A Note on 1-Edge Balance Index Set

A graph labeling is an assignment of integers to the vertices or edges or both, subject to certain conditions. Varieties of graph labeling have been investigated by many authors [2], [3] [5] and they serve as useful models for broad range of applications

The New Keynesian Phillips Curve and Lagged Inflation: A Case of Spurious Correlation?

The New Keynesian Phillips Curve (NKPC) specifies a relationship between inflation and a forcing variable and the current period’s expectation of future inflation. Most empirical estimates of the NKPC, typically based on Generalized Method of Moments (GMM) estimation, have found a significant role for lagged inflation, producing a “hybrid” NKPC. Using U.S. quarterly data, this paper examines whether the role of lagged inflation in the NKPC might be due to the spurious outcome of specification biases. Like previous investigators, we employ GMM estimation and, like those investigators, we find a significant effect for lagged inflation. We also use time varying coefficient (TVC) estimation, a procedure that allows us to directly confront specification biases and spurious relationships. Using three separate measures of expected inflation, we find strong support for the view that, under TVC estimation, the coefficient on expected inflation is near unity and that the role of lagged inflation in the NKPC is spurious.New Keynesian Phillips curve; time-varying coefficients; spurious relationships.

The Nonexistence of Instrumental Variables

The method of instrumental variables (IV) and the generalized method of moments (GMM) and their applications to the estimation of errors-in-variables and simultaneous equations models in econometrics require data on a sufficient number of instrumental variables which are (insert space)both exogeneous and relevant. We argue that in general such instruments (weak or strong) cannot exist.

The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation

A theoretical analysis of the new Keynesian Phillips curve (NKPC) is provided, formulating the conditions under which the NKPC coincides with a real-world relation that is not spurious or misspecified. A time-varying-coefficient (TVC) model, involving only observed variables, is shown to exactly represent the underlying “true” NKPC under certain conditions. In contrast, “hybrid” NKPC models, which add lagged-inflation and supply-shock variables, are shown to be spurious and misspecified. We also show how to empirically implement the NKPC under the assumption that expectations are formed rationally.Time-varying-coefficient model; Inflation-unemployment trade-off; “Objective” probability; Spurious correlation; Rational expectation; Coefficient driver

Some Further Evidence on Exchange-Rate Volatility and Exports

The relationship between exchange-rate volatility and aggregate export volumes for 12 industrial economies is examined using a model that includes real export earnings of oil-producing economies as a determinant of industrial-country export volumes. A supposition underlying the model is that, given their levels of economic development, oil-exporters’ income elasticities of demand for industrial-country exports might differ from those of industrial countries. Five estimation techniques, including a generalized method of moments (GMM) and random coefficient (RC) estimation, are employed on panel data covering the estimation period 1977:1-2003:4 using three measures of volatility. In contrast to recent studies employing panel data, we do not find a single instance in which volatility has a negative and significant impact on trade.Exchange-rate volatility; Trade; Random-coefficient estimation; Generalized method of moments; Panel

Assessing the Casual Relationship between Euro-Area Money and Price in Time-Varying Environment

The paper provides new evidence on the causal relationship between money and price for the euro area using quarterly data for the period 1980 to 2006, employing two alternative methods of estimation: the vector error correction (VEC) and time-varying coefficient (TVC) estimation techniques. The latter technique has the advantage over the former technique in that it can deal with possible specification biases and spurious relationships that may have arisen from structural changes. The empirical results from the VEC method reveal a bidirectional causal relationship between money and price. Contrary, the results from the TVC technique suggest that money is acting as an exogenous process determining the price level.Causality; VEC, Time Varying Coefficient Estimation; Euro Area

A Portofolio Balance Approach to Euro-Area Money Demand in a Time-Varying Environment

As part of its monetary policy strategy, the European Central Bank has formulated a reference value for M3 growth. A pre-requisite for the use of a reference value for M3 growth is the existence of a stable demand function for that aggregate. However, a large empirical literature has emerged showing that, beginning in 2001, essentially all euro area M3 demand functions have exhibited instability. This paper considers euroarea money demand in the context of the portfolio-balance framework. Our basic premise is that there is a stable demand-for-money function but that the models that have been used until now to estimate euro area money-demand are not well-specified because they do not include a measure of wealth. Using two empirical methodologies - - a co-integrated vector equilibrium correction (VEC) approach and a time-varying coefficient (TVC) approach - - we find that a demand-for-money function that includes wealth is stable. The upshot of our findings is that M3 behaviour continues to provide useful information about medium-term developments on inflation.Money demand; VEC, time varying coefficient estimation; Euro area

The Nonexistence of Instrumental Variables

The method of instrumental variables (IV) and the generalized method of moments (GMM) has become a central technique in health economics as a method to help to disentangle the complex question of causality. However the application of these techniques require data on a sufficient number of instrumental variables which are both independent and relevant. We argue that in general such instruments cannot exist. This is a reason for the widespread finding of weak instruments.

Effect of Hedging-Integrated Rule Curves on the Performance of the Pong Reservoir (India) During Scenario-Neutral Climate Change Perturbations

This study has evaluated the effects of improved, hedging-integrated reservoir rule curves on the current and climate-change-perturbed future performances of the Pong reservoir, India. The Pong reservoir was formed by impounding the snow- and glacial-dominated Beas River in Himachal Pradesh. Simulated historic and climate-change runoff series by the HYSIM rainfall-runoff model formed the basis of the analysis. The climate perturbations used delta changes in temperature (from 0° to +2 °C) and rainfall (from −10 to +10 % of annual rainfall). Reservoir simulations were then carried out, forced with the simulated runoff scenarios, guided by rule curves derived by a coupled sequent peak algorithm and genetic algorithms optimiser. Reservoir performance was summarised in terms of reliability, resilience, vulnerability and sustainability. The results show that the historic vulnerability reduced from 61 % (no hedging) to 20 % (with hedging), i.e., better than the 25 % vulnerability often assumed tolerable for most water consumers. Climate change perturbations in the rainfall produced the expected outcomes for the runoff, with higher rainfall resulting in more runoff inflow and vice-versa. Reduced runoff caused the vulnerability to worsen to 66 % without hedging; this was improved to 26 % with hedging. The fact that improved operational practices involving hedging can effectively eliminate the impacts of water shortage caused by climate change is a significant outcome of this study