Helsinki Center of Economic Research (HECER) discussion papers

 

ISSN 1795-0562

Recent Submissions

  • Virrankoski, Juha (Helsinki Center of Economic Research, 2017)
    HECER Discussion Paper No. 421
    I study a dynamic labor market with homogenous firms and workers. Both types of agents choose between a centralized market and a decentralized search market. Firms have free entry and exit. I consider how bargaining and wage posting in the two types of market affect the equilibrium outcome. For example, if there is bargaining in the centralized market and wage posting in the search market, there exists a centralized market equilibrium, a decentralized market equilibrium, and a mixed market equilibrium where there are agents in both submarkets. If wages are posted in both markets, a search market equilibrium does not exist.
  • Meitz, Mika; Saikkonen, Pentti (Helsinki Center of Economic Research, 2017)
    HECER Discussion Paper No. 420
    Testing for regime switching when the regime switching probabilities are specified either as constants (‘mixture models’) or are governed by a finite-state Markov chain (‘Markov switching models’) are long-standing problems that have also attracted recent interest. This paper considers testing for regime switching when the regime switching probabilities are time-varying and depend on observed data (‘observation-dependent regime switching’). Specifically, we consider the likelihood ratio test for observation-dependent regime switching in mixture autoregressive models. The testing problem is highly nonstandard, involving unidentified nuisance parameters under the null, parameters on the boundary, singular information matrices, and higher-order approximations of the log- likelihood. We derive the asymptotic null distribution of the likelihood ratio test statistic in a general mixture autoregressive setting using high-level conditions that allow for various forms of dependence of the regime switching probabilities on past observations, and we illustrate the theory using two particular mixture autoregressive models. The likelihood ratio test has a nonstandard asymptotic distribution that can easily be simulated, and Monte Carlo studies show the test to have satisfactory finite sample size and power properties.
  • Zhu, Min (HECER – Helsinki Center of Economic Research, 2017)
    HECER Discussion Paper No. 419
    I investigate how Chinese exporters respond to market-specific tariff shocks that arise from US antidumping measures. Using Chinese customs data between 2000 and 2006, I find strong evidence that antidumping measures severely distort bilateral trade flows between China and the US. I also provide some evidence that the US import restrictions lead to a reduction in Chinese exports to alternative markets. I then investigate the underlying mechanism at the firm level. I document that Chinese firms that were hit with antidumping measures are less likely to export the targeted products across destinations. More importantly, antidumping measures are associated with spillovers across products within firms. That is, multi-product firms tend to switch exports to other unaffected products in alternative markets.
  • Nelimarkka, Jaakko (HECER – Helsinki Center of Economic Research, 2017)
    HECER Discussion Paper No. 418
    Fiscal foresight, economic agents receiving information about future fiscal policy, affects the consistency of results about the causal effects of government spending. This study explores the propagation of government spending shocks using a noncausal VAR model that allows for anticipation of exogenous fiscal policy changes. Overcoming the issue of insufficient information, the government spending shock is extracted from an anticipated error term by using institutional information about the conduct of fiscal policy. In addition, the approach nests the conventional causal structural VAR as a special case. In the U.S. economy, the identified spending shock comoves with defence expenditures. The shock increases consumption, employment and output one and a half years prior to its materialisation in government spending. After the shock arrives, real wages respond positively while investment turns negative. The estimated fiscal multiplier is close to unity.
  • Niemeläinen, Julia (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper, No. 417
    This paper uses a life-cycle model to study the role of population ageing and the low level of pension income in retirement as drivers of China's persistent trade surplus vis-a-vis the United States. In the model, the fast increase in life expectancy coupled with the relatively low pension expenditures can help to explain its high savings, the persistent trade surplus and the accumulation of a sizeable net foreign asset position. The model predicts a positive net foreign asset position and trade balance for China for most years in the simulation period even though China's high productivity growth has a strong negative impact on its trade balance.
  • Nyholm, Juho (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper No. 416
    This paper proposes two residual-based diagnostic tests for noninvertible ARMA models. The tests are analogous to the portmanteau tests developed by Box and Pierce (1970), Ljung and Box (1978) and McLeod and Li (1983) in the conventional invertible case. We derive the asymptotic chi-squared distributions for the tests and study the size and power properties in a Monte Carlo simulation study. An empirical application employing financial time series data points out the usefulness of noninvertible ARMA model in analyzing stock returns and the use of the proposed test statistics.
  • Nelimarkka, Jaakko (HECER – Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper No. 415
    News shocks about future productivity can be correctly inferred from a conventional VAR model only if information contained in observables is rich enough. This paper examines news shocks by means of a noncausal VAR model that recovers economic shocks from both past and future variation. As noncausality is implied by nonfundamentalness, the model solves the problem of insufficient information per se. By the impulse responses derived from the model, variables react to the anticipated structural shocks, which are identified by exploiting future dependence of investment with respect to productivity. In the U.S. economy, news shocks move investment and stock prices on impact, but these responses are likely affected by a parallel increase in productivity. News shocks are characterised by gradual diffusion to productivity and generate smooth reactions of forward-looking variables.
  • Hämäläinen, Saara (HECER – Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper No. 414
    We consider a price search model with gradual information arrival and deadlines to study how consumers search within and across stores during a single search spell. This renders the effects of search costs smooth and allows us to endogenize the intensity of competition in a new way that avoids both Diamond and Bertrand paradoxes. Firms can commit to any choice complexity levels. They determine the relative numbers of informed and uninformed consumers, which equal in equilibrium. The outcome is thus halfway from Diamond and Bertrand equilibria. Wider price awareness and advertizing improves welfare by discouraging the prominent firm's obfuscation.
  • Lindblad, Annika (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper No. 413
  • Kanniainen, Vesa; Lehtonen, Juha-Matti (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper No. 412
  • Harless, Patrick; Phan, William (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper, No. 411
  • Phan, William (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper, No. 410
  • Kanniainen, Vesa (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper No. 409
  • Kanniainen, Vesa; Mellin, Ilkka (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper, No. 408
    The aggregate economic development of Finland and Sweden defined by the growth of the real Gross Domestic Products (GDPs) advanced in tandem for a long time. The current paper provides a descriptive statistical analysis producing stylized facts of the co-development of the two neighboring countries. Using various statistical techniques, the paper documents that the tandem is over. The paper identifies the break-up point in 2007 when the financial crisis started to culminate peaking in 2008-2009. The key test on the duration of the economic tandem will be provided by the forecast ability of the statistical vector autoregressive model to be identified and estimated for GDPs of the two countries. The stability of the model is used as a statistical criterion. A rich set of results on the comparative volatility and instability, the steepness of recessions, and the diverging welfare of the two economies are reported. In particular, it is estimated that the cumulative welfare gap between the countries, measured by the cumulative prediction error of the model in the post-tandem period 2008/1 - 2015/1 is 47.9 per cent.
  • Silvo, Aino (HECER, Helsinki Center of Economic Research, 2017)
    HECER, Discussion Paper, No. 407