Economics - Theses
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ItemDevelopment of Bayesian dynamic nonparametric models and inferences( 2023-06)Dynamic econometric models play an important role in the analysis of economics and finance. Motivated by this significance, this thesis presents novel Bayesian nonparametric models and inferences, offering fast and accurate approaches for analysing large data sets and gaining more insightful understanding in empirical studies. Chapter 2 proposes a new dynamic Bayesian nonparametric model designed to capture time varying distributions, with each distribution being a mixture of an infinite number of Normal distributions. Our model builds on the work of Gutierrez, Mena, and Ruggiero (2016) and Mena and Ruggiero (2016). We improve their algorithm by incorporating a break indicator and a hierarchical prior structure that govern the parameters of all components within the mixture. Using the Australian banking statistics from 1925 to 2019, we apply the model to estimate the time-varying bank size and growth distributions. Our results reveal that the skewness of the weighted bank growth distribution is procyclical to business and financial cycles. Furthermore, we find that different quantiles of the weighted bank growth distribution exhibit different correlations with financial cycles. Chapter 3 proposes two new inferences, a variational inference (VI) and a stochastic variational inference (SVI), which are employed to approximate the Bayesian dynamic nonparametric model with large data sets. We apply these new inferences to the dynamic Dirichlet process mixture (DDPM) model. The DDPM model has a dependence structure with a break indicator. The prior of this indicator is a slab-or-spike prior, which includes a degenerate distribution. The presence of this degenerate distribution and dependence structure causes difficulties when applying VI and SVI techniques because they assume exponential conjugacy and independence within the variational density family. To address these challenges, our paper proposes a novel VI and SVI algorithm that maintains the conditional conjugate prior and preserves the dependence structure. It reduces the computational cost of estimating the model with large data sets while maintaining reasonable precision. Using the data of US banking from 1954 to 2014, we apply the approach to approximate the model and find a significant reduction in estimation time. Chapter 4 proposes a new variational inference (VI) algorithm to estimate a large dimensional Markov switching model fast and accurately. Although the multivariate Markov switching model captures useful information, the Markov chain Monte Carlo algorithm's computational cost increases significantly with its dimension. My contributions are threefold. First, while taking substantially less time to compute, this method achieves comparable in-sample and out-of-sample results to its MCMC counterpart. Second, this inference allows for the inclusion of important restrictions to identify hidden states. Third, my novel VI forward filtering backward smoothing algorithm is comparable to the well-known algorithm in economic literature from Chib (1996). As a result, this new strategy is simple and accessible to implement. My paper presents several results derived from multiple simulations, illustrating the accuracy and timely benefit of the new technique. For example, identifying the bull and bear states, detecting regime switching, and providing forecasts for investment strategies. In addition, applications to three sets of stock returns that are listed in the S&P 500 and one set of industry portfolios provide similar insights.
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ItemOptimal risk sharing and dividend strategies under interacting external default risk( 2023-07)Most large insurance companies in the world are in the form of corporate groups with a collection of subsidiary corporations. Within the same group, the interconnectedness among the subsidiaries exerts substantial impacts on their reserve dynamics and actions. In this thesis, we explore studies related to the optimization problem of an insurance group with multiple subsidiaries subject to interacting external default risk. We first articulate the dynamics of the insurance group and present the mathematical formulation of our optimization problem. We formulate a recursive system of Hamilton-Jacobi-Bellman variational inequalities (HJBVIs) that solves the group's optimization problem of reinsurance and dividend payments. Our formulation proposes a novel approach to examine the dividend optimization problem on an insurance group subject to interacting default risk. We discuss the analytical approach to the optimization problem under a particular assumption and the semi-analytical method that integrates different numerical techniques in a more general setting. We also utilize the Markov chain approximation method (MCAM), and the hybrid deep learning method to demonstrate the semi-analytical approach. In a general setting, the explicit solution to the recursive system has not yet been found, and the semi-analytical method also provides an innovative approach to tackling the variational inequalities of similar structures. We compare two distinct types of interacting external default risk, the contagious one and the competitive one. We first examine an insurance group subject to contagious external default risk, where the surviving subsidiaries are confronted with greater default risk if a default event occurs within the group. Following the ideas outlined before, we are able to solve the recursive system of HJBVIs analytically. Next, we turn to a different setting, where the interacting external default risk is subject to the competitive effect. We also utilize the semi-analytical approach but integrate MCAM and the hybrid deep learning method. The proposed methods enable us to compare the optimal strategies and value functions under two different types of interacting default risk and explore the economic interpretations behind them.
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ItemEssays in education economics: Children with immigration backgrounds in Australia from preschool to adolescence( 2022)This thesis is a collection of three empirical studies that examine issues related to children with immigrant backgrounds in Australia along their life course from preschool to adolescence. The first study investigates how outdoor time use at age 4 may affect children’s school readiness. I find that outdoor time may negatively affect children’s performance in fields requiring fine motor skills but does not have significant impacts on children’s vocabulary or language skills. The second chapter investigates the spillover effects of culturally and linguistically diverse (CALD) students at grade 4, aged 9-10, in Australia, Canada and France. I find that the effect of an increase in the concentration of CALD students on non-CALD student’s reading score is positive in Australia and Canada but negative in France. This provides evidence of dissimilar effects across countries with different immigration policies. The results from this study also suggest that teachers may need to change their teaching approaches to adapt to a change in classroom diversity. The last chapter investigates how migrant children’s self-assessment of English skills at the age of 15 may affect their choice to specialise in STEM fields. I find that children with lower self-assessment of English skills choose more STEM subjects at high school levels and are more likely to complete a degree in a STEM major. In addition, while the English skill self-assessment, which is the self-assessment of their performance in English subjects compared to their peers, significantly influences migrant children’s decision to specialise in STEM fields, their actual reading scores do not affect this choice. This provides evidence that children’s perception of their comparative advantage in language is a determinant of their STEM specialisation rather than the actual advantage.
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ItemEssays in Political Economics( 2022)This thesis is a collection of three essays in political economics. In Chapter 2, entitled ``Kinship ties in politics and response to extreme weather shocks," I investigate if politicians with kinship ties respond differently to an extreme weather shock. I focus on typhoon shocks experienced in a province, the largest local government subdivision in the Philippines. I consider the kinship ties between the governor, who serves as its chief executive, and its national congressperson/s. I exploit plausibly exogenous variation in the timing of elections and typhoon severity. Using administrative data on typhoon casualties and georeferenced information on typhoons, I find that governors with kinship ties to a congressperson respond better to close-to-election typhoon shocks. When typhoon severity increases, casualties increase less rapidly in provinces where governors have kinship ties. I do not find evidence that governors with kinship ties perform better on other typhoon shocks. I explore possible mechanisms that explain the results. I find suggestive evidence that congresspersons and governors with kinship ties have greater political alignment: a congressperson with kinship ties to the governor is less likely to challenge the governor's reelection. The results provide an explanation of why voters in some democracies simultaneously elect politicians with kinship ties. In Chapter 3, entitled ``Kinship ties and female political participation: the case of Philippine mayors," I examine if female politicians with kinship ties are more likely to serve as placeholders. I utilize the transitory nature of term limits among local Philippine officials. I focus on Philippine mayors and their kinship ties to their predecessors. Using the universe of mayors that followed term-limited incumbents from 2004 to 2013, I find that female mayors are less likely to stand for reelection after one term than males. Further investigation reveals that the gender gap is primarily explained by the gap among mayors with kinship ties to their predecessors. I also find that the predecessors of female mayors with kinship ties are more likely to run for mayor after their gap term and win. The results are consistent with political clans disproportionately using their female members as placeholders. In addition, female incumbents with kinship ties are more likely to exit politics after one term than their male counterparts. This result suggests that the political participation of female kins In Chapter 4, entitled ``What's in a lobbyist? A case study of the lobbyists of the Canadian International Development Agency," I investigate if some lobbyists are more successful in contacting policymakers. I compare two lobbyist types: consultants hired by special interest groups on a contract basis, and in-house lobbyists who are part of the special interests' payroll. I focus on lobbying activities that targeted the Canadian International Development Agency (CIDA). I exploit the availability of monthly reports on the arranged and oral communications between the lobbyists and federal officials. Using the universe of lobby registrations that targeted CIDA from 2008 to 2014, I find that in-house lobbyists are more likely to contact federal and CIDA officials successfully. Further investigation reveals that in-house lobbyists are also more successful in contacting federal ministers and top politicians and bureaucrats in CIDA. I check if the results hold when using an instrumental variable approach based on the special interest client's previous use of consultant lobbyists. The results are robust to the use of an alternative empirical strategy. The results point to the important role moral hazard plays in the lobbying process.
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ItemMoment Condition Verification and Treatment Effects Estimation in the BETEL Framework( 2022)In this thesis, we expand upon the literature to develop new advancements to the BETEL method, and we demonstrate them in the context of well-studied empirical problems. The first two chapters address the issue of moment condition validity. In Chapter 1, we develop a moment condition verification procedure by expanding on the Chib et al. (2018) framework with a hierarchical spike-and-slab prior similar to that by Geweke (1996). This allows us to test joint and elaborate hypotheses based on moment conditions in the Bayesian framework, which is shown to exhibit ideal properties under simulation. Additionally, the contributions in this chapter allows for a broader application of BETEL in complex empirical problems, including in structural VAR analysis, as considered in the following chapter. In Chapter 2, we apply the methodology developed in Chapter 1 to macroeconomic structural VAR models, verifying multiple sources of identification presented as moment conditions for the fiscal policy model of Blanchard and Perotti (2002) and Mertens and Ravn (2014). Verifying and comparing different sources of identification sheds new light on the validity of different identification strategies proposed in the literature. In Chapter 3, we depart from moment condition validity and introduce a BETEL-based estimator for causal treatment effects in the presence of skewness due to an unobserved state variable. This is motivated by previous studies, e.g. by Oreopoulos (2006) and Devereux and Hart (2010), showing returns to schooling for females to be statistically insignificant under standard approaches. This is driven by standard instrumental variables analysis not considering the differences in the female and male earnings distributions. In particular, the considerable negative skew in the female earnings distribution can be attributed to much higher, but unobserved part-time status, which is not accounted for by standard IV methods. Individuals in the left tail of the earnings distribution tend to have a lower return to schooling than others, for example, due to part time work (Ermisch and Wright, 1993; Connolly and Gregory, 2008; Hirsch, 2005). We show that this skewness is informative to identifying the treatment effect in the proposed BETEL-IV framework for the “subpopulation” of females from the non-skewed part of the earnings distribution, or that with comparable skew to males. Extending the method of Liu et al. (2017) to the IV setting, we are able to exploit this skewness, yielding a positive and significant return to schooling for females. This method is robust when applied to the male population, yielding similar results to the current literature, and when compared to other existing methods. Additionally, extensive simulation studies illustrate the performance of the estimator in identifying treatment effects for the relevant subpopulation, down-weighting the contribution of individuals in the tail due to the unobserved state variable. The methodological contributions in this thesis exploit and demonstrate the flexibility of the BETEL method and show how the BETEL framework can be expanded to address different empirical problems. Furthermore, this thesis presents empirical contributions arising from the BETEL framework, moving beyond illustrative examples to answering important empirical questions currently addressed in the literature, showing how developments in the BETEL framework can shed new light on existing empirical problems.
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ItemOptimal portfolio choice and dividend strategies under contagious financial markets.( 2022)This thesis studies several optimal portfolio choice and dividend problems under conta- gious financial markets. Under different settings, we either obtain explicit formulas of value functions and optimal controls or we introduce iterative methods to solve the problems numerically, where proofs of convergence are derived rigorously. For portfolio choice problems, we first study the optimal strategies in asset allocation, consumption, and life insurance for a household with an exogenous stochastic income under a self-contagious market which is modelled by bivariate self-exciting Hawkes jump processes. For more general settings, we then study an optimisation problem of a household under a contagious financial market, which consists of a risk-free asset, multiple risky assets and a life insurance product. The clustering effect of the market is modelled by mutual-excitation Hawkes processes where the jump intensity of one risky asset depends on both the jump path of itself and jump paths of other risky assets in the market. For dividend problems, we study the optimal dividend strategy under singular control until bankruptcy where insurance claims are modelled by a self-exciting Hawkes process. When the bankruptcy rate is a constant, we can also obtain closed form formulas for the value function and the optimal dividend strategy. We also present numerical examples to discuss the the impact of key parameters on the optimal dividend strategy.
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ItemEssays in Political Economy of Development( 2022)This thesis is a collection of three essays that examine issues in economic development through the lens of political economy. The first chapter studies whether a strong centralized state facilitated the development of local institutions. I exploit plausibly exogenous variation in the state administrative capacity in the local area induced by regime changes in Imperial China from 1000 A.D. to 1900 A.D. By digitizing a novel prefecture-level panel dataset, I find that local institutions flourished when the state administrative capacity was strong and prevalent. This is likely because the state is more inclined to incentivize local institutions to grow where the state can monitor these local institutions. Further investigation reveals that local regions exposed to weaker state administrative capacity did not receive compensating investments in public goods from the central state. This illustrates an important development issue: places with weak centralized states lack public goods provision both from the state and local institutions. As a result, these regions might face more developmental difficulties. Chapter 2 focuses on household adaptation strategies and their associated costs during the 1996--2006 Maoist insurgency in Nepal. Using a unique longitudinal dataset, I find that after the onset of war, agricultural households that were exposed to high conflict intensity expanded their crop cultivation choices---from mainly cereals to cereals and non-cereals---in order to avoid the Maoist tax on cereals. A one standard deviation increase in conflict exposure induced the average household to expand its number of non-cereal crops from 4.36 to 6.01, a 37.84% increase, while continuing to cultivate the same number of cereal crops. This behavioural change exposed households to greater income risk because the value of non-cereal crops is much more volatile. A risk averse agricultural household would, as a consequence, suffer a 16.35% decline in welfare. Chapter 3 is a joint work with Eik Swee and Nattavudh Powdthavee. We examine whether and to what extent civilian perception of individual economic well-being, possibly influenced by hearts-and-minds tactics that are employed by insurgents, predicts war and peace onset. Using unique micro data bracketing the onset of the Nepalese Civil War, we find that perceived income inadequacy is associated with earlier war onset during periods of rebel recruitment, and with later peace onset in general. These results are mainly driven by the effect of perceived deprivation among marginalized communities on rebel-initiated violence, and hold regardless of whether we account for actual economic circumstance. Our results suggest that civilian perception of economic well-being ought to be considered seriously as a determinant of war and peace.
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ItemOptimal Investment and Reinsurance Problems under Mean-Variance and Game Framework( 2021)his thesis studies several optimal investment problems in a dynamic environment from different perspectives. Under different settings, we derive explicit expressions of the optimal functions and the corresponding objective strategies. Firstly, we consider a continuous-time mean-variance portfolio selection problem based on a log-return model. The aim is to find the optimal investment proportion that achieves a trade-off between the mean and variance of return. The optimal allocation is dependent on the wealth level. Asset-liability management is also an interesting topic in the field of finance. In the third chapter, we formulate a mean-variance with the consideration of a liability process. Liability is a natural control variable and we use debt ratio to control the liability. After applying forward backward stochastic differential equations (FBSDEs), we obtain closed-form solutions of the optimal investment strategies and the corresponding efficient frontiers, respectively. Since the financial market is full of uncertainty and the insurance industry consists of a variety of institutions, the insurer should consider the strategic interaction when determining strategies. We implement the game theory in a reinsurance-investment problem to reflect the cooperation and competition among insurers. We focus on the time-consistent non-zero-sum reinsurance-investment stochastic differential game problem between two insurers under mean-variance criteria with state-dependent risk aversions. Plugging a series of FBSDEs, we derive the optimal reinsurance proportion and investment policies. In addition, dividend payment strategy is also an important issue in financial and actuarial studies. In the forth chapter, we investigate a class of non-zero-sum stochastic differential game problems between two insurance companies with dividend. Both companies have the option of paying dividends. The optimization of the dividend payment in models is described as a singular stochastic control. Applying the theory of the stopping game into the study of singular control problem, we can connect the singular control problem to a stopping game. Adopting this connection, we derive the optimal dividend payment policies for two insurance companies. Finally, based on the study findings, some conclusions and studies of further research are made.
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ItemHeterogeneity and Asymmetry in the Marginal Propensity to Consume( 2021)Building on the 'partial insurance' framework of Blundell, Pistaferri and Preston (2008), I estimate households' marginal propensity to consume (MPC) out of transitory and permanent income shocks using data from the US Panel Study of Income Dynamics over 1999-2019. Following Chatterjee, Morley and Singh (2021), I use the state space representation of the model but estimate it with Bayesian methods, which provide a natural setting for estimating high dimensional models with unobserved components. I extend the model in different directions by allowing for: i) asymmetry in MPCs with respect to the sign of transitory income shocks; ii) observable and unobservable heterogeneity in MPCs; iii) robust aggregation of population statistics; and iv) selection of the main drivers of MPC variation from a rich set of covariates. The results challenge some conventional understanding of consumption smoothing behaviour. I find clear evidence of positive asymmetry - larger responses to positive transitory income shocks - for households with substantial home equity. This contrasts the existing survey evidence on 'reported preferences' and is suggestive of a behavioural interpretation. However, evidence of negative asymmetry for so called 'poor hand-to-mouth' households (who have low liquidity and low wealth) is consistent with the Kaplan-Violante two-asset model. Households with heads aged 55-64 are found to exhibit negative asymmetry, irrespective of their financial position, which is interpreted as a savings preference before retirement. Under the assumption of symmetry, I look for evidence of variation in MPCs that would accord with theoretical predictions. Distributions of MPCs along balance sheet positions show some evidence of financial frictions, but demographic characteristics account for most of the variation in MPCs. I estimate unobserved MPC heterogeneity and find that it is large for transitory MPCs, but that observed variation explains much of the heterogeneity for permanent shocks. Population-representative dollar-for-dollar MPCs for the US are carefully aggregated from microdata elasticities using an extended dataset that includes retired households. Households increase permanent nondurables consumption by 7 cents per dollar for transitory income shocks, and 38 cents for permanent shocks. Using a rich set of demographic and financial covariates, Bayesian shrinkage and sparsification techniques are applied to identify the key drivers of MPC heterogeneity. Households with heads who are black, female, or born in the 1980s have larger responses to permanent income shocks, while those with four or more years of college have lower responses. These four covariates drive the overwhelming majority of heterogeneity in MPCs out of permanent income shocks. The pattern of results is consistent with financial literacy being an underlying mechanism; however, incorporating a proxy for financial literacy does not remove the demographic effects. This thesis provides a nuanced view of how different households respond to income shocks, which can help guide better targeted policy interventions. The findings are consistent with some aspects of the life-cycle literature; however, they also challenge the conventional assumption of symmetry and focus on financial drivers of MPCs. Further research into behavioural factors that affect consumption smoothing and demographic differences across the life cycle is warranted.
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ItemEssays in Political Economy and Institutional Reform( 2021)This thesis examines the political economy of institutional reforms and contains three essays that empirically evaluate the efficacy of related policy instruments in extractive land institutional settings. The first chapter, entitled Land Reforms and the Long-Run Development Effects of the Colonial Landlord Institution in India, uses a regression discontinuity design to examine whether abolishing coercive and extractive colonial institutions, and re-appropriating assets to the historically coerced, eliminates persistence of poor developments outcomes. In 1950-1970s Madhya Pradesh (India), socialist land reforms sought to do this by redistributing landownership to the landless peasants of the British colonial landlord institution. Using a regression discontinuity design across a former colonial boundary, I find despite reforms efforts that former colonial landlord villages are significantly poorer to nearby villages exposed to the native land tenures of native-ruled India (regions not directly colonised by the British). Further, by using the comparison colonial villages that were exposed to colonial extraction at comparably similar agricultural tax rates, but where the coercive feudal labour arrangements were not employed, I find that the long-run effects of the colonial landlord institution are driven by colonial use of coercive feudal arrangements that denied property rights, over and above the negative development effects I find from exposure to colonial extraction. In the second chapter, entitled Colonial Landlord Institution in India: Channels for Inhibiting Land Reforms, I examine intermediate and long-run channels through which the colonial landlord institution is able to have persistent effects, despite reforms in 1950-1970s Madhya Pradesh that sought to abolish it. Using a regression discontinuity design across a former colonial boundary, I find that former colonial landlord villages have a greater share of landless class of labourers today compared to nearby native land tenure villages. This provides suggestive evidence of the re-emergence of its historical class structures that mirror its coercive feudal arrangements as a plausible channel through which this institution exerts long-run effects. Further, using newly digitised archival and decadal village employment records from 1961 onwards, I assess the intermediate trajectories through which these class structures re-emerged: I find evidence that suggests that, although land redistribution reforms were initially successful in homogenising differences between feudal landowners and landless labourer classes directly after these were passed in 1981, the distinct class structures of the colonial landlord institution re-emerged in the long-run by 2001. Further, where previous studies document poorer provision of infrastructure and public goods as important mechanisms for long-run colonial development effects, I find little evidence of this at the village level. These results suggest that reforms can be inhibited by re-emergence in class structures and these can plausibly affect long-run development. In the third chapter, entitled Evaluating Conflict Mineral Bans: Evidence from Congo (DRC), I examine conflict mineral bans as a policy instrument for deterring conflict actors from competing for control of mineral-rich regions. The sale of resources has and continues to fund conflict, frustrating opportunities for development in the poorest parts of our world. In theory, market-based trade policy instruments can prevent legal market trades, where these policies can deter the viability of sustaining armed conflicts and support other peace-building measures in institutional reforms and economic development. In practice however, such policy tools can increase illegal market activity, with mixed results in reducing conflict. In this study, I assess Section 1502 of the Dodd-Frank Act, a multi-good ban on multiple conflict minerals from Congo (DRC). I use the ban on different types of conflict minerals, each with different commodity and market characteristics that either enables or deters its transition to illegal market trade, to understand how conflict outcomes vary by each resource type. Using a heterogenous difference-in-difference empirical framework, I exploit temporal variation in the passage of Section 1502 and spatial variation in different mineral deposits, to identify local variation in conflict. I find the ban significantly reduces conflict when the mineral was difficult to conceal in illegal market trade and did not generate a positive price shock from the ban. In all other cases, results suggest that the ban led to an increase in conflict outcomes. This study cautions policymakers to account for commodity and market characteristics, and its potential to transition into illegal trade, in the design of mineral resource bans.