Working Papers

Authors: John Muellbauer

Jun 2019

Empirical evidence on what drives house prices, such as income changes, extrapolative expectations and differences in supply elasticities, is important. In many countries, house price movements in major cities such as the capital are more extreme and often seem to lead the rest of the country. This chapter therefore proposes a framework for analysing prices at a regional level, with an application to London illustrating its leading role and the ripple effect in other UK regions. As is also shown for Paris, capital cities are more sensitive to interest rates and credit conditions, and international investors can play an important role (perhaps leading to affordability problems for local residents). After the crisis, debt-to-income ratios have risen strongly which, together with the higher interest rate sensitivity of housing in cities, may impede the normalisation of interest rates.

Reference: 872

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Authors: Vanessa Berenguer Rico, Bent Nielsen, Søren Johansen

May 2019

A uniform weak consistency theory is presented for the marked and weighted em­pirical distribution function of residuals. New and weaker sufficient conditions for uniform consistency are derived. The theory allows for a wide variety of regressors and error distributions. We apply the theory to 1-step Huber-skip estimators. These estimators describe the widespread practice of removing outlying observations from an intial estimation of the model of interest and updating the estimation in a second step by applying least squares to the selected observations. Two results are presented. First, we give new and weaker conditions for consistency of the estimators. Second, we analyze the gauge, which is the rate of false detection of outliers, and which can be used to decide the cut-off in the rule for selecting outliers.

JEL Codes: C01, C22

Keywords: 1-step Huber skip, Asymptotic theory, Empirical processes, Gauge, Marked and Weighted Empirical processes, Non-stationarity, Robust Statistics, Sta-tionarity

Reference: 871

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Authors: C. Knick Harley

May 2019

Authors: Christa N. Brunnschweiler, Steven Poelhekke

May 2019

Does institutional change in the petroleum sector lead to more oil and gas ex-ploration and discoveries? Foreign ownership and investment in the sector has tra-ditionally been unrestricted. We document that this is no longer the case; foreign-domestic partnerships are the norm today. Tracking changes in legislation between 1867 and 2008 for a panel of countries, we show that switching to foreign ownership results in more drilling and more discoveries of petroleum than domestic ownership. Switching to partnership yields even more drilling, but yields fewer discoveries. Dis¬coveries, and the intensity and quality of exploration drilling, are endogenous to industry-specific institutional change.

JEL Codes: E02, O43, Q30

Keywords: discoveries, oil and gas, natural resources, institutions

Reference: 219

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Authors: Vanessa Berenguer Rico, Bent Nielsen, Søren Johansen

May 2019

An extended and improved theory is presented for marked and weighted empirical processes of residuals of time series regressions. The theory is motivated by 1-step Huber-skip estimators, where a set of good observations are selected using an initial estimator and an updated estimator is found by applying least squares to the selected observations. In this case, the weights and marks represent powers of the regressors and the regression errors, respectively. The inclusion of marks is a non-trivial extention to previous theory and requires refined martingale arguments.

JEL Codes: C130

Keywords: 1-step Huber-skip; Non-stationarity; Robust Statistics; Stationarity

Reference: 870

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Authors: Stephen Broadberry, Leigh Gardner

Mar 2019

Estimates of GDP per capita are provided on an annual basis for eight Sub-Saharan African economies for the period since 1885. Although the growth experienced in most of SSA since the mid-1990s has had historical precedents, there have also been episodes of negative growth or “shrinking”, so that long run progress has been limited. Despite some heterogeneity across countries, this must be seen as a disappointing performance for the region as a whole, given the possibilities of catch-up growth. Avoiding episodes of shrinking needs to be given a higher priority in understanding the transition to sustained economic growth.

Reference: 169

Individual View

This paper investigates how counterterrorism that targets terrorist leaders, and thereby undermines control within terrorist organizations, affects terrorist attacks. The pa¬per exploits a natural experiment provided by strikes by Unmanned Aerial Vehicles (drones) ‘hitting’ and ‘missing’ terrorist leaders in Pakistan. Results suggest that ter¬rorist groups increase the number of attacks they commit after a drone ‘hit’ on their leader, compared to after a ‘miss’. This increase amounts to 29 terrorist attacks (43%) worldwide per group in the six months after a drone strike. Game theory provides sev¬eral explanations for the observed effect. Additional analysis of heterogenous effects across groups, and the impact of drone hits on the timing, type and target of attacks, attacks by affiliated terrorist groups, infighting and group splintering, indicates that aggravated problems of control (principal-agent and collective action problems) explain these results better than alternative theoretical mechanisms.

JEL Codes: D74, F5, O10

Keywords: Terrorism, Targeted Leader Killing, Unmanned Aerial Vehicles

Reference: 218

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Authors: David Ronayne, Greg Taylor

Mar 2019


We study strategic interactions in markets where firms sell to consumers both directly and via a competitive channel (CC), such as a price comparison website or marketplace, where multiple sellers’ offers are visible at once. We ask how a CC’s relative size influences market outcomes. A bigger CC means more consumers compare prices, increasing within-channel competition. However, such seemingly procompetitive developments can raise prices and reduce consumer surplus by weakening between-channel competition. We also use the model to study relevant active policy issues including price clauses, integrated ownership structures, and access to consumers’ purchase data.

Revised March 2019

JEL Codes: JEL D43, D83, L11, M3

Reference: 843

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Authors: Guido Ascari, Timo Haber

Mar 2019

This paper proposes a minimal test of two basic empirical predictions that ag-gregate data should exhibit if sticky prices were the key transmission mechanism of monetary policy, as implied by the benchmark DSGE-New Keynesian models. First, large monetary policy shocks should yield proportionally larger initial re-sponses of the price level and smaller real effects on output. Second, in a high trend inflation regime, prices should be more flexible, and thus the real effects of monetary policy shocks should be smaller and the response of the price level larger. Our analysis provides some statistically significant evidence in favor of a sticky price theory of the transmission mechanism of monetary policy shocks.

JEL Codes: E30, E52, C22

Keywords: Sticky prices, local projections, smooth transition function, time-dependent pricing, state-dependent pricing

Reference: 869

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Authors: Harold Carter

Feb 2019

Social intervention by governments in liberal democracies faces two major problems. The first is that it tends to reward the majority at the expense of the weak; there is no agreed way to trade-off the claims of different groups on a limited pool of resources, so it comes down to political muscle. The second is that support for intervention depends on a continuing flow of new resources, to fix each new problem while still preserving the interests of existing clients – and as a result, subsidies and controls multiply, despite the fact that they often pursue conflicting goals. In the early days of the British welfare state these dilemmas were resolved by shared assumptions that were fundamentally illiberal, excluding some groups altogether and enabling a clear pecking order amongst the rest. By the end of the century these narratives had largely been rejected. What happened was not a collapse in the fact of collective provision (which continued to grow) but a collapse in the narrative by which it was understood. Unable to resist popular pressure to spend more, governments were also unable to build the public confidence necessary to persuade taxpayers to pay for what they wanted. The easiest course of action was to give in to vested interests; to fund as much as possible by borrowing, on and off the balance sheet; and once the money started to run out, to give in to the most powerful groups, and to pay proportionately less attention to the less vocal.

Reference: 168

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Authors: Anja Tolonen

Feb 2019

Does industrial development change gender roles? This is the first paper to causally explore the effects of a continent-wide expansion of a modern industry on gender roles, captured by attitudes and behaviors. Identification relies on plausibly exogenous spatial-temporal variation in gold mining in Africa. The establishment of industrial-scale mines induces female empowerment—justification of domestic violence decreases by 19%, women have better access to healthcare, and are 31% more likely to work in services— alongside rapid economic growth. Findings are robust to assumptions about trends, distance, and migration and show that gender roles can change rapidly with economic development.

Revised February 2019

JEL Codes: O12; O13; J16

Keywords: Gender Roles, Female Empowerment, Local Industrial Development, Gold Mining

Reference: 209

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Authors: Elizabeth Baldwin, Yongyang Cai, Karlygash Kuralbayeva

Feb 2019

Applying climate policy in practice means considering capital stocks: some assets will pro¬duce pollution whenever they are used, and some will not. Therefore long-term abatement plans should influence current investment. Moreover, newer technologies exhibit learning-by-doing in the deployment of associated infrastructure. We investigate these ideas from both theoretical and numerical perspectives. An increasing carbon tax will reduce investments in assets that pollute, and so reduce emissions in the short term: our “irreversibility effect”. We also show that the optimal innovation subsidy increases with the deployment rate: our “acceleration effect”. Considering second-best settings, we show that, although carbon taxes achieve stringent policy targets more efficiently, subsidies to the “renewables” sector deliver higher welfare when policy targets are more mild.

Revised February 2019

JEL Codes: O44, Q54, Q58

Keywords: Infrastructure, Clean and Dirty Energy Inputs, Renewable Energy, Stranded Assets, Carbon Budget, Climate Change Policies, Green Paradox

Reference: 204

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Authors: Saeed Moshiri, Gry Østenstad, Wessel N. Vermeulen§

Feb 2019

This study investigates the effects of an oil boom on firms’ performance using data from the Canadian Annual Survey of Manufactures. We exploit the time variation of the booming natural resource sector activity in an oil-producing area with the location of manufacturing plants. We hypothesize that the effect of the booming sector on plants depends on their spatial proximity, which allows us to create an exogenous treatment variable. The outcome variables include plant-level wages, employment, sales, and exports. We find that the effect of the booming sector on the incidence of exporting varies greatly by plant-level productivity. More productive plants become more likely to export relative to less productive plants. They can do so by paying a higher wage, while employment grows less than plants that serve only the domestic market. We find that initial productivity and plants’ ability to export provides an important differentiation in average plants effects. In particular, while there is a great variety in the effect by sector, a clear linkage with the resource industry is not observed.

JEL Codes: L6, O4, R11, R15

Keywords: natural resources, heterogeneous firms, regional economics

Reference: 216

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Authors: Peter Neary, Monika Mrázová

Feb 2019

We provide an overview and synthesis of recent work on models of monopolistic competition with heterogeneous firms in international trade, paying particular atten¬tion to pass-through, selection effects, competition effects, and matching endogenous with exogenous distributions. A recurring theme is that CES preferences are extremely convenient for deriving analytic results, but also extremely restrictive in their theoret-ical and empirical implications. We introduce the class of “constant-response demand functions” to describe some related families of demand functions that provide a unifying principle for much recent work that explores alternatives to CES demands.

JEL Codes: F12, L11, F23

Keywords: Heterogeneous Firms; Pass-Through; Quantifying Effects of Globalization; Super- and Sub-Convexity; Supermodularity

Reference: 868

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Authors: Roberto Bonfatti, Yuan Gu, Steven Poelhekke

Jan 2019

Africa’s interior-to-coast roads are well suited to export natural resources, but not to support regional trade. Are they the optimal response to geography and comparative advantage, or the result of suboptimal political distortions? We investigate the political determinants of road paving in West Africa across the 1965-2012 period. Controlling for ge¬ography and the endogeneity of democratization, we show that autocracies tend to connect natural resource deposits to ports, while the networks expanded in a less interior-to-coast way in periods of democracy. This result suggests that Africa’s interior-to-coast roads are at least in part the result of suboptimal political distortions.

JEL Codes: P16, P26, D72, H54, O18, Q32

Keywords: political economy, democracy, infrastructure, natural resources, development

Reference: 215

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Authors: Margaret Meyer, Inés Moreno de Barreda, , Julia Nafziger

Jan 2019

This paper studies information transmission in a two-sender, multidimensional cheap talk setting where there are exogenous constraints on the (convex) feasible set of policies for the receiver and where the receiver is uncertain about both the directions and the magnitudes of the senders’ bias vectors. With the supports of the biases represented by cones, we prove that whenever there exists an equilibrium which fully reveals the state (a FRE), there exists a robust FRE, i.e. one in which small deviations result in only small punishments. We provide a geometric condition, the Local Deterrence Condition, relating the cones of the biases to the frontier of the policy space, that is necessary and sufficient for the existence of a FRE. We also construct a specific policy rule for the receiver, the Min Rule, that supports a robust FRE whenever one exists.

Revised January 2019

JEL Codes: D83,D82,C72

Keywords: Cheap talk, information transmission, multisender, full revelation, robustness

Reference: 789

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Authors: Ian Crawford, Peter Neary

Jan 2019

Changes in product characteristics on the extensive margin are an important and hitherto neglected dimension of quality change. Standard techniques for quality-adjusting price indices cannot handle such changes satisfactorily, which leads to an economically and statistically significant bias in the measurement of prices and real output. We combine theoretical insights from index numbers and demand for charac¬teristics to develop a new method for incorporating changes on the extensive charac¬teristic margin. Applied to data on new car sales in the U.K., our method leads to revisions in estimated inflation rates for this commodity group that are both plausible and quantitatively important.

JEL Codes: C90, C91, C92, D03

Keywords: Extensive and Intensive Margins of Consumption; Characteristics Model; Quality Change; Sato-Vartia-Feenstra Index Numbers

Reference: 867

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Authors: Jennifer Castle, Takamitsu Kurita

Jan 2019

We employ a newly-developed partial cointegration system allowing for level shifts to examine whether economic fundamentals form the long-run determinants of the dollar-pound exchange rate in an era of structural change. The paper uncovers a class of local data generation mechanisms underlying long-run and short-run dynamic features of the exchange rate using a set of economic variables that explicitly reflect the central banks’ monetary policy stances and the influence of a forward exchange market. The impact of the Brexit referendum is evaluated by examining forecasts when the dollar-pound exchange rate fell substantially around the vote.

JEL Codes: C22, C32, C52, F31

Keywords: Exchange rates, Monetary policy, General-to-specific approach, Partial cointegrated vector autoregressive models, Structural breaks.

Reference: 866

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Authors: Ferdinand Rauch, Kristiina Tuomikoski

Jan 2019

Ferdinand Rauch, Kristiina Tuomikoski

This paper presents a number of facts on the use of the Bodleian libraries by Oxford students. We pay particular attention to the importance of the distance between a student’s home and a library on the choice of which library to use. This small scale distance elasticity is an important parameter for urban economics. We find a distance elasticity of around -0.3, closer to zero than observed in related studies.

JEL Codes: F14, R12

Keywords: Library usage, Distance elasticity, Gravity model

Reference: 865

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Authors: Mark Armstrong, John Vickers

Dec 2018

We study mixed-strategy equilibrium pricing in oligopoly settings where con-sumers vary in the set of suppliers they consider for their purchase-some being captive to a particular firm, some consider two particular firms, and so on. In the case of "nested reach" we find equilibria, unlike those in more standard models, in which firms are ranked in terms of the prices they might charge. We character-ize equilibria in the three-firm case, and contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer interaction with firms matter for competitive outcomes.

JEL Codes: C72, D43, D83, L15

Reference: 864

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Authors: Kevin Hjortshøj O'Rourke

Dec 2018


The paper surveys three economic history literatures that can speak to contemporary challenges to globalization: the literature on the anti-globalization backlash of the nineteenth century, focused largely on trade and migration; the literature on the Great Depression, focused largely on capital flows, the gold standard, and protectionism; and the literature on trade and warfare.


JEL Codes: N70, F02

Keywords: globalization, deglobalization.

Reference: 167

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Authors: John Knight, LI Shi, WAN Haiyuan

Nov 2018

John Knight, LI Shi and WAN Haiyuan

The inequality of wealth in China has increased rapidly in recent years. China presents a fascinating case study of how inequality of household wealth increases as economic reform takes place, marketisation occurs, and capital accumulates. Wealth inequality and its growth are measured and decomposed using data from two national sample surveys of the China Household Income Project (CHIP) relating to 2002 and 2013. An attempt is made to explain the rising wealth inequality in terms of the relationships between income and wealth, differential saving, house price inflation, and income from wealth. This last relationship is stressed by Thomas Piketty in his 2014 book. In China the evidence for it is weak, but there is support for a reformulation that includes real capital gain as part of income. Piketty’s mechanism is relevant, but only ‘with Chinese characteristics’.

JEL Codes: C80; D31

Keywords: China; Housing inequality; Piketty; Wealth inequality; Capital gain.

Reference: 862

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CSAE Working Papers

These Papers can be found on an external site

Jennifer L. Castle, Jurgen A. Doornik and David F. Hendry

We investigate the role of the significance level when selecting models for forecasting as it con-trols both the null retention frequency and the probability of retaining relevant variables when using binary decisions to retain or drop variables. Analysis identifies the best selection significance level in a bivariate model when there are location shifts at or near the forecast origin. The trade-off for select¬ing variables in forecasting models in a stationary world, namely that variables should be retained if their non-centralities exceed 1, applies in the wide-sense non-stationary settings with structural breaks examined here. The results confirm the optimality of the Akaike Information Criterion for forecasting in completely different settings than initially derived. An empirical illustration forecast¬ing UK inflation demonstrates the applicability of the analytics. Simulation then explores the choice of selection significance level for 1-step ahead forecasts in larger models when there are unknown lo¬cation shifts present under a range of alternative scenarios, using the multipath tree search algorithm, Autometrics (Doornik, 2009), varying the target significance level for the selection of regressors. The costs of model selection are shown to be small. The results provide support for model selection at looser than conventional settings, albeit with many additional features explaining the forecast perfor¬mance, with the caveat that retaining irrelevant variables that are subject to location shifts can worsen forecast performance.

Keywords: Model selection; forecasting; location shifts; significance level; Autometrics

Reference: 861

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Authors: Jemima Peppel-Srebrny

Oct 2018


Government net worth – total assets less liabilities – has declined considerably relative to national income in a number of OECD countries in recent decades, including the United States, the United Kingdom, Japan and Germany. Notably, however, in thinking about the links between fiscal policy and bond markets, the focus of policy and academic debates has tended to be on the liabilities side of the government balance sheet. Typically, not much attention has been paid to the extent to which any increase in government debt is accompanied by government asset accumulation and hence affects government net worth. Using novel data on both sides of the government balance sheet both for a panel of OECD countries in recent decades and for the United States over the long term, we provide panel data and time series-based evidence that for bond markets, not all government debt is created equal: for explaining government borrowing cost empirically, (i) government assets are significant in addition to government liabilities, and (ii) it is government net worth rather than government liabilities that matters when both are included. The central country-specific fiscal factor driving bond yields hence appears to be government net worth.

JEL Codes: E44, E62, H54, H63

Keywords: Government debt, government assets, fiscal policy, long-term interest rates, OECD countries, United States

Reference: 860

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