Template-type: ReDIF-Paper 1.0 Author-Name: Andros Kourtellos Title: A Projection Pursuit Approach to Cross Country Growth Data Abstract: The empirical modeling of the cross-country differences in growth behavior is undoubtedly one of the most predominant research topics in applied macro-econometrics.  However, despite the vast research effort it seems that there are only a few firm conclusions on the sources of cross-country differences.  Unlike the bulk of the literature which focuses on linear parametric models this paper studies a semi-parametric way of modelling.  In particular, it employs projection pursuit regression (PPR) to model the mean regression function of the growth process by a sum of unknown ridge functions (functions of linear combinations of covariates).  PPR model was proposed by Friedman and Stuetzle (1981) to approximate high dimensional functions by simpler functions that operate in low dimensional spaces-typically one-dimensional.  My findings identify non-linear relationships among the basic Solow-type variables.  In particular, initial income and human capital affect growth in a very nonlinear way. Furthermore, there is evidence of interaction effects between human capital and initial income as well as between initial income and population growth rates.   The findings suggest the presence of two steady-state equilibria that classify countries into two groups with different convergence characteristics. Length: 26 pages Creation-Date: 2002-06 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0213.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0213 Template-type: ReDIF-Paper 1.0 Author-Name: Andros Kourtellos Title: Modeling Parameter Heterogeneity in Cross Country Growth Regression Models Keywords: Empirical Growth, Heterogeneity, Hierarchy of Time-Scales, Varying Parameters Abstract: Given the failure of the conventional linear Solow growth model to establish reliable results in the analysis cross-country growth performance, this paper proposes a new framework using the concept of hierarchy of time-scales.  By hierarchy of time scales, I mean that slower moving variables such as culture, play a major role in determining medium moving variables such as institutions, and which in turn play a major role in determining faster moving variables such as the conventional determinants of economics growth.  This approach provides a systematic way of thinking about the heterogeneity in the cross-country growth performance.  In the context of the Solow growth model the hierarchical approach suggests a local generalization of the Solow growth model in the form of a semiparametric varying parameter model along the lines of Hastie and Tibshirani (1992). Using the varying coefficient model, this paper studies two examples. In the first example the parameters of the model vary according to initial human capital while in the second they vary according to a measure of ethnic diversity.  The results suggest that there exists substantial parameter heterogeneity in the cross-country growth process. Length: 32 pages Creation-Date: 2002-10 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0212.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0212 Template-type: ReDIF-Paper 1.0 Author-Name: Thanasis Stengos Author-Name: Eleftherios Zaharias Title: Intertemporal Pricing and Price Discrimination: A Semiparametric Hedonic Analysis of the Personal Computer Market Abstract: We apply a smooth coefficient semiparametric model to a unique high frequency data set to examine the intertemporal pricing of personal computers.  Furthermore, we test (a) whether firms charge differential component prices for their top performance personal computers and (b) whether premium firms charge both a premium for all their computers and a premium for their top performance ones.  We find nonlinear effects in the pricing of personal components.  We also find that firms in general do not charge differential prices for the components of their top performance computers.  In addition, high quality firms charge higher premia only for their most advanced products Length: 33 pages Creation-Date: 2002-06 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0211.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0211 Template-type: ReDIF-Paper 1.0 Author-Name: Louis N. Christofides Author-Name: Man Tuen Leung Title: Nominal Wage Rigidity in Contract Data: A Parametric Approach Keywords: Low Wage Inflation, Nominal Rigidity, Menu-Costs Abstract: Using wage agreements reached in the Canadian unionized sector during 1976-99, a period of high as well as exceptionally low inflation, we consider how histograms of wage adjustment change as inflation reaches the low levels of the 1990s.  The histograms and parametric tests suggest that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero.  There is some evidence of modest menu-cost effects.  We examine whether the rigidity features of wage adjustment are sensitive to indexation provisions and investigate whether the distinction between short and long contracts is useful. Length: 45 pages Creation-Date: 2002-07 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0210.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0210 Template-type: ReDIF-Paper 1.0 Author-Name: Luigi Guiso Author-Name: Michael Haliassos Author-Name: Tullio Jappelli Title: Household Stockholding in Europe: Where Do We Stand and Where Do We Go? Abstract: We discuss the current state of stockownership among households in major European countries (France, Germany, Italy, the Netherlands, Sweden, and the UK), drawing parallels and contrasts with the US experience. We use detailed microeconomic datasets and explore the extent to which observed international differences in stockholding can be attributed to differences in household characteristics. Statistical analysis finds (1) an increase in stock market participation in all countries; (2) persistent differences across countries, with the US, the UK and Sweden having considerable more participation than France, Germany, Italy; (3) a robust correlation between the participation decision on the one hand, and wealth and education on the other; (4) a relatively small effect of education and wealth on the asset share invested in stocks, conditional on participation. Interestingly, international differences in stock market participation remain large even when we control for household characteristics. As our empirical results point to the relevance of participation costs, we probe into a number of indicators of such costs, and we find that these are consistent with the observed pattern of participation across countries. Since the lowering of such costs brings into the market households with different characteristics than incumbents, we discuss their likely impact, policy concerns, and types of policies that could mitigate their adverse impact on the future workings of the market. Length: 53 pages Creation-Date: 2002-10 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0209.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0209 Template-type: ReDIF-Paper 1.0 Author-Name: Carol C. Bertaut Author-Name: Michael Haliassos Title: Debt Revolvers for Self Control Keywords: credit cards, consumer debt, portfolio puzzles, household portfolios Abstract: By 1998, about two-thirds of U.S. households held a bank-type credit card. Despite high interest rates, most revolve credit card debt. The majority of debt revolvers have substantial liquid assets, apparently violating arbitrage. We propose an "accountant-shopper" model that could provide an explanation for this puzzle. In our model, the "accountant self" (or spouse) of the household can control the expenditures of the "shopper self" (or spouse) by limiting the purchases the shopper can make before encountering the credit limit. Since the card balance is used for control purposes, the accountant self may also find it optimal to save in lower-return riskless assets. Using attitudinal responses and demographic data from the pooled 1995 and 1998 Surveys of Consumer Finances, we estimate a bivariate probit model of the decisions to have a credit card and to revolve debt on it, allowing for sample selection. The pattern of estimated coefficients is consistent with debt revolvers being motivated primarily by self-control considerations rather than intertemporal consumption smoothing. Length: 44 pages Creation-Date: 2001-05 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0208.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0208 Template-type: ReDIF-Paper 1.0 Author-Name: Panos Pashardes Author-Name: Soteroula Hajispyrou Title: Consumer Demand and Welfare under Increasing Block Pricing Keywords: relative equivalence scales, price endogeneity, demand for water Abstract: This paper argues that an increasing block pricing structure needs to be supplemented by allowances for household size and composition to be equitable. Household behaviour is modelled as the outcome of a two-stage budgeting resulting in an integrable water demand model. The welfare effects of block pricing are studied using the concept of relative equivalence scale, modified to allow for the dependence of price on household size and composition. We use individual household data to estimate residential demand for water, provide empirical illustration of the welfare effects of increasing block pricing on demographically different households and show how these effects can be compensated. Length: 22 pages Creation-Date: 2002-05 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0207.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0207 Template-type: ReDIF-Paper 1.0 Author-Name: Michael Haliassos Title: Stockholding: Recent Lessons from Theory and Computations Abstract: Household-level portfolio data show a tendency of the majority of households in each country to hold no stocks despite a historical expected-return premium on equity relative to riskless assets. This paper first explains why such a tendency constitutes a puzzle in economic theory (the "stockholding puzzle"). It discusses why simple popular notions regarding the source of non-participation (risk aversion, risky labor income, and borrowing constraints) are not confirmed by careful analysis of portfolio models and presents recent conclusions on what causes non-participation. Based on this, it revisits the popular view on non-participation and shows how it can be qualified to be consistent with lessons from economic theory. It also explains how this view can be extended to account for exits from the stock market and for limited diversification. Then, the paper describes three unsolved empirical puzzles concerning the share of stocks in portfolios of households that do participate in the stock market. It points to basic underlying mechanisms producing these theoretical results and discusses briefly possible future directions for research that may help resolve the puzzles. Finally, the paper draws lessons for practitioners interested in expanding the stockholder base. Length: 38 pages Creation-Date: 2002-05 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0206.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0206 Template-type: ReDIF-Paper 1.0 Author-Name: Michael Haliassos Author-Name: Christis Hassapis Author-Name: Alex Karagrigoriou Author-Name: George Kyriacou Author-Name: George Syrichas Author-Name: Michalis C. Michael Title: Assets of Cyprus Households: Lessons from the first Cyprus Survey of Consumer Finances Abstract: This paper describes participation of Cyprus households in financial and real assets using new data from the 1999 Cyprus Survey of Consumer Finances, and compares Cyprus to the United States and four major European countries. Almost 9 out of 10 Cyprus households own some financial asset. After checking accounts, the most popular financial asset is government savings bonds. One in two households participated in stocks directly or indirectly in 1999, a year of stock market frenzy, reaching participation levels comparable only to the United States. Despite the absence of mutual funds, almost one third of households invest in managed portfolios linked to life insurance, and this exceeds direct stockholding even in 1999. Participation in direct stockholding is higher than in other countries, overall and for households below 50 years, and unusually high for the very young. Potential sources of concern include the limited number of stocks held by direct stockholders, and the presence of a significant contingent with limited background. Diversification across risk categories of financial assets is limited, but the majority of those holding few assets do not hold stocks directly. Those who do hold stocks directly are poorly diversified across different stocks. More than one in two households have some form of life insurance, but participation in individual retirement accounts is very low. Participation in risky assets, financial or real, far exceeds that in other countries. Yet, a strong contingent of households concentrates on risky real assets and abstains from risky financial assets, even during 1999. Rates of ownership of real assets are exceptionally high compared to the other countries. Homeownership rates far exceed those in the United States, and the majority of homeowners own their home fully. One quarter of Cyprus households own business equity, more than double the rate in the United States. Length: 46 pages Creation-Date: 2001-11 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0205.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0205 Template-type: ReDIF-Paper 1.0 Author-Name: Costas Hadjiyiannis Author-Name: Panos Hatzipanayotou Author-Name: Michael S. Michael Title: Optimal Tax Policies under Two-Stage Clean-Up, Cross-Border Pollution and Capital Mobility Keywords: Optimal Taxes, Two-stage Clean-Up. Cross-Border Pollution, Capital Mobility. Abstract: The literature has identified cross-border pollution, capital mobility and two-stage clean-up as the key features in the «trade Vs environment» debate, yet no study examines all three simultaneously. We build a two country trading block model with cross-border pollution and free movements of goods and capital between the two countries. Pollution reduces welfare and there is simultaneous private and public pollution abatement. Public pollution abatement is financed with the use of lump-sum and pollution tax revenue. We, also, examine how cross-border pollution and capital mobility affect each country’s optimal tax policies. Finally, we examine how the existence of capital mobility alters the effectiveness of pollution taxes on net pollution. Length: 34 pages Creation-Date: 2002-04 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0204.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0204 Template-type: ReDIF-Paper 1.0 Author-Name: Panos Hatzipanayotou Author-Name: Sajal Lahiri Author-Name: Michael  S. Michael Title: Reforms of Environmental Policies in the Presence of Cross-border Pollution and two Stage Clean Up Keywords: Cross-border pollution, Private pollution abatement, Public pollution abatement, multilateral policy reform. Abstract: We construct a two-country model where pollution from production is transmitted across borders. Pollution abatement is undertaken sequentially by private producers and the public sector. We characterize the Nash optimal levels of the policy instruments in the two countries: emission taxes and funds allocated for public abatement activities. We examine the implications of a number of multilateral policy reforms. One of our findings is that the magnitude of the beneficial effect of a reform depends on the scope of the reform, and if it is restricted to a subset of policy instruments, then the efficacy of environmental policy reform can be greatly undermined. Length: 31 pages Creation-Date: 2002-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0203.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0203 Template-type: ReDIF-Paper 1.0 Author-Name: Elena Andreou Author-Name: Eric Ghysels Title: Detecting Multiple Breaks in Financial Market Volatility Dynamics Keywords: change-point, break dates, ARCH, high-frequency data. Abstract: The paper evaluates the performance of several recently proposed tests for structural breaks in conditional variance dynamics of asset returns. The tests apply to the class of ARCH and SV type processes as well as data-driven volatility estimators using high-frequency data. In addition to testing for the presence of breaks, the statistics identify the number and location of multiple breaks. We study the size and power of the new test for detecting breaks in the second conditional variance under various realistic univariate heteroskedastic models, change-point hypotheses and sampling schemes. The paper concludes with an empirical analysis using data from the stock and FX markets for which we find multiple breaks associated with the Asian and Russian financial crises. These events resulted in changes in the dynamics of volatility of asset returns in the samples prior and post the breaks. Length: 40 pages Creation-Date: 2001-10 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0202.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0202 Template-type: ReDIF-Paper 1.0 Author-Name: Panayiota Lyssiotou Author-Name: Panos Pashardes Author-Name: Thanasis Stengos Title: Nesting Quadratic Logarithmic Demand Systems Keywords: quadratic Logarithmic demand systems, rank-3 demand systems, individual household data. Abstract: We propose a new generalised rank-3 demand system which nests all known (and new) rank-3 and rank-2 demand systems derived from the Quadratic Logarithmic (QL) cost function. We investigate its statistical adequacy against commonly en-countered alternatives using U.K. household data. Length: 13 pages Creation-Date: 2001-10 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0201.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:0201