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Habit Formation in Consumption: A Meta-Analysis
Havránek, Tomáš ; Rusnák, Marek ; Sokolova, Anna
We examine 567 estimates of habit formation from 69 studies published in peer-reviewed journals. In contrast to previous results for most fields of empirical economics, we find no publication bias in the literature. The median estimated strength of habit formation equals 0.4, but the estimates vary widely both within and across studies. We use Bayesian model averaging to assign a pattern to this variance while taking into account model uncertainty. Studies using micro data report consistently smaller estimates than macro studies: 0.1 vs. 0.6 on average. The difference remains large when we control for 21 other study aspects, such as data frequency, geographical coverage, variable definition, estimation approach, and publication characteristics. We also find that estimates of external habit formation tend to be substantially larger than those of internal habits, that evidence for habits weakens when researchers use higher data frequencies, and that estimates differ systematically across countries.
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Do Borders Really Slash Trade?: A Meta-Analysis
Havránek, Tomáš ; Iršová, Zuzana
National borders reduce trade, but most estimates of the border effect seem puzzlingly large. We show that major methodological innovations of the last decade combine to shrink the border effect to a one-third reduction in international trade flows worldwide. The border effect varies across regions: it is substantial in emerging countries, but relatively small in OECD countries. For the computation we collect 1,271 estimates of the border effect reported in 61 studies, codify 32 aspects of study design that may influence the estimates, and use Bayesian model averaging to take into account model uncertainty in meta-analysis. Our results suggest that methods systematically affect the estimated border effects. Especially important is the level of aggregation, measurement of internal and external distance, control for multilateral resistance, and treatment of zero trade flows. We find no evidence of publication bias.
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Cross-Country Heterogeneity in Intertemporal Substitution
Havránek, Tomáš ; Horváth, Roman ; Iršová, Zuzana ; Rusnák, Marek
We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in rich countries and countries with high stock market participation substitute a larger fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of rich households or asset holders also find systematically larger values of the elasticity.
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International Reserves: Facing Model Uncertainty
Benecká, Soňa ; Komárek, Luboš
The abundant literature on the competing motives for holding international reserves stresses different factors, giving rise to a problem called model uncertainty. In this paper we search for the most important determinants of reserve holdings using data for 104 countries in 1999–2010 and evaluate their importance using Bayesian model averaging (BMA). We enrich the ongoing empirical discussion by examining the role of financial globalization and monetary policy and by introducing new variables and searching for alternatives to the traditional ones. The results confirm that trade openness and the broad-money-to-GDP ratio are the key determinants with a positive link to the level of reserves. On the other hand, financial development seems to lower the need for reserves.
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Sources of Asymmetric Shocks: The Exchange Rate or Other Culprits?
Skořepa, Michal ; Komárek, Luboš
We analyze and quantify the determinants of asymmetric shocks showing up in the form of medium-term real exchange rate (RER) changes. First, we discuss sources of asymmetric shocks causing exchange rate variability and the role of the RER as a shock generator. Second, we use data for 21 advanced and late-transition economies to gauge the extent to which medium-term bilateral real exchange rate variability can be explained by various fundamental factors. Using Bayesian model averaging, we find that out of 22 factors under consideration, four types of dissimilarities within a given pair of economies are likely to be included in the true model: dissimilarities as regards (i) financial development, (ii) per capita income growth, (iii) central bank independence, and (iv) the structure of the economy. A regression based on these four factors indicates that these factors explain about one third of the behavior of the three-year RER variability for the whole sample and almost half of the behavior of the three-year RER variability for the RERs involving specifically the euro. The remaining part of the total variability represents an estimate of the influence of the exchange rate market itself (together with the influence of fundamental price level or nominal exchange rate determinants not captured by the regressors used).
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Structural Reforms and Economic Growth: A Meta-Analysis
Babecký, Jan ; Havránek, Tomáš
This paper evaluates the impact of structural reforms, mainly liberalization and privatiza- tion, on economic growth. To provide stylized facts on how such reforms worked in the past, we quantitatively review 60 studies that estimate the relation between reforms and growth empirically. These studies examine structural reforms carried out in 26 transition and post-transition countries around the world. Our results show that a typical reform caused costs in the short run, but had strong positive effects on long-run growth. Reforms focused on external liberalization proved to be more beneficial than other types of reform in both the short and long run. The findings hold even after correction for publication bias and misspecifications present in some primary studies
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Changes in Inflation Dynamics under Inflation Targeting? Evidence from Central European Countries
Baxa, Jaromír ; Plašil, M. ; Vašíček, B.
The purpose of this paper is to provide a novel look at the evolution of inflation dynamics in selected Central European (CE) countries. We use the lens of the New Keynesian Phillips Curve (NKPC) nested within a time-varying framework. Exploiting a time-varying regression model with stochastic volatility estimated using Bayesian techniques, we analyze both the closed and open-economy version of the NKPC. The results point to significant differences between the inflation processes in three CE countries. While inflation persistence has almost disappeared in the Czech Republic, it remains rather high in Hungary and Poland. In addition, the volatility of inflation shocks decreased quickly a few years after the adoption of inflation targeting in the Czech Republic and Poland, whereas it remains quite stable in Hungary even after ten years’ experience of inflation targeting. Our results thus suggest that the degree of anchoring of inflation expectations varies across CE coutries.
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