector of the Australian Stock Exchange.

Developing an international Pseudomonas aeruginosa reference panel

Pseudomonas aeruginosa is a major opportunistic pathogen in cystic fibrosis (CF) patients and causes a wide range of infections among other susceptible populations. Its inherent resistance to many antimicrobials also makes it difficult to treat infections with this pathogen. Recent evidence has highlighted the diversity of this species, yet despite this, the majority of studies on virulence and pathogenesis focus on a small number of strains. There is a pressing need for a P. aeruginosa reference panel to harmonize and coordinate the collective efforts of the P. aeruginosa research community. We have collated a panel of 43 P. aeruginosa strains that reflects the organism's diversity. In addition to the commonly studied clones, this panel includes transmissible strains, sequential CF isolates, strains with specific virulence characteristics, and strains that represent serotype, genotype or geographic diversity. This focussed panel of P. aeruginosa isolates will help accelerate and consolidate the discovery of virulence determinants, improve our understanding of the pathogenesis of infections caused by this pathogen, and provide the community with a valuable resource for the testing of novel therapeutic agents.

Phenotypic characterization of an international Pseudomonas aeruginosa reference panel: strains of cystic fibrosis (CF) origin show less in vivo virulence than non-CF strains

Pseudomonas aeruginosa causes chronic lung infections in people with cystic fibrosis (CF) and acute opportunistic infections in people without CF. Forty two P. aeruginosa strains from a range of clinical and environmental sources were collated into a single reference strain panel to harmonise research on this diverse opportunistic pathogen. To facilitate further harmonized and comparable research on P. aeruginosa, we characterised the panel strains for growth rates, motility, virulence in the Galleria mellonella infection model, pyocyanin and alginate production, mucoid phenotype, lipopolysaccharide (LPS) pattern, biofilm formation, urease activity, antimicrobial and phage susceptibilities. Phenotypic diversity across the P. aeruginosa panel was apparent for all phenotypes examined agreeing with the marked variability seen in this species. However, except for growth rate, the phenotypic diversity among strains from CF versus non-CF sources was comparable. CF strains were less virulent in the G. mellonella model than non-CF strains (p=0.037). Transmissible CF strains generally lacked O antigen, produced less pyocyanin, and had low virulence in G. mellonella. Further, in the three sets of sequential CF strains, virulence, O-antigen expression and pyocyanin production were higher in the earlier isolate compared to the isolate obtained later in infection. Overall, full phenotypic characterization of the defined panel of P. aeruginosa strains increases our understanding of the virulence and pathogenesis of P. aeruginosa and may provide a valuable resource for the testing of novel therapies against this problematic pathogen.

Wing Panel Design with Novel Skin-Buckling Containment Features

The impact of buckling containment features on the stability of thin-gauge fuselage, metallic stiffened panels has previously been demonstrated. With the continuing developments in manufacturing technology, such as welding, extrusion, machining, and additive layer manufacture, understanding the benefits of additional panel design features on heavier applications, such as wing panels, is timely. This compression testing of thick-gauge panels with and without buckling containment features has been undertaken to verify buckling and collapse behaviors and validate sizing methods. The experimental results demonstrated individual panel mass savings on the order of 9%, and wing cover design studies demonstrated mass savings on the order of 4 to 13%, dependent on aircraft size and material choice.

Shear Strength and Durability Testing of Adhesive Bonds in Cross-Laminated Timber

The paper addresses the quality of the interface and edge bonded joints in layers of cross-laminated timber (CLT) panels. The shear performance was studied to assess the suitability of two different adhesives, Polyurethane (PUR) and Phenol-Resorcinol-Formaldehyde (PRF), and to determine the optimum clamping pressure. Since there is no established testing procedure to determine the shear strength of the surface bonds between layers in a CLT panel, block shear tests of specimens in two different configurations were carried out, and further shear tests of edge bonded specimen in two configurations were performed. Delamination tests were performed on samples which were subjected to accelerated aging to assess the durability of bonds in severe environmental conditions. Both tested adhesives produced boards with shear strength values within the edge bonding requirements of prEN 16351 for all manufacturing pressures. While the PUR specimens had higher shear strength values, the PRF specimens demonstrated superior durability characteristics in the delamination tests. It seems that the test protocol introduced in this study for crosslam bonded specimens, cut from a CLT panel, and placed in the shearing tool horizontally, accurately reflects the shearing strength of glue lines in CLT.

Testing Mean-Variance Efficiency in CAPM with Possibly Non-Gaussian Errors : An Exact Simulation-Based Approach

In this paper we propose exact likelihood-based mean-variance efficiency tests of the market portfolio in the context of Capital Asset Pricing Model (CAPM), allowing for a wide class of error distributions which include normality as a special case. These tests are developed in the frame-work of multivariate linear regressions (MLR). It is well known however that despite their simple statistical structure, standard asymptotically justified MLR-based tests are unreliable. In financial econometrics, exact tests have been proposed for a few specific hypotheses [Jobson and Korkie (Journal of Financial Economics, 1982), MacKinlay (Journal of Financial Economics, 1987), Gib-bons, Ross and Shanken (Econometrica, 1989), Zhou (Journal of Finance 1993)], most of which depend on normality. For the gaussian model, our tests correspond to Gibbons, Ross and Shanken’s mean-variance efficiency tests. In non-gaussian contexts, we reconsider mean-variance efficiency tests allowing for multivariate Student-t and gaussian mixture errors. Our framework allows to cast more evidence on whether the normality assumption is too restrictive when testing the CAPM. We also propose exact multivariate diagnostic checks (including tests for multivariate GARCH and mul-tivariate generalization of the well known variance ratio tests) and goodness of fit tests as well as a set estimate for the intervening nuisance parameters. Our results [over five-year subperiods] show the following: (i) multivariate normality is rejected in most subperiods, (ii) residual checks reveal no significant departures from the multivariate i.i.d. assumption, and (iii) mean-variance efficiency tests of the market portfolio is not rejected as frequently once it is allowed for the possibility of non-normal errors.

Testing for a Unit Root in Panels with Dynamic Factors

This paper studies testing for a unit root for large n and T panels in which the cross-sectional units are correlated. To model this cross-sectional correlation, we assume that the data is generated by an unknown number of unobservable common factors. We propose unit root tests in this environment and derive their (Gaussian) asymptotic distribution under the null hypothesis of a unit root and local alternatives. We show that these tests have significant asymptotic power when the model has no incidental trends. However, when there are incidental trends in the model and it is necessary to remove heterogeneous deterministic components, we show that these tests have no power against the same local alternatives. Through Monte Carlo simulations, we provide evidence on the finite sample properties of these new tests.

Disease, Disparities and Decision Making: Mandatory HIV Testing of Prospective Immigrants to Canada

Étude de cas / Case study

Testing for Stock Market Integration in a Developing Economy: Colombia

This paper examines the linkage between two parallel stock exchanges trading the same shares in Colombia, namely the Bogotá Stock Exchange and the Medellín Stock Exchange. We provide empirical evidence to support the hypothesis that these two markets can be best described as fully integrated over a period of almost four decades, which is consistent with the view that arbitrage opportunities are only possible in the short but not in the long run. In addition, we find evide

Testing the law of one price in food markets: evidence for Colombia using disaggregated data

This paper applies stationarity tests to examine evidence of market integration for a relatively large sample of food products in Colombia. We Önd little support for market integration when using the univariate KPSS tests for stationarity. However, within a panel context and after allowing for cross sectional dependence, the Hadri tests provide much more evidence supporting the view that food markets are integrated or, in other words, that the law of one price holds for most products.

Testing for bubbles in indirect property price cycles

Speculative bubbles are generated when investors include the expectation of the future price in their information set. Under these conditions, the actual market price of the security, that is set according to demand and supply, will be a function of the future price and vice versa. In the presence of speculative bubbles, positive expected bubble returns will lead to increased demand and will thus force prices to diverge from their fundamental value. This paper investigates whether the prices of UK equity-traded property stocks over the past 15 years contain evidence of a speculative bubble. The analysis draws upon the methodologies adopted in various studies examining price bubbles in the general stock market. Fundamental values are generated using two models: the dividend discount and the Gordon growth. Variance bounds tests are then applied to test for bubbles in the UK property asset prices. Finally, cointegration analysis is conducted to provide further evidence on the presence of bubbles. Evidence of the existence of bubbles is found, although these appear to be transitory and concentrated in the mid-to-late 1990s.

Residual-based test for Nonlinear Cointegration with application in PPPs

Nested by linear cointegration first provided in Granger (1981), the definition of nonlinear cointegration is presented in this paper. Sequentially, a nonlinear cointegrated economic system is introduced. What we mainly study is testing no nonlinear cointegration against nonlinear cointegration by residual-based test, which is ready for detecting stochastic trend in nonlinear autoregression models. We construct cointegrating regression along with smooth transition components from smooth transition autoregression model. Some properties are analyzed and discussed during the estimation procedure for cointegrating regression, including description of transition variable. Autoregression of order one is considered as the model of estimated residuals for residual-based test, from which the teststatistic is obtained. Critical values and asymptotic distribution of the test statistic that we request for different cointegrating regressions with different sample sizes are derived based on Monte Carlo simulation. The proposed theoretical methods and models are illustrated by an empirical example, comparing the results with linear cointegration application in Hamilton (1994). It is concluded that there exists nonlinear cointegration in our system in the final results.