Posts Tagged ‘Economics’

This survey has just been published in the collection Parmeter, C. F., & Sickles, R. C. (2020) Advances in Efficiency and Productivity Analysis. Springer. Naturally, it is based on my PhD, and it is a comprehensive survey of the state-of-the-art of the Two-tier Stochastic Frontier Framework, surveying theoretical foundations, estimation tools, and the large variety of application this modeling framework has been used for. Indicatively, it has been used to measure the impact of informational asymmetry in wage negotiations, in the house market, in the Health Services market, the impact of asymmetric bargaining power in International donors-recipients relationship but also in Tourist shopping, or to measure the effects of “optimism” and “pessimism” in self-reported quality of life. And may more, economic and not-so-economic situations.

Anywhere where we can perceive of opposing latent forces operating on the outcome, this model can be applied. This is why I use as its pet name the “noisy Tug-of-War” model -“noisy” because there is also a “noise” component in the composed error specification.

 

 

In living beings with legs, legs come in pairs -either two or four. This is because pairs three legged ladderhelp with balance while moving – and moving around  is what life is all about. But if you want rigid stability, you need three legs – and this is because three points are always on the same plane, no matter how off-balance and steep the latter may be in relation to the force of gravity (if gravity is a force and not a space-time anomaly).

For the Greek post-War economy, a small static economy of a conservative society, the legs were none, then one,  then two, then three, and now we have lost two of them. 

“None” -as in civil war and poverty that led to massive emigration up to 1950’s.

“One-legged” as in Constructions Sector to support (and boost) the massive urbanization of the Greek population (1960’s onwards).

“Two-legged” as in add the Tourism Industry, exploiting a natural resource (1970’s onwards).

“Three-legged” as in “Expanding Public Sector”(1980’s onwards), to create a “modern European  state”, in terms of infrastructure and welfare policies.

(I do not include our Seafarers of Greek origin, because they always had a …bizarre relation and interaction with the domestic economy).

So we had two Supply-side legs, and one Demand-side leg.  And now we have lost two of them, with only the Tourism-leg remaining. The Constructions leg will take years to become again a driving force in the economy, if ever. Our new government envisions, at best, to provide a half-leg by re-hauling the Public Sector.

So we won’t have a “domestic Demand champion” to press Supply into action. Therefore we need Demand coming from abroad –and to do so we must have something to offer.

But nobody talks about the (at least) one more export-oriented Supply-leg that we need. Nobody is throwing wild ideas on the table, nobody is brainstorming publicly on the matter. We are just speaking foggily about  the need to restart the economy, and that investments are needed (for how much see here).

So, in what economic activity that produces a tangible good (or a service) that moreover can be exported, do we have a long tradition (so it suits us), do we have already trained human capital and labor in sufficient quantities, (so no large adjustment costs and time lags to kick-start)? An economic activity that could become one of the missing and needed economic legs of the domestic economy?

For a Greek living in Greece a first and very specific potential answer should be obvious -after perhaps a little  open-minded thinking.

That was a nice way to start the year. My paper  Vintage megaphone“Introducing the Influential Expectations Hypothesis for Aggregate Expectations, with an application to the Optimal Growth model”, which is essentially the first part of my PhD (still in progress of course), was one of the three papers that received an award from KEPE in a competition among papers that contained unpublished research from ongoing or finished PhDs. And today was the ceremony of the thing (I guess KEPE will issue a press release for the matter in the following days). The three awards were of equal standing.

What is “Influential Expectations Hypothesis(IEH)? In short, a new Hypothesis on how aggregate expectations on economic variables are formed.

Why should we care? For three reasons: [1] The global economic system as well as national economies are clearly not in a state of “long-run equilibrium” in the last 25 years. This means that we need models that deal adequately with short-run dynamics and economies in transition. [2] The recent global “Debt crisis” highlighted once more the importance of Expectations in bringing about wild fluctuations and crises. [3] The current Hypotheses we use (predominantly Rational Expectations but not only), are either not too friendly towards short-run dynamics, or too quickly come to rely exclusively on simulations in order to solve the models (respectable, but I always had a thing for analytic solutions).

[1],[2],[3]=> Try new expectations formation hypotheses (among other directions of research).

And this is what I did with IEH. Being a foundational subject, it has applicability to any stochastic macroeconomic model whatsoever -this means that [a] it can be exhaustively tested at the theoretical level and see whether it produces new/different results and [b] it can then be exhaustively tested against the data. Will it stand these tests? This is what I am going to find out. Its application on the most basic Optimal Growth model produced indeed new results, and my problem now is to choose the next step from all these  possibilities for theoretical and empirical application. But that’s a good problem to have.

Tom Waits megaphone Since I will submit the paper for publication in peer-reviewed journals, I stop short of describing what the Influential Expectations Hypothesis actually assumes, but of course, the two great pictures here (the vintage and the Tom Waits one), have something to do with it.

Economics.SE has gone into Public Beta and now everybody can participate there. Of course the content is still not much, no one expects a lot of content during the private Beta. But it already appears that the Economics.SE can eventually have the right mix and balance regarding style, level and focus of questions and answers.

For example an answer proves that the C.E.S production function converges to the Leontief technology (and to Cobb-Douglas) –but the answer also treats the case where the CES is not homogeneous of degree one, it does not exhibit constant returns to scalewhat happens then?

Click here to find out