Testing for Equal Average Forecast Accuracy in Possibly Unstable Environments By David I. Harvey, Stephen J. Leybourne and Yang Zu Published in Journal of Business & Economic Statistics Abstract: We consider the issue of testing the null of equal average forecast accuracy in a model where the forecast error loss differential series has a potentially non-constant mean function over time. We show that when time variation is present in the loss differential mean, the standard Diebold and Mariano (1995) test, which was proposed for evaluating forecasts in a stable environment, has an asymptotic size of zero, and, whilst consistent, can [...]

A new heteroskedasticity-robust test for explosive bubbles By David I. Harvey, Stephen J. Leybourne, A. M. Robert Taylor and Yang Zu Published in Journal of Time Series Analysis Abstract: We propose a new class of modified regression-based tests for detecting asset price bubbles designed to be robust to the presence of general forms of both conditional and unconditional heteroskedasticity in the price series. This modification, based on the approach developed in Beare (2018) in the context of conventional unit root testing, is achieved by purging the impact of unconditional heteroskedasticity from the data using a kernel estimate of volatility before [...]

Human Brain Evolution in a Malthusian Economy By Angus C. Chu Forthcoming in Marcoeconomic Dynamics Abstract: Why did the human brain evolve? This study develops a Malthusian growth model with heterogeneous agents and natural selection to explore the evolution of human brain size. We find that if the cognitive advantage of a larger brain dominates its higher metabolic costs, then the average brain size increases over time, which is consistent with the rising trend in human brain size that started over 2 million years ago. Furthermore, an improvement in hunting-gathering productivity (e.g., the discovery of using stone tools and fire in [...]

Inflation and income inequality in an open-economy growth model with liquidity constraints on R&D By Ruiyang Hu, Jian Wang, Yibai Yang and Zhijie Zheng Published in Journal of International Money and Finance Abstract: This study presents a framework to understand the relationship between inflation and income inequality in an open-economy Schumpeterian growth model with heterogeneous households, firm-level innovation, and cash-in-advance constraints on R&D investment. We show that the global real interest rate channel can play a key role in defining this relationship. In smaller economies that have negligible impacts on the global interest rate, income inequality is likely to exacerbate [...]

Tests for equal forecast accuracy under heteroskedasticity By David I. Harvey, Stephen J. Leybourne and Yang Zu Published in Journal of Applied Econometrics Abstract: Heteroskedasticity is a common feature in empirical time series analysis, and in this paper, we consider the effects of heteroskedasticity on statistical tests for equal forecast accuracy. In such a context, we propose two new Diebold–Mariano-type tests for equal accuracy that employ nonparametric estimation of the loss differential variance function. We demonstrate that these tests have the potential to achieve power improvements relative to the original Diebold–Mariano test in the presence of heteroskedasticity, for a quite [...]

Political Fragmentation versus a Unified Empire in a Malthusian Economy By Angus C. Chu, Pietro Peretto and Yuichi Furukawa Published in Journal of Economic Behavior & Organization Abstract: What are the historical origins of political fragmentation and unification? This study develops a Malthusian growth model with multiple states to explore interstate competition and the endogenous emergence of political fragmentation versus a unified empire. Our model features an agricultural society with citizens and rulers in a Malthusian environment in which the expansion of one state may come at the expense of another state, depending on the intensity of interstate competition captured [...]

GENERALIZED CUMULATIVE OFFER PROCESSES By Inácio Bó, Jörgen Kratz and Makoto Shimoji Published in Review Economic Design Abstract: In the context of the matching-with-contracts model, we generalize the cumulative offer process to allow for arbitrary subsets of doctors to make proposals in each round. We show that, under a condition on the hospitals’ choice functions, the outcome of this generalized cumulative offer process is independent of the sets of doctors making proposals in each round. The flexibility of the resulting model allows it to be used to describe different dynamic processes and their final outcomes.

MONETARY POLICY IN A SCHUMPETERIAN ECONOMY WITH ENDOGENOUS FERTILITY AND HUMAN CAPITAL ACCUMULATION By Wei Song and Yibai Yang Published in Journal of Macroeconomics Abstract: This study investigates the growth and welfare effects of monetary policy in a Schumpeterian economy featuring cash-in-advance (CIA) constraints and two engines of growth: innovation from R&D and human capital accumulation from endogenous fertility. Our theoretical analysis considers the cases of various CIA constraints. When the CIA constraint is only on consumption, higher inflation retards economic growth by weakening human capital accumulation. When the CIA constraint is only on R&D, higher inflation would generate a negative [...]

Intellectual property rights, taxation, and firms’ innovation: Theory and evidence from China By Rongxin Xu, Yibai Yang, Zhijie Zheng Published in Journal of Economics Abstract: This study develops an R &D-based growth model with corporate taxation to explore the heterogeneous effects of intellectual property rights (IPR) protection on innovation of firms with different tax rates. Our theoretical analysis shows that strengthening IPR stimulates innovation, and a higher tax rate dampens the positive effect of IPR. To account for the interactive effect between IPR and taxation, we find supportive evidence for the theoretical result using firm-level data in China. Moreover, our empirical analysis [...]

Guangdong – Hong Kong – Macao Greater Bay Area (GBA): economic progress, diversification, and convergence By Vinh Q. T. Dang, Fung Kwan, Agnes I. F. Lam Published in Journal of the Asia Pacific Economy Abstract: We use principal component analysis to create three indices that measure the economic development of eleven cities in the Guangdong – Hong Kong – Macao Greater Bay Area (GBA) over 2010–2019. The indices, composed of sixteen socio-economic indicators spanning five dimensions: macro, openness, consumption, human capital, and diversification, track individual cities and the whole region’s performance. The Economic Progress Index indicates that the GBA made [...]