Checking for model consistency in optimal fingerprinting: a comment

Allen and Tett (1999, herein AT99) introduced a Generalized Least Squares (GLS) regression methodology for decomposing patterns of climate change for attribution purposes and proposed the “Residual Consistency Test” (RCT) to check the GLS specification. Their methodology has been widely used and highly influential ever since, in part because subsequent authors have relied upon their claim that their GLS model satisfies the conditions of the Gauss-Markov (GM) Theorem, thereby yielding unbiased and efficient estimators. But AT99 stated the GM Theorem incorrectly, omitting a critical condition altogether, their GLS method cannot satisfy the GM conditions, and their variance estimator is inconsistent by construction. Additionally, they did not formally state the null hypothesis of the RCT nor identify which of the GM conditions it tests, nor did they prove its distribution and critical values, rendering it uninformative as a specification test. The continuing influence of AT99 two decades later means these issues should be corrected. I identify 6 conditions needing to be shown for the AT99 method to be valid.

Near Identification of Policy Trade-Offs Using Preference Proxies to Elicit Hidden Information in the Linear Case

This paper shows that neither OLS nor 2SLS can generically identify policy trade offs in the linear case, except under extreme assumptions. Practitioners must be content with near identification and the paper discusses how to choose between these two methods. It shows that a two-stage approach using preference proxies to elicit hidden information can potentially narrow the identification gap and that a simple specification test can be used to assess whether these proxies really contribute to improving identification.

The Effect of Information Communication Technology (ICT) Infrastructure availability on FDI inflow in D8 Countries

This This paper analyzes the effect of ICT infrastructure availability on FDI inflow in D8countries (Bangladesh, Indonesia, Iran, Egypt, Nigeria, Malaysia, Pakistan and Turkey). Panel data for the period 1997-2018 has been used and the analysis has been done using the fix effect model suggested by Hausman specification test. The result shows positive and significant effect between ICT infrastructure and FDI inflows, along with other controlling variables like market size, trade openness, in case of macroeconomic variable that is exchange rate it has negative but significant effect on FDI inflows.

Synthetic controls with imperfect pretreatment fit

We analyze the properties of the Synthetic Control (SC) and related estimators when the pre‐treatment fit is imperfect. In this framework, we show that these estimators are generally biased if treatment assignment is correlated with unobserved confounders, even when the number of pre‐treatment periods goes to infinity. Still, we show that a demeaned version of the SC method can improve in terms of bias and variance relative to the difference‐in‐difference estimator. We also derive a specification test for the demeaned SC estimator in this setting with imperfect pre‐treatment fit. Given our theoretical results, we provide practical guidance for applied researchers on how to justify the use of such estimators in empirical applications.

Nexus Between Bank’s Profitability, Internal and Economic Indicators

Many factors affect the bank’s profitability. Internal factors include total asset (TA), and market share loan (MSL) are an important one to consider while external factors include gross domestic product (GDP), corporate income tax (CIT), corruption perception index (CPI), and political instability (PI) are critical. We measured the bank’s profitability through profit before tax on asset (PBTA) and return on asset (ROA) and finds its connection with banks’ internal and external factors. Our empirical estimates based upon 15 commercial banks’ data listed on Pakistan stock exchange (PSE) from 2007-16 show that total asset (TA) and corruption perception index (CPI) is the important one to determine the bank’s profitability. These results have been further justified under the fixed effect regression model which was found appropriate under the Hausman specification test. It is concluded that total assets (TA) and corruption perception index (CPI) does affect the bank’s profitability internally as well as externally.

Inflation, Government Expenditure, and Economic Growth in Indonesia

This study estimates long run and short run association between inflation, government expenditure, and economic growth in Indonesia from 1981 to 2018. This study run diagnostic and specification test on time-series datasets in the model. This study employs Engel-Granger Cointegration Test and Error Correction Model (ECM) to estimate the long run and short run association in the model. This study further disaggregates government expenditure data in Indonesia into routine and development expenditure to analyse the individual and combined effect of the variable in the model. Result of the study suggested that the association between inflation and economic growth is negative, while the association between government expenditure and economic growth is positive. Moreover, routine expenditure has insignificant effect. Finally, ECM concluded that short-term adjustment in the model is less than one percent and specifically stable in all regression models. Keywords: Inflation, Government Expenditure, Economic Growth, ECM.