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Recent QED Working Papers

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#1460.

Huw Lloyd-Ellis, Ardyn Nordstrom

Trade, poverty and food security: A survey of recent research and its implications for East Africa

We survey the latest research on the linkages between international trade, regional integration, poverty and food security in developing economies and draw out its implications for East Africa and future research. While there is now an extensive literature on the impacts of trade reform on poverty outcomes, research on the actual and potential effects of trade and regional integration on food security is much more limited. This reflects inconsistencies in the definition and measurement of food security, substantial data limitations, and the complexity of food systems themselves.…

#1459.

Antoine Noël, Amy H. Sun

Information Transparency of Firm Financing

We propose a theory of optimal firm financing given nested information problems of adverse selection and agency cost. We prove that there exists a unique perfect Bayesian equilibrium with novel features: First, three types of optimal contracts arise endogenously, i.e., equity, transparent debt and opaque debt. Equity and transparent debt are both informational transparent because these contracts require firms to take on a costly technology for verifying types. Opaque debt, however, merely reflects the general information of firms seeking external funds. Any signaling contract that…

#1458.

Javier Hualde, Morten Ø. Nielsen

Truncated sum-of-squares estimation of fractional time series models with generalized power law trend

We consider truncated (or conditional) sum-of-squares estimation of a parametric fractional time series model with an additive deterministic structure. The latter consists of both a drift term and a generalized power law trend. The memory parameter of the stochastic component and the power parameter of the deterministic trend component are both considered unknown real numbers to be estimated and belonging to arbitrarily large compact sets. Thus, our model captures different forms of nonstationarity and noninvertibility as well as a very flexible…

#1457.

Jen Baggs, Loretta Fung, Beverly Lapham

An Empirical Evaluation of the Effect of Covid-19 Travel Restrictions on Canadians' Cross Border Travel and Canadian Retailers

This paper estimates the impact on Canadian retailers' revenues of significantly decreased international travel by Canadians in response to the Covid-19 related travel restrictions imposed on the US-Canada border. We use detailed data from 1991 to 2020 on Canadians' travel to the United States to estimate the monthly fraction of a community's residents who cross the border for 237 communities within 150 kilometers of the border. We estimate the model of cross-border travel from Baggs, Fung and Lapham (2018) and use those estimates to establish community-level counterfactual crossing…

#1456.

James G. MacKinnon, Morten Ø. Nielsen, Matthew D. Webb

Cluster-Robust Inference: A Guide to Empirical Practice

Methods for cluster-robust inference are routinely used in economics and many other disciplines. However, it is only recently that theoretical foundations for the use of these methods in many empirically relevant situations have been developed. In this paper, we use these theoretical results to provide a guide to empirical practice. We do not attempt to present a comprehensive survey of the (very large) literature. Instead, we bridge theory and practice by providing a thorough guide on what to do and why, based on recently available econometric theory and simulation evidence. The paper…

#1455.

David Longworth, Frank Milne

Parallels Between Financial Regulation Prior to the Global Financial Crisis and Lack of Public Health Preparation Prior to Covid-19

In this paper, we discuss 10 parallels between the lack of preparation of financial system regulators prior to the GFC and the lack of preparation by public health authorities and governments prior to Covid-19. These parallels relate to: required stocks (of capital or equipment), data collection and sharing, lending facilities, stress testing and war games, early warning indicators and systems, contagion from abroad, operational risks, a system-wide approach (including…

#1454.

James M. Nason, Gregor W. Smith

UK Inflation Forecasts since the Thirteenth Century

Historians have suggested there were waves of inflation or price revolutions in the UK (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1914. We study retail price inflation since 1251 and model its forecasts. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long-horizon forecasts suggest only one inflation wave, that of the 20th century. We also use the model to measure inflation predictability and price-level instability from the beginning of the sample and to provide…

#1453.

N'Golo Kone

Efficient mean-variance portfolio selection by double regularization

This paper addresses the estimation issue that exists when estimating the traditional mean-variance portfolio. More precisely, the efficient mean-variance is estimated by a double regularization. These regularization techniques namely the ridge, the spectral cut-off, and Landweber-Fridman involve a regularization parameter or penalty term whose optimal value needs to be selected efficiently. A data-driven method has been proposed to select the tuning parameter. We show that the double regularized portfolio guarantees to investors the maximum expected return with the lowest risk. In…

#1452.

Brant Abbott

Incomplete Markets and Parental Investments in Children

The effect of incomplete markets on parental investments is investigated. Uninsured risk and credit constraints can distort the timing of parental investments, causing them to be delayed relative to what would occur under full-insurance. Age-dependent subsidies, taxes or transfers can all possibly correct this. Analytical results are provided, and a numerical life-cycle model provides quantitative results. Data on ability and parental investment dynamics are used to calibrate the model. A sequence of optimal policy experiments is conducted beginning with a simple reform of the tax and…

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