New Series / Volume 9, No. 1 /
Old Series/ Volume 25, No. 1/ January, 2009
- Front Page and CONTENTS:
- Selected Problems in the Analysis of Nonstationary & Nonlinear Time Series
- Importance of Non-parametric Density Estimation in Econometrics with Illustrations
- Conflict Resolution through Mutuality: Lessons from Bayesian Updating
- A Bayesian Extension of the J-Test for Non-Nested Hypotheses
- Policies for the Poor: Verifying the Information Base
- Asset Pricing when Market Sentiments Regulate Asset-Returns: Evidences from Emerging Markets
- Anticipated Money, Unanticipated Money and Output Variations in Singapore
- Financial Development, Growth and Stock Market Development: The Trilateral Analysis in India
- Productivity Differential and Bilateral Real Exchange Rate between India and US
- Macroeconomic Relationship in India: ARDL Evidence on Cointegration and Causality
- How Real are the Changes in Sectoral GDP Shares in the Indian Economy?
- Raja Chelliah "Political Economy of Poverty Eradication in India and Essays on Fiscal Reform," Sage Publishers, New Delhi Review By Mala Lalvani
Author(s): Dilip M. Nachane
Abstract: There are several reasons why non-linearity and non-stationarity could occur simultaneously in economic models including (i) frictions in markets (ii) asymmetric adjustment mechanisms and (iii) markets (esp. financial markets) being subject to episodes of turbulence and volatility. The task of unravelling nonlinearity from nonstationarity is extremely complex and essentially involves the testing of a sequence of nested hypotheses. In recent years a number of contributions have been occurring in the literature both in the time domain and frequency domain. Several of these approaches are discussed here and we also touch upon the issue of nonlinear cointegration. Both parametric and non-parametric tests for nonlinear cointegration are discussed and their properties analyzed.
Author(s): T. Krishna Kumar and Joseph M. Markmann
Abstract: Econometrics deals with joint and conditional probability density functions and the mean value of the latter, the regression equation. When these densities take nonparametric form we get rich results. In this paper we retrace the work we did in mid seventies and recast them in today's perspectives. We also raise a few very interesting research issues that could be of some interest for newcomers to this field. Even before Efron wrote his first influential paper on bootstraps the senior author used simulated data generated from a Monte Carlo exercise and estimated the entire sampling distribution of estimators whose small sample distributions were not known and used them for statistical inference. One important result the authors showed then was that such an empirically estimated sampling distribution could approximate reasonably well the exact sampling distribution and its asymptotic approximation in known case derived by Anderson and Sawa in a two endogenous equations case. This raised hopes that the method should be useful in other cases when we do not know the exact small sample distributions of econometric estimators, setting the stage for bootstraps use in econometrics. One question that is often raised against the nonparametric inference is how one would formulate null hypotheses and test them. This issue is addressed in this paper and a suggestion is offered. Another issue that is addressed in this paper is the rate of convergence of different nonparametric density estimators to their true distribution
Author(s): Srijit Mishra
Abstract: If priors are deterministic (zero or unity) and conditional evidence is uncertain (lies between zero and one) then Bayesian updating will lead to posteriors that are the same as priors. This in a sense explains the persistence of fundamentalist belief. Under such a belief system, only if conditional evidence is deterministic and diametrically opposite to that of the prior then a process of change can set in. Conflict resolution is possible through dialogues that calls for mutual respect and allows reasonable pluralism - a Rawlsian prerequisite. If interaction is the basis then self-defeating scenarios can be avoided by giving space to others. Thus, in the political sphere one has to be accommodative.
Author(s): Moheb Ghali, John M. Krieg and K. Surekha Rao
Abstract: It is a common practice to use the Davidson and MacKinnon's J-test in empirical applications to test non-nested model specifications. However, when the alternate specifications fit the data well the J- test may fail to distinguish between the true and false models: the J-test will either reject, or fail to reject both specifications. We show that it is possible to use the information generated by the J-test and combine it with the Bayesian posterior odds approach that would yield an unequivocal and acceptable solution for non-nested hypotheses. We show that the approximations of Schwarz and Bayesian Information Criterion based on classical estimates for the J- test yield the Bayesian posterior odds without any need for the specification of the prior distributions and the onerous Bayesian computations.
Author(s): M.H. Suryanarayana
Abstract: This paper illustrates how policy formulation without prior data verification would not make much sense and serve any purpose. Given the National Sample Survey (NSS) finding on substantial errors of inclusion of the non-poor in the targeted Public Distribution System (PDS) and its extenuation that all the targeted beneficiaries are genuinely poor, we examine how valid is the explanation and hence, the recommendation for a universal PDS. Contrary to the general perception, the targeted PDS is universal and the need of the hour is to address the error of excluding the genuinely poor rather than provide a universal PDS/cash transfer.
Author(s): Debasish Majumder
Abstract: After 2003, the growth of equity prices in emerging markets in Asia, Latin America and Europe has been considerably higher in comparison with developed markets and, therefore, these markets have become the focus of attention of investors, the financial press, and researchers. These markets are needed to be studied separately because features of these markets are different from a developed market: on the one hand, they are hypersensitive to investors' sentiments and, on the other, equity returns are predictable by past observations. Unfortunately, common asset pricing models cannot explain such predictability in stock returns. The factor which is responsible for such predictability and hence the nonrandom behavior of the stock return can be accounted for in an asset pricing model. Based on this observation, the present paper proposes a generalization of the conventional asset pricing model. However, the framework would be applicable to all types of markets ranging from strictly efficient to inefficient.
Author(s): Biswajit Maitra
Abstract: This paper examines the effectiveness of anticipated and unanticipated money in the variations of output in Singapore over the periods 1971-72 to 2007-08. The study has found that money supply and output in Singapore are cointegrated. No cointegration is found between output and anticipated money. Short-run dynamics of the cointegrated variables testifies that money supply of the immediate past period leads to rise in output. The study also examines the invariance proposition of rational expectations and found the evidence that the unanticipated part of money supply has significant role in the variations of output growth. Therefore monetary surprises may be successful in promoting output growth.
Author(s): Rudra P. Pradhan
Abstract: The paper examines the long run relationship between financial development and growth in India in a trivariate framework by incorporating stock market development. It finds that stock market development has substantial impact on finance- growth nexus. While financial development and economic growth are bidirectional, economic growth and stock market development are unidirectional. The paper concludes that stock market development is an integral part economic growth, which is, in turn, associated with financial development in the Indian economy.
Author(s): Soubarna Pal
Abstract: Using annual data for 1959-2001 for India and USA, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod Balassa Samuelson effect) in a non-linear framework. The real exchange rate is modelled as an exponential smooth transition autoregressive (ESTAR) process where we model the equilibrium real exchange rate as dependent upon differences in real income per capita. We find that higher productivity growth in US is accompanied by appreciation of its real exchange rate vis-a-vis India. We find significant evidence of non-linear mean reversion towards the long run equilibrium. We analyse the non-linear impulse response functions and find the evidence of faster mean reversion with larger shocks.
Author(s): Inder Sekhar Yadav and M.A. Lagesh
Abstract: The main objective of the paper is to estimate the dynamic interrelation among the macroeconomic variables viz., real output, money, price, interest rate and exchange rate using monthly data for India covering the period from 1991:1 to 2007:12 using ARDL approach to cointegration. The bounds test revealed that there exists a long-run relation between real output, money supply, interest rate and exchange rate when the price variable was the dependent variable. Also, a long-run relationship between real output, money supply, price and interest rate was found when exchange rate was the dependent variable. However, reverse cointegration relationships were not noticed when the real output, money supply and interest rate were the dependent variables. The short-run causality found no evidence of causality between real output and money and a unidirectional causality running from price and interest rate to real output was found. The exchange rate was found independent to the changes in real output. The exchange rate and price were found to be independent to changes in money. Further, it was noticed that the price is caused by output, money, interest rate and exchange rate. The causality was found to be neutral from output, money, price, and exchange rate on interest rate. Finally, it was found that output, money, price and interest rate has no effect on exchange rate in the short-run.
Author(s): Madhusudan Datta
Abstract: Based on input-output transactions tables, our study decomposes the cause for change in sectoral shares in GDP into three components - the final-demand effect, input-structure effect and reallocation effect - and makes an empirical assessment of these components. It is observed that apart from final-demand effect, input-structure and reallocation effects played very important roles in determining sectoral shares of all major sectors of the Indian economy during the three decades - 1974-2004. In the absence of these two effects, tertiary sector's share in GDP of India over the three decades would be smaller by more than six percentage points compared to what it was in 2003-04. Distinctive behaviour of Community, Social and Personal Services vis-a-vis the rest of the tertiary sector is an important finding of the study.