This study examines the dynamic relationship between monthly inflation and inflation uncertainty in Japan, the US and the UK by employing linear and nonlinear Granger causality tests for the 1957:01-2006:10 period. Using a generalised autoregressive conditional heteroskedasticity (GARCH) model to generate a measure of inflation uncertainty, the empirical evidence from the linear and nonlinear Granger causality tests indicate a bi-directional causality between the series. The estimates from both the linear vector autoregressive (VAR) and nonparametric regression models show that higher inflation rates lead to greater inflation uncertainty for all countries as predicted by Friedman (1977). Although VAR estimates imply no significant impact, except for Japan, nonparametric estimates show that inflation uncertainty raises average inflation in all countries, as suggested by Cukierman and Meltzer (1986). Thus, inflation and inflation uncertainty have a positive predictive content for each other, supporting the Friedman and Cukierman-Meltzer hypotheses, respectively. JEL classification codes: C22, E31.

Linder’s theory of overlapping demands suggests that international trade in manufactured goods will be stronger between countries with similar per capita income levels. In this paper, we test the Linder hypothesis for five East Asian countries using panel data for five years. In addition to including bilateral trade data for these countries, we include their bilateral trade data with their other major trading partners. A modified gravity model is developed for this purpose. The model is first estimated for each year in the sample. In addition, a panel data set is constructed and estimated using a fixed-effects estimator. The overall results of our estimations are quite robust and do not provide support for Linder’s hypothesis.

This paper estimates the effect of FDI and remittances on economic growth in South Asia using an aggregate production function model. Time series data from 1976 to 2010 for India, Pakistan, Bangladesh and Sri Lanka is used to create the panel data. Time series properties of the panel data are diagnosed using panel unit root and panel cointegration tests and an error correction model is developed. The model is estimated using fixed effects estimator. The findings suggest that FDI has a positive effect on economic growth but remittances have a negative effect. A decrease in exports due to the Dutch Disease, a decrease in the labor force participation of the remittance receiving family, and public moral hazard problems could be possible reasons for the negative effect of remittances on economic growth.

This study analyzes the impacts of U.S. macroeconomic announcement surprises on the volatility of twelve emerging stock markets by employing asymmetric GJR-GARCH model. The model includes both positive and negative surprises about inflation and unemployment rate announcements in the U.S. We find that volatility shocks are persistent and asymmetric. Asymmetric volatility increases with bad news on U.S. inflation in five out of the twelve countries studied and it increases with a bad news on U.S. unemployment in four out of twelve countries. Asymmetric volatility decreases with good news about US employment situation in eight countries out of twelve countries. Such markets become less risky with an unexpected decrease in unemployment rate in the U.S. Our findings are important for demonstrating that the U.S. economic growth and employment situation has an impact on many emerging stock markets and that positive U.S. macroeconomic news, in fact, makes many emerging stock markets less volatile. Jel classification: G1

Recent interest in competition policy performance has typically relied on subjective performance metrics that have undergone little direct scrutiny by users. We examine the quality of the popular World Economic Forum's antitrust performance metric and assess whether it is immune from perception-bias. A bias-free metric is required to ensure cross-country consistency in its intended performance assessment.
We note various instances where the WEF's competition policy performance survey was completed but where there existed neither competition legislation nor an associated enforcement agency at the time. This seeming inconsistency is neither amenable to traditional econometric heterogeneity treatment nor instrumentable; importantly, it is likely to embed non-random error onto the WEF antitrust survey.
We test and discuss some possible explanations for the observed bias: we find that both halo effects and a nation's modest experience with market institutions may be responsible for the bias. Underscoring these results may be the fact that survey respondents may not share a common understanding of competition policy. We offer some discussion supporting this latter point.
The presence of these biases may invalidate the usefulness of cross-nationally valid rankings of competition policy performance. On the bright side, however, the results suggest that efforts aimed at enhancing stakeholders' understanding of the objectives and limitations of competition policy might in turn enhance competition policy's impact as well as perceptions of performance.

This paper identifies the factors that determine FDI inflows in the former socialist countries of Eastern and Central Europe. In our analysis, FDI inflows are modeled as a function of the market size (i.e., real GDP), inflation, the current account balance, the real exchange rate, openness and government regulation -- for the host country. Using data from 1995 to 2004, a panel data estimator suggests that the real exchange rate, openness of the economy and deregulation are the primary factors determining FDI inflows in these countries.

It has been over 40 years since Connecticut amended its Constitution to ensure citizens a right to a free public education. Despite the constitutionally prescribed right, dramatic inequities in educational conditions continued to characterize the state's K-12 educational system, especially between suburban/rural white and urban minority school districts. In the 1970s plaintiffs challenged the prevailing mechanism for allocating education funds with a host of court cases that tackled the thorny question of how much financial responsibility the state should assume to equalize the spending disparities between school districts. Prodded by court decisions, many formulas and approaches have been proposed by the Connecticut General Assembly in response to the various legal challenges yet the state has never fully funded the cost sharing formula nor lived up to the 50-50 cost sharing arrangement envisaged by some policymakers. The situation remains at an impasse with the latest court action, CCJEF v. Rell (2005), to be resolved no sooner than 2014 by most accounts. Our aim here is to offer an analysis of the decision-making environment that explains the current impasse. We contend that by applying the dual-error framework popular in other social policy settings, it is possible to understand the competing views and beliefs of those groups arrayed in opposition. We claim that the individual and political understanding and policy responses are prone to cognitive heuristics in the manner popularized by Sunstein, Schadke and Kahneman, and Kuran and Sunstein (Kuran & Sunstein, 1999; Sunstein C. , Cognition and Cost-Benefit Analysis, 2000; Schkade & Kahneman, 1998). This analytical approach entails a recognition that many policy makers fail to make decisions via the normative model of rational decision-making but rather rely subjectively on emotion, intuitions, biases, character traits, and social and cultural norms in a manner that diverges systematically from the rational model. We argue that differing subjective appraisals of the role of individual agency in the observed achievement gap is at the core of the debate. There are, of course, other inputs into the educational process. But it is this perception of agency that heavily influences the general population's political choices. The existing institutional framework appears to have cemented this worldview in a situation that has little chance of a meaningful resolution. We note the perplexing conundrum in which Connecticut finds itself and conclude that the problem is a social dilemma in which the parties involved are individually powerless to resolve. Sortition mechanisms - allocation by lottery - have been known to effectively resolve social dilemmas in other domains. We examine the possibility of relying on lots to resolve the allocation of educational monies.

This study examines herding behavior in all industrial sectors of the Turkish stock market. Applying the methodology of Chang et al. (2000) to the Turkish sectoral daily stock prices from 2002 to 2014, we found strong evidence of herding. This evidence did not disappear even after we controlled for market regimes and firm fundamentals. Investor herding is asymmetric in all sectors; even though herding is prevalent in both rising and falling markets, it is more pronounced in rising markets. In the financial, services, and technology sectors herding is detected only in the highly volatile markets. In contrast, in low-volatility markets we confirm herding only in the services sector.

International real estate markets and the ever increasing role of the U.S. economic and policy developments have played a central role both in international portfolio management as well as broader economic policy making. In this paper, we measure the extent of time-varying impact of the U.S. monetary policy and macroeconomic news on the international Real Estate Investment Trusts (REITs) stock returns. Results suggest that there has been significant variation both across time and across countries in the impact of U.S. news on the global REIT stocks. Further, the country’s stock market capitalization to GDP ratio has strong connections with the time-varying nature of the impact of the U.S. news on the global REIT stock returns.

This article investigates whether large non-bank institutional investors herded during the dot-com bubble of the 1990s. We use the vector Markov-switching model of Hamilton and Lin (1996) to analyse the technology stockholdings of 115 large institutional investors from 1980 to 2012. By imposing different restrictions on the elements of the transition probability matrix, we are able to test for various lead/lag scenarios that might have existed between the technology stockholding of each investor and that of the residual market. We find that only 17.4% of the investors in our sample herded during the dot-com bubble. Thus, during the dot-com bubble, herding among large institutional investors was not an especially widespread phenomenon. Among those investors that herded, 80% herded during the run-up, 10% during the collapse and 10% during both phases of the dot-com bubble. About 23% of all investors in our sample exited from the technology sector before the bubble collapsed. These results seem to support Abreu and Brunnermeier’s (2003) theory of bubbles and crashes.

This paper examines the effectiveness of foreign aid and foreign direct investment in the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. The model includes the labor force, capital stock, foreign aid and foreign direct investment, and is estimated using pooled annual time series data from 1993 to 2002. Before carrying out the estimation, the time series properties of the data are diagnosed and an error-correction model is developed and estimated using a fixed-effects estimator. The results indicate that an increase in the stock of domestic capital and inflow of foreign direct investment are significant factors that positively affect economic growth in these countries. Foreign aid did not seem to have any significant effect on real GDP.

In this paper, using Bureau of the Census family income data we formally examine the income polarization hypothesis for the State of Connecticut. We ask and answer two questions. First, did the polarization of income deteriorate over the Great Recession years of 2007-2009? If the observed clustering around two opposite poles that existed in Connecticut prior to the Great Recession increased between the years immediately prior to the recession and immediately after (2006-2010) it would be consistent with the perception that the size of the middle class decreased over this period. Second, have income polarization and income inequality fared significantly differently during this period in the state? Income polarization and income inequality, albeit related, are generally distinct features of income distributions. There was no statistically significant change in the polarization of Connecticut’s income over the recent recessionary period. We also find that income inequality and income polarization followed distinct and different trajectories over the time period examined.