1.3 Don Harding and Adrian Pagan, 2009

SELECTED READINGS

Focus on: Adrian Rodney Pagan

February 2010

Selected Readings –February 2010 1

INDEX

INTRODUCTION...... 8

1 WORKING PAPERS AND ARTICLES ...... 10

1.1 Martin Fukac and Adrian Pagan, 2009. "Structural Macro-Econometric Modelling in a Policy Environment," NCER Working Paper Series 50, National Centre for Econometric Research...... 10

1.2 Tim M Christensen, Stan Hurn and Adrian Pagan, 2009. "Detecting Common Dynamics in Transitory Components," NCER Working Paper Series 49, National Centre for Econometric Research...... 10

1.3 Don Harding and Adrian Pagan, 2009. "An Econometric Analysis of Some Models for Constructed Binary Time Series," NCER Working Paper Series 39, National Centre for Econometric Research, revised 02 Jul 2009...... 11

1.4 Martin Fukac and Adrian Pagan, 2008. "Limited Information Estimation and Evaluation of DSGE Models," Reserve Bank of New Zealand Discussion Paper Series DP2008/11, Reserve Bank of New Zealand...... 11

1.5 Philippe D Karam and Adrian Pagan, 2008. "A Small Structural Monetary Policy Model for Small Open Economies with Debt Accumulation," IMF Working Papers 08/64, International Monetary Fund...... 12

1.6 Adrian R. Pagan and M. Hashem Pesaran, 2008. "Econometric Analysis of Structural Systems with Permanent and Transitory Shocks," Discussion Papers 2008-04, School of Economics, The University of New South Wales...... 12

1.7 Mardi Dungey and Adrian Pagan, 2008. "Extending an SVAR Model of the Australian Economy," NCER Working Paper Series 21, National Centre for Econometric Research...... 13

1.8 R. Pagan, Luis Catão and Douglas Laxton, 2008. "Monetary Transmission in an Emerging Targeter: The Case of Brazil," IMF Working Papers 08/191, International Monetary Fund...... 13

1.9 Adrian Pagan and Hashem Pesaran, 2007. "Econometric Analysis of Structural Systems with Permanent and Transitory Shocks. Working paper #7," NCER Working Paper Series 7, National Centre for Econometric Research...... 14

1.10 Renee Fry and Adrian Pagan, 2007. "Some Issues in Using Sign Restrictions for Identifying Structural VARs," NCER Working Paper Series 14, National Centre for Econometric Research...... 14

1.11 Adrian Pagan, 2007. "Weak Instruments: A Guide to the Literature," NCER Working Paper Series 13, National Centre for Econometric Research...... 15

1.12 Pagan, A. and Pesaran, M.H., 2007. "On Econometric Analysis of Structural Systems with Permanent and Transitory Shocks and Exogenous Variables," Cambridge Working Papers in Economics 0704, Faculty of Economics, University of Cambridge...... 15

1.13 Don Harding and Adrian Pagan, 2006. "Measurement of Business Cycles," Department of Economics - Working Papers Series 966, The University of Melbourne...... 16

1.14 Adrian Pagan, 2006. "Inventories, Fluctuations and Business Cycles. Working paper #4," NCER Working Paper Series 4, National Centre for Econometric Research...... 16

Selected Readings –February 2010 2

1.15 Adrian pagan and Don Harding, 2006. "The Econometric Analysis of Constructed Binary Time Series. Working paper #1," NCER Working Paper Series 1, National Centre for Econometric Research...... 17

1.16 Adrian Pagan, 2005. "Some Econometric Analysis of Constructed Binary Time Series," CAMA Working Papers 2005-07, Australian National University, Centre for Applied Macroeconomic Analysis...... 17

1.17 Renee Fry and Adrian Pagan, 2005. "Some Issues In Using Vars For Macroeconometric Research," CAMA Working Papers 2005-19, Australian National University, Centre for Applied Macroeconomic Analysis...... 17

1.18 Alasdair Scott, George Kapetanios and Adrian Pagan, 2005. "Making a match: combining theory and evidence in policy-oriented macroeconomic modelling"...... 18

1.19 Adrian Pagan, J. Engel and D. Haugh, 2004. "Some Methods for Assessing the Need for Non-linear Models in Business Cycle Analysis and Forecasting," Econometric Society 2004 Australasian Meetings 284, Econometric Society...... 18

1.20 Harding, Don and Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany...... 19

1.21 Don Harding and Adrian Pagan, 2000. "Dissecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society...... 19

1.22 Don Harding and Adrian Pagan, 1999. "Knowing the Cycle," Melbourne Institute Working Paper Series wp1999n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne...... 20

1.23 Adrian Pagan, 1999. "The Getting of Macroeconomic Wisdom," CEPR Discussion Papers 412, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University...... 21

1.24 David Gruen, Adrian Pagan and Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia...... 22

1.25 Hylleberg, S. and Pagan, A. R., 1997. "Seasonal integration and the evolving seasonal model," International Journal of Forecasting, Elsevier, vol. 13(3), pages 329-340, September. ...22

1.26 Adrian R. Pagan and John C. Robertson, 1995. "Resolving the liquidity effect," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 33-54...... 23

1.27 Adrian R. Pagan and G. William Schwert, 1990. "Alternative Models For Conditional Stock Volatility," NBER Working Papers 2955, National Bureau of Economic Research, Inc. ...23

1.28 Adrian Pagan, 1985. "Two Stage and Related Estimators and Their Applications," Cowles Foundation Discussion Papers 741, Cowles Foundation, Yale University...... 24

1.29 McAleer, Michael and Pagan, Adrian, 1985. "What Will Take the Con Out of Econometrics?," CEPR Discussion Papers 39, C.E.P.R. Discussion Papers...... 24

1.30 Adrian Pagan, 2008. "Phillips curve inflation forecasts - comments," Conference Series; Federal Reserve Bank of Boston...... 25

1.31 Kapetanios, G. and Pagan, A. and Scott, A., 2007. "Making a match: Combining theory and evidence in policy-oriented macroeconomic modeling," Journal of Econometrics, Elsevier, vol. 136(2), pages 565-594, February...... 25

Selected Readings –February 2010 3

1.32 Martin Fukac and Adrian R. Pagan, 2007. "Commentary on "An estimated DSGE model for the United Kingdom"," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 233-240. 25

1.33 Harding, Don and Pagan, Adrian, 2006. "Synchronization of cycles," Journal of Econometrics, Elsevier, vol. 132(1), pages 59-79, May...... 26

1.34 Adrian Pagan and Don Harding, 2005. "A suggested framework for classifying the modes of cycle research," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 20(2), pages 151-159...... 26

1.35 Engel, J. and Haugh, D. and Pagan, A., 2005. "Some methods for assessing the need for non-linear models in business cycle analysis," International Journal of Forecasting, Elsevier, vol. 21(4), pages 651-662...... 27

1.36 Jonathan Ohn and Larry W. Taylor and Adrian Pagan, 2004. "Testing for duration dependence in economic cycles," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 528-549, December...... 27

1.37 Harding, Don and Pagan, Adrian, 2003. "Rejoinder to James Hamilton," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1695-1698, July...... 28

1.38 Robert Breunig and Serinah Najarian and Adrian Pagan, 2003. "Specification Testing of Markov Switching Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 703-725, December...... 28

1.39 Adrian R. Pagan and Kirill A. Sossounov, 2003. "A simple framework for analysing bull and bear markets," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 18(1), pages 23-46...... 28

1.40 Harding, Don and Pagan, Adrian, 2003. "A comparison of two business cycle dating methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1681-1690, July. 29

1.41 Adrian Pagan and discussant, 2002. "What is a good macroeconomic model for a central bank to use? Panel discussion," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. 29

1.42 Adrian Pagan, 2002. "Learning About Models And Their Fit To Data," International Economic Journal, Korean International Economic Association, vol. 16(2), pages 1-18, June.....30

1.43 Adrian R. Pagan, Michael R. Veall, 2000. "Data mining and the econometrics industry: comments on the papers of Mayer and of Hoover and Perez," Journal of Economic Methodology, Taylor and Francis Journals, vol. 7(2), pages 211-216, June...... 30

1.44 Mardi Dungey and Vance L Martin and Adrian R Pagan, 2000. "A multivariate latent factor decomposition of international bond yield spreads," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 15(6), pages 697-715...... 31

1.45 McKibbin, Warwick J. and Pagan, Adrian R. and Robertson, John C., 1998. "Some experiments in constructing a hybrid model for macroeconomic analysis," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 113-142, December...... 31

1.46 Levtchenkova, S and Pagan, A R and Robertson, J C, 1998. “Shocking Stories," Journal of Economic Surveys, Blackwell Publishing, vol. 12(5), pages 507-32, December...... 32

1.47 Adrian Pagan, 1997. "Towards an Understanding of Some Business Cycle Characteristics," Australian Economic Review, the University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(1), pages 1-15...... 33

Selected Readings –February 2010 4

1.48 Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May...... 33

1.49 Pagan, Adrian, 1994. "Calibration and Econometric Research: An Overview: Introduction," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 9(S), pages S1- 10, Suppl. De...... 34

1.50 Pagan, Adrian R. and Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290...... 34

1.51 Pagan, Adrian R. and Schwert, G. William, 1990. "Testing for covariance stationarity in stock market data," Economics Letters, Elsevier, vol. 33(2), pages 165-170, June...... 34

1.52 Pagan, Adrian R and Wickens, M R, 1989. "A Survey of Some Recent Econometric Methods," Economic Journal, Royal Economic Society, vol. 99(398), pages 962-1025, December. 35

1.53 Pagan, Adrian, 1989. "On the role of simulation in the statistical evaluation of econometric models," Journal of Econometrics, Elsevier, vol. 40(1), pages 125-139, January. ....35

1.54 Pagan, Adrian and Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 4(S), pages S29-59, Supplement...... 36

1.55 Pagan, Adrian, 1988. "Comment on Poirier: Dogma or Doubt?," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 153-58, Winter...... 36

1.56 Pagan, Adrian, 1988. "A note on the magnitude of risk premia," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 109-110, March...... 37

1.57 Pagan, Adrian and Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 3(2), pages 87-105, April. 37

1.58 McAleer, Michael and Pagan, Adrian and Visco, Ignazio, 1986. "A further result on the sign of restricted least-squares estimates," Journal of Econometrics, Elsevier, vol. 32(2), pages 287-290, July...... 37

1.59 Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February...... 38

1.60 Pagan, A. R. and Nicholls, D. F., 1984. "Estimating predictions, prediction errors and their standard deviations using constructed variables," Journal of Econometrics, Elsevier, vol. 24(3), pages 293-310, March...... 38

1.61 A. R. Pagan and A. D. Hall, 1983. "Diagnostic tests as residual analysis," Econometric Reviews, Taylor and Francis Journals, vol. 2(2), pages 159-218...... 38

1.62 A. R. Pagan and A. D. Hall, 1983. "Reply," Econometric Reviews, Taylor and Francis Journals, vol. 2(2), pages 249-254...... 39

1.63 Pagan, A R and Hall, A D and Trivedi, P K, 1983. "Assessing the Variability of Inflation," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 585-96, October. 39

1.64 Nicholls, D F and Pagan, A R, 1983. "Heteroscedasticity in Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 51(4), pages 1233-42, July...... 40

Selected Readings –February 2010 5

1.65 Hall, Anthony David and Pagan, Adrian Rodney, 1981. "The LIML and Related Estimators of an Equation with Moving Average Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 719-30, October...... 40

1.66 Pagan, Adrian R and Volker, Paul A, 1981. "The Short-run Demand for Transactions Balances in Australia," Economica, London School of Economics and Political Science, vol. 48(192), pages 381-95, November...... 40

1.67 Breusch, T S and Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 239-53, January...... 41

1.68 Pagan, Adrian, 1980. "Some identification and estimation results for regression models with stochastically varying coefficients," Journal of Econometrics, Elsevier, vol. 13(3), pages 341- 363, August...... 41

1.69 Pagan, Adrian, 1979. "Some consequences of viewing LIML as an iterated Aitken estimator," Economics Letters, Elsevier, vol. 3(4), pages 369-372...... 41

1.70 Breusch, T S and Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September...... 42

1.71 Pagan, Adrian, 1978. "Rational and polynomial lags: The finite connection," Journal of Econometrics, Elsevier, vol. 8(2), pages 247-254, October...... 42

1.72 Nicholls, D F and Pagan, A R, 1977. "Specification of the Disturbance for Efficient Estimation-An Extended Analysis," Econometrica, Econometric Society, vol. 45(1), pages 211-17, January...... 43

1.73 Pagan, A R and Nicholls, D F, 1976. "Exact Maximum Likelihood Estimation of Regression Models with Finite Order Moving Average Errors," Review of Economic Studies, Blackwell Publishing, vol. 43(3), pages 383-87, October...... 43

1.74 Pagan, Adrian R, 1975. "Optimal Control of Econometric Models with Autocorrelated Disturbance Terms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 258-63, February...... 43

1.75 Pagan, Adrian R, 1975. "A Note on the Extraction of Components from Time Series," Econometrica, Econometric Society, vol. 43(1), pages 163-68, January...... 43

1.76 Nicholls, D F and Pagan, Adrian R and Terrell, R D, 1975. "The Estimation and Use of Models with Moving Average Disturbance Terms: A Survey," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 113-34, February...... 44

1.77 Pagan, Adrian, 1973. "Efficient estimation of models with composite disturbance terms," Journal of Econometrics, Elsevier, vol. 1(4), pages 329-340, December...... 44

1.78 Pagan, Adrian, 1973. "Econometric studies of macro and monetary relations: A.A. Powell and R.A. Williams (eds.), (North-Holland Publ. Co., Amsterdam, 1973) viii+358 pp. ($18.75)," Journal of Econometrics, Elsevier, vol. 1(4), pages 402-403, December...... 44

2 CHAPTERS...... 45

Selected Readings –February 2010 6

2.1 Adrian Pagan and Vince FitzGerald, 1995. "Final Discussion," RBA Annual Conference Volume, in: Palle Andersen and Jacqueline Dwyer and David Gruen (ed.), Productivity and Growth Reserve Bank of Australia...... 45

2.2 Adrian Pagan, 1993. "A Perspective," RBA Annual Conference Volume, in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia...... 45

2.3 Hendry, David F. and Pagan, Adrian R. and Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics, in: Z. Griliches and M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier...... 45

3 BOOKS ...... 46

3.1 Preston, A. J. and Pagan, A. R., 2008. "The Theory of Economic Policy," Cambridge Books, Cambridge University Press, number 9780521070225...... 46

3.2 Pagan, Adrian and Ullah, Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521586115...... 46

Selected Readings –February 2010 7

INTRODUCTION

Adrian Rodney Pagan is Professor of Economics in the School of Economics and Finance, Queensland University of Technology and Professor of Economics in the School of Economics, University of New South Wales.

Adrian Pagan is also a Senior Research Fellow at Nuffield College, Oxford University.

He has published over 120 papers and books in the area of theoretical and applied econometrics. His interests are in macro-econometric modeling and their uses in policy analysis and for the explanation of business cycles.

Professor Pagan is a Fellow of the Academy of Social Sciences, the Econometric Society and the Journal of Econometrics; a Medalist Fellow of the Modeling and Simulation Society of Australia and New Zealand; a Distinguished Author of the Journal of Applied Econometrics and has been awarded the Distinguished Fellow Medal of the Economic Society of Australia and the Centenary Medal.

He has held visiting and permanent appointments at a number of universities around the world including the University of Oxford, the University of Rochester, Princeton University, Yale University, Johns Hopkins University, the University of California at Los Angeles and the University of New South Wales.

During 1995-2000 Adrian Pagan was a member of the Board of Directors of the Reserve Bank of Australia. He has given many invited lectures including the Walras- Bowley lecture of the Econometric Society and has consulted with a number of central banks about the design of macro-econometric models for monetary policy, including the Bank of England, the European Central Bank and the Norges Bank.

The following list is a non-exhaustive, subjective selection of Adrian Pagan’s publications.

Selected Readings –February 2010 8

More information can be found at:

• The address of Adrian Pagan’s homepage at:

http://www.economics.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.Logged OutInheritableAreaandmaxWnd=_Staff_AdrianPagan_

Contact point: GianLuigi Mazzi, "Responsible for Euro-indicators and statistical methodology", Estat - D5 "Key Indicators for European Policies" [email protected].

Selected Readings –February 2010 9

1 WORKING PAPERS AND ARTICLES

1.1 Martin Fukac and Adrian Pagan, 2009. "Structural Macro-Econometric Modelling in a Policy Environment," NCER Working Paper Series 50, National Centre for Econometric Research.

The paper looks at the development of macroeconometric models over the past sixty years, in particular those that have been used for analysing policy options. We argue that there have been four generations of these. Each generation has evolved new features that have been partly drawn from the developing academic literature and partly from the perceived weaknesses in the previous generation. Overall the evolution has been governed by a desire to answer a set of basic questions and sometimes by what can be achieved using new computational methods. Our account of each generation considers their design, the way in which parameters were quantified and how they were evaluated.

Full text available on-line at:

http://www.ncer.edu.au/papers/documents/WPNo50.pdf

1.2 Tim M Christensen, Stan Hurn and Adrian Pagan, 2009. "Detecting Common Dynamics in Transitory Components," NCER Working Paper Series 49, National Centre for Econometric Research.

This paper considers VAR/VECM models for variables exhibiting cointegration and common features in the transitory components. While the presence of cointegration reduces the rank of the long-run multiplier matrix, other types of common features lead to rank reduction in the short-run dynamics. These common transitory components arise when linear combination of the first differenced variables in a cointegrated VAR is white noise. This paper offers a reinterpretation of the traditional approach to testing for common feature dynamics, namely checking for a singular covariance matrix for the transitory components. Instead, the matrix of short-run coefficients becomes the focus of the testing procedure thus allowing a wide range of

Selected Readings –February 2010 10

tests for reduced rank in parameter matrices to be potentially relevant tests of common transitory components. The performance of the different methods is illustrated in a Monte Carlo analysis which is then used to reexamine an existing empirical study. Finally, this approach is applied to analyze whether one would observe common dynamics in standard DSGE models.

Full text available on-line at: http://www.ncer.edu.au/papers/documents/WPNo49.pdf

Macroeconometric and financial researchers often use binary data constructed in a way that creates serial dependence. We show that this dependence can be allowed for if the binary states are treated as Markov processes. In addition, the methods of construction ensure that certain sequences are never observed in the constructed data. Together these features make it difficult to utilize static and dynamic Probit models. We develop modelling methods that respects the Markov process nature of constructed binary data and explicitly deals with censoring constraints. An application is provided that investigates the relation between the business cycle and the yield spread.

Full text available on-line at: http://www.ncer.edu.au/papers/documents/WPNo39b.pdf

1.4 Martin Fukac and Adrian Pagan, 2008. "Limited Information Estimation and Evaluation of DSGE Models," Reserve Bank of New Zealand Discussion Paper Series DP2008/11, Reserve Bank of New Zealand.

We advance the proposition that dynamic stochastic general equilibrium (DSGE) models should not only be estimated and evaluated with full information methods. These require that the complete system of equations be specified properly. Some limited information analysis, which focuses upon specific equations, is therefore likely to be a useful complement to full system analysis. Two major problems occur

Selected Readings –February 2010 11

when implementing limited information methods. These are the presence of forward- looking expectations in the system as well as unobservable non-stationary variables. We present methods for dealing with both of these difficulties, and illustrate the interaction between full and limited information methods using a well known model.

Full text available on-line at:

http://www.rbnz.govt.nz/research/discusspapers/dp08_11.pdf

1.5 Philippe Karam and Adrian Pagan, 2008. "A Small Structural Monetary Policy Model for Small Open Economies with Debt Accumulation," IMF Working Papers 08/64, International Monetary Fund.

We extend a small New Keynesian structural model used for monetary policy analysis to address a richer class of policy issues that arise in open economy analysis. We draw a distinction between absorption and domestic output, and as the difference between the two is effectively the current account, there is now an explicit accumulation or decumulation of foreign liabilities in response to various shocks affecting the system. Such stock equilibria can now have an impact back on to the flows in the domestic economy. We perform simulations using parameters calibrated to the Canadian economy and compare the differences in impulse responses from the original model. Advantages in a forecasting environment owing to the ability to impose explicit projections about imports and exports are also exposed.

Full text available on-line at:

http://www.imf.org/external/pubs/ft/wp/2008/wp0864.pdf

Selected Readings –February 2010 12

correction terms, thereby freeing up the latter to be used as instruments in estimating their parameters. The approach is illustrated by a re-examination of the identification schemes used by Wickens and Motto (2001), Shapiro and Watson (1988), King, Plosser, Stock, Watson (1991), Gali (1992, 1999) and Fisher (2006).

Full text available on-line at: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_04.pdf

1.7 Mardi Dungey and Adrian Pagan, 2008. "Extending an SVAR Model of the Australian Economy," NCER Working Paper Series 21, National Centre for Econometric Research.

Dungey and Pagan (2000) present an SVAR model of the Australian economy which models macro-economic outcomes as transitory deviations from a deterministic trend. In this paper we extend that model in two directions. Firstly, we relate it to an emerging literature on DSGE modelling of small open economies. Secondly, we allow for both transitory and permanent components in the series and show how this modification has an impact upon the design of macroeconomic models.

Full text available on-line at: http://www.ncer.edu.au/papers/documents/WpNo21Jan08.pdf

1.8 R. Pagan, Luis Catão and Douglas Laxton, 2008. "Monetary Transmission in an Emerging Targeter: The Case of Brazil," IMF Working Papers 08/191, International Monetary Fund.

This paper lays out a structural model that incorporates key features of monetary transmission in typical emerging-market economies, including a bank-credit channel and the role of external debt accumulation on country risk premia and exchange rate dynamics. We use an SVAR representation of the model to study the monetary transmission in Brazil. We find that interest rate changes have swifter effects on output and inflation compared to advanced economies and that exchange rate dynamics plays a key role in this connection. Importantly, the response of inflation to monetary policy shocks has grown stronger and the output-inflation tradeoff improved since the introduction of inflation targeting.

Selected Readings –February 2010 13

Full text available on-line at:

http://www.imf.org/external/pubs/ft/wp/2008/wp08191.pdf

1.9 Adrian Pagan and Hashem Pesaran, 2007. "On Econometric Analysis of Structural Systems with Permanent and Transitory Shocks and Exogenous Variables," NCER Working Paper Series 7, Working paper #7, National Centre for Econometric Research.

This paper considers the implications of the permanent/transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock. It provides a simple and intuitive generalization of the influential work of Blanchard and Quah (1989), and shows that structural equations for which there are known permanent shocks must have no error correction terms present in them, thereby freeing up the latter to be used as instruments in estimating their parameters. The proposed approach is illustrated by a re-examination of the identification scheme used in a monetary model by Wickens and Motta (2001), and in a well known paper by Gali (1992) which deals with the construction of an IS-LM model with supply-side effects. We show that the latter imposes more short-run restrictions than are needed because of a failure to fully utilize the cointegration information.

Full text available on-line at: http://www.ncer.edu.au/papers/documents/WpNo7Jan07.pdf

1.10 Renee Fry and Adrian Pagan, 2007. "Some Issues in Using Sign Restrictions for Identifying Structural VARs," NCER Working Paper Series 14, National Centre for Econometric Research.

The paper looks at estimation of structural VARs with sign restrictions. Since sign restrictions do not generate a unique model it is necessary to find some way of summarizing the information they yield. Existing methods present impulse responses from different models and it is argued that they should come from a common model. If this is not done the implied shocks implicit in the impulse responses will not be orthogonal. A method is described that tries to resolve this difficulty. It works with a common model whose impulse responses are as close as possible to the median values

Selected Readings –February 2010 14

of the impulse responses (taken over the range of models satisfying the sign restrictions). Using a simple demand and supply model it is shown that there is no reason to think that sign restrictions will generate better quantitative estimates of the effects of shocks than existing methods such as assuming a system is recursive.

Full text available on-line at: http://www.ncer.edu.au/papers/documents/WpNo14Apr07.pdf

1.11 Adrian Pagan, 2007. "Weak Instruments: A Guide to the Literature," NCER Working Paper Series 13, National Centre for Econometric Research.

Weak instruments have become an issue in many contexts in which econometric methods have been used. Some progress has been made into how one diagnosis the problem and how one makes an allowance for it. The present paper gives a partial survey of this literature, focusing upon some of the major contributions and trying to provide a relatively simple exposition of the proposed solutions.

Full text available on-line at: http://www.ncer.edu.au/papers/documents/WpNo13Apr07.pdf

1.12 Pagan, A. and Pesaran, M.H., 2007. "On Econometric Analysis of Structural Systems with Permanent and Transitory Shocks and Exogenous Variables," Cambridge Working Papers in Economics 0662, Faculty of Economics, University of Cambridge.

Selected Readings –February 2010 15

construction of an IS-LM model with supply-side effects. We show that the latter imposes more short-run restrictions than are needed because of a failure to fully utilize the cointegration information.

Full text available on-line at:

http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0662.pdf

1.13 Don Harding and Adrian Pagan, 2006. "Measurement of Business Cycles," Department of Economics - Working Papers Series 966, The University of Melbourne.

We describe different ways of measuring the business cycle. Institutions such as the NBER, OECD and IMF do this through locating the turning points in series taken to represent the aggregate level of economic activity. The turning points are determined according to rules that either come from a parametric model or are non-parametric. Once located information can be extracted on cycle characteristics. We also distinguish cases where a single or multiple series are used to represent the level of activity.

Full text available on-line at: http://www.economics.unimelb.edu.au/SITE/research/workingpapers/wp06/966.pdf

1.14 Adrian Pagan, 2006. "Inventories, Fluctuations and Business Cycles. Working paper #4," NCER Working Paper Series 4, National Centre for Econometric Research.

The paper looks at the role of inventories in U.S. business cycles and fluctuations. It concentrates upon the goods producing sector and constructs a model that features both input and output inventories. A range of shocks are present in the model, including sales, technology and inventory cost shocks. It is found that the presence of inventories does not change the average business cycle characteristics in the U.S. very much. The model is also used to examine whether new techniques for inventory control might have been an important contributing factor to the decline in the volatility of US GDP growth. It is found that these would have had little impact upon the level of volatility.

Selected Readings –February 2010 16

Full text available on-line at:

http://www.ncer.edu.au/papers/documents/WPNo4.pdf

1.15 Adrian pagan and Don Harding, 2006. "The Econometric Analysis of Constructed Binary Time Series. Working paper #1," NCER Working Paper Series 1, National Centre for Econometric Research.

Macroeconometric and financial researchers often use secondary or constructed binary random variables that differ in terms of their statistical properties from the primary random variables used in microeconometric studies. One important difference between primary and secondary binary variables is that while the former are, in many instances, independently distributed (i.d.) the later are rarely i.d. We show how popular rules for constructing binary states determine the degree and nature of the dependence in those states. When using constructed binary variables as regressands a common mistake is to ignore the dependence by using a probit model. We present an alternative non-parametric method that allows for dependence and apply that method to the issue of using the yield spread to predict recessions.

Full text available on-line at:

http://www.ncer.edu.au/papers/documents/WPNo1_001.pdf

1.16 Adrian Pagan, 2005. "Some Econometric Analysis of Constructed Binary Time Series," CAMA Working Papers 2005-7, Australian National University, Centre for Applied Macroeconomic Analysis.

No abstract available.

Full text available on-line at: http://cama.anu.edu.au/Working%20Papers/Papers/2005/Pagan_72005.pdf

No abstract available.

Selected Readings –February 2010 17

Full text available on-line at:

http://cama.anu.edu.au/Working%20Papers/Papers/2005/Fry_Pagan_182005.pdf

1.18 Alasdair Scott, George Kapetanios and Adrian Pagan, 2005. "Making a match: combining theory and evidence in policy-oriented macroeconomic modelling".

A persistent question arising in the development of models for the analysis of macroeconomic policy has been the relative role of economic theory and evidence (data) in their construction. This paper looks at some strategies for transforming a Conceptual Model to become a Data-Adjusted Model, and how to adjust further to an Operational Model for policy analysis. Using a typical dynamic GE small open economy calibrated to UK data, we examine how some simple but formal econometric tests can be applied to test the match of the CM to the data. We also use the CM as a laboratory to assess model-building strategies. Our example suggests that, since one will never be sure that the choice of variables is appropriate, it is better to start with a CM and work towards making it match the data than attempting the converse.

Full text available on-line at: http://www.economics.smu.edu.sg/events/Paper/pagan05.pdf

There is a long tradition in business cycle analysis of arguing that non-linear models are needed to explain the business cycle. In recent years many non-linear models have been fitted to data on GDP for many countries, but particularly for the U.S. In this paper we set our criteria to evaluate the success of non-linear models in explaining the cycle and then evaluate three recent models in the light of these criteria. We find that the models are capable of explaining the "shape" of expansions, something linear models cannot do, but do so at the cost of making expansions longer than they should be and in producing transition probabilities to recessions that are too low.

Selected Readings –February 2010 18

Full text available on-line at:

http://repec.org/esAUSM04/up.30562.1077898732.pdf

1.20 Harding, Don and Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany.

Recent events suggest that the death of the business cycle has been exaggerated; the issue of how one learns about and monitors the business cycle remains centre stage. Advent of the Euro and the potential for tensions when sovereign nations subsume their monetary policy into a single response also makes monitoring the business cycle of particular interest for Euro area policy makers. In this paper we summarize recent research on three questions relating to cycles in economic activity --- how to extract cyclical information, how to analyse it, and how to enquire into what special difficulties might be encountered when using cyclical indicators. This survey focuses on our own research which we view as a formalization of some of the procedures developed by Burns and Mitchell at the NBER. However, defence of our position goes beyond continuity with the past and is based on the view that the way in which these investigators defined the business cycle is a very natural one that connects with the way policy makers and commentators discuss the cycle.

Full text available on-line at:

http://mpra.ub.uni-muenchen.de/15/1/MPRA_paper_15.pdf

1.21 Don Harding and Adrian Pagan, 2000. "Dissecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.

Macroeconomics has a long tradition of inspecting and interpreting patterns in graphs of aggregate data. However, the move towards more precise quantification of macroeconomic phenomena has seen academics shift away from a study of turning points, which are a natural and obvious way of summarizing business cycles, towards measures of co-movement in detrended series. This shift arises from several developments, but an important one was the belief among academics that Burns and

Selected Readings –February 2010 19

Mitchell's methods lacked the statistical basis and, hence, the precision required in modern macroeconomics.

We adopt the older perspective that business cycles are to be defined in terms of the turning points in the level of economic activity. We show that such turning points can be associated with a well defined sequence of outcomes and can therefore be precisely analyzed. In turn this enables us to explore how various parametric models of aggregate output generate a cycle through the interaction of trend movements in activity with the volatility and serial correlation in growth rates. One of the strongest points in the rhetoric of modern business cycle theory is that trend and cycles should not be divorced. Consequently, any definition of the business cycle in terms of the co-movement of detrended data has to find the task of integration a difficult one. In contrast, we show that a return to the older tradition of studying the classical cycle in the level of economic activity produces a natural interpretation of the origin of the cycle in terms of the interaction of trend and the second moments of growth rates. This seems a critical advantage for the approach taken in this paper. An important issue that has also been debated in the literature is whether non-linear models are required to make a business cycle. Using the techniques developed in this paper we dissect the cycle of a number of countries and find little evidence that nonlinearities, of the type investigated in the literature, are important in accounting for the broad features of the average cycle.

Full text available on-line at:

http://fmwww.bc.edu/RePEc/es2000/1164.pdf

1.22 Don Harding and Adrian Pagan, 1999. "Knowing the Cycle," Melbourne Institute Working Paper Series 12/19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

Policy makers are primarily interested in fluctuations in the level of activity - the classical cycle. Academics have in recent times focused their efforts on studying fluctuations and co-movement in aggregate variables that have been rendered stationary after some appropriate transformation. That is academics focus on the growth cycle. One reason for this shift in focus was the impression among academics that Burns and Mitchell's work lacked the precision required in modern

Selected Readings –February 2010 20

macroeconomics. In this paper we show that pattern recognition algorithms which emulate Burns and Mitchell's approach to the cycle can be constructed and used to collect precise information on the classical cycle. The information so marshaled comprises the duration, amplitude, and cumulative movements of output within business cycle phases. We show that this information can be used to assess a range of business cycle models that have been proposed in the literature.

Full text available on-line at:

http://melbourneinstitute.com/wp/wp1999n12.pdf

1.23 Adrian Pagan, 1999. "The Getting of Macroeconomic Wisdom," CEPR Discussion Papers 412, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University.

The paper discusses a number of trends in the use of macro-economic models for acquiring information about the macro-economy. It is argued that a fundamental distinction should be drawn between models that are constructed to summarise the data and those which are used to interpret the data. By and large the former are statistical and so are judged on the basis of how well they fit the data. Nevertheless, while we have learned a lot about the nature of macroeconomic data from the large number of statistical models that have emerged to carry out this task, we demonstrate that some of the perceived features may not stand up to a sustained investigation. In particular, it is argued that graphical analysis can often throw doubt upon certain conclusions stemming from formal statistical inference.

The second part of the paper turns to models that have been set up with the aim of interpreting macroeconomic data. These are economic in nature, and represent stories that we tell about economic interactions with a view to understanding the origin of observable data characteristics. Given this orientation, goodness of fit is not regarded as the only criterion for assessing their success. Consequently, issues arise over how one can compare such models. A range of methods has evolved for ascertaining whether the proposed story is a good description of the data. We review these methods as well as making some suggestions about how one might improve on them.

Selected Readings –February 2010 21

Full text available on-line at:

http://econrsss.anu.edu.au/pdf/DP412.pdf

1.24 David Gruen, Adrian Pagan and Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.

In this paper we discuss the development of Phillips curves in Australia over the forty years since Phillips first estimated one using Australian data. We examine the central issues faced by researchers estimating Australian Phillips curves. These include the distinction between the short and long-run trade-offs between inflation and unemployment, and the changing level of the non-accelerating inflation rate of unemployment (NAIRU), particularly in the 1970s. We estimate Phillips curves for prices and unit labour costs in Australia over the past three decades. These Phillips curves allow the NAIRU to change through time, and include a role for import prices and ‘speed-limit’ effects. The paper concludes by presenting an extended discussion of the changing role of the Phillips curve in the intellectual framework used to analyse inflation within the Reserve Bank of Australia over the past three decades.

Full text available on-line at:

http://www.rba.gov.au/publications/rdp/1999/pdf/rdp1999-01.pdf

1.25 Hylleberg, S. and Pagan, A. R., 1997. "Seasonal integration and the evolving seasonal model," International Journal of Forecasting, Elsevier, vol. 13(3), pages 329-340, September.

The paper uses a model of seasonality popular in the 1960s, the evolving seasonal model, to explore issues relating to testing for unit roots in seasonal time series. The model is used to show how data can be transformed in such a way that tests for seasonal integration simply become those for regular unit roots. Once this connection is established it becomes obvious that there are many possible ways of constructing a test for seasonal integration, only a few of which have appeared in the literature. A byproduct of the approach is the separation of the existence of a seasonal pattern from

Selected Readings –February 2010 22

its nature allowing one to place developments such as fractionally integrated and periodic seasonality within the same framework as regular integration.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6V92-3SX1KJD- 4/2/987b50c505d6da22814697fa5ca16079

1.26 Adrian R. Pagan and John C. Robertson, 1995. "Resolving the liquidity effect," Proceedings, Federal Reserve Bank of St. Louis, issue May/June, pages 33-54.

No abstract available.

Full text available on-line at: http://research.stlouisfed.org/publications/review/95/05/Resolving_May_June1995.pd f

1.27 Adrian R. Pagan and G. William Schwert, 1989. "Alternative Models For Conditional Stock Volatility," NBER Working Papers 2955, National Bureau of Economic Research, Inc.

This paper compares several statistical models for monthly stock return volatility. The focus is on U.S. data from 1834-19:5 because the post-1926 data have been analyzed in more detail by others. Also, the Great Depression had levels of stock volatility that are inconsistent with stationary models for conditional heteroskedasticity, We show the importance of nonlinearities in stock return behavior that are not captured by conventional ARCH or GARCH models. We also show the non-stationarity of stock volatility, even over the 1834-1925 period.

Full text available on-line at: http://www.nber.org/papers/w2955.pdf

Selected Readings –February 2010 23

1.28 Adrian Pagan, 1986. "The Econometric Analysis of Risk Terms," CEPR DP127.

This paper provides a critical survey of the methods employed to model the effects of risk in econometric models. Most of the popular methods are shown to suffer from errors-in-variables bias, and an instrumental variable method is suggested to overcome this problem. The technique exploits the orthogonality conditions existing between the squared unanticipated variables and functions of variables making up the information set defining the anticipations. An alternative procedure used in the paper is to directly estimate the conditional variance (risk) by non-parametric estimators. Applications are made to foreign exchange markets, interest rates and unemployment/inflation risk relations.

Full text available on-line at:

http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=127

1.29 McAleer, Michael and Pagan, Adrian, 1985. "What Will Take the Con Out of Econometrics?," CEPR Discussion Papers 39, C.E.P.R. Discussion Papers.

The paper begins with the question of whether Leamer's Extreme Bounds Analysis (EBA) really does "Take the Con Out of Econometrics" By analytically demonstrating that the extreme bounds are simply functions of the F-statistic for the deletion of variables from a regression, we conclude that the information provided by EBA represents no advance over that available from traditional methods. Furthermore, there is a degree of arbitrariness in EBA which exactly parallels the selective reporting of regressions it was designed to supplant. The last part of the paper attempts a positive response to its title. By following a well defined series of modelling steps, we maintain that Cooley and Le Roy's EBA-derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data.

Full text available on-line at: http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=39

Selected Readings –February 2010 24

1.30 Adrian Pagan, 2008. "Phillips curve inflation forecasts - comments," Conference Series; Federal Reserve Bank of Boston.

No abstract available.

Full text available on-line at:

http://www.bos.frb.org/economic/conf/conf53/papers/Pagan.pdf

A persistent question in the development of models for macroeconomic policy analysis has been the relative role of economic theory and evidence in their construction. This paper looks at some popular strategies that involve setting up a theoretical or conceptual model (CM) which is transformed to match the data and then made operational for policy analysis. A dynamic general equilibrium model is constructed that is similar to standard CMs. After calibration to UK data it is used to examine the utility of formal econometric methods in assessing the match of the CM to the data and also to evaluate some standard model-building strategies.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VC0-4J3WSM0- 2/2/10bda331ebda186f5b14fc4902aa9166

1.32 Martin Fukac and Adrian R. Pagan, 2007. "Commentary on "An estimated DSGE model for the United Kingdom"," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 233-240.

No abstract available.

Full text available on-line at:

http://research.stlouisfed.org/publications/review/07/07/Fukac.pdf

Selected Readings –February 2010 25

1.33 Harding, Don and Pagan, Adrian, 2006. "Synchronization of cycles," Journal of Econometrics, Elsevier, vol. 132(1), pages 59-79, May.

Many interesting issues are posed by synchronization of cycles. In this paper, we define synchronization and show how the degree of synchronization can be measured. We propose heteroscedasticity and serial correlation robust tests of the hypotheses that cycles are either unsynchronized or perfectly synchronized.

Tests of synchronization are performed using data on industrial production, on monthly stock indices and on series that are used to construct the reference cycle for the United States.

An algorithm is developed to extract a common cycle. It is used to extract the reference cycle for the United States and common cycles in stock prices and European industrial production.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VC0-4FMK8MH- 4/2/30878812d8beac5668385285cbb3f926

1.34 Adrian Pagan and Don Harding, 2005. "A suggested framework for classifying the modes of cycle research," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 20(2), pages 151-159.

The paper argues that it is important to realize that the concept of a cycle has rarely been precisely articulated in empirical work and that often researchers are using very different definitions of it. We propose a two-fold classification based upon what series one is measuring a cycle in and how one would recognize a cycle in such a series. The paper illustrates how one can then categorize existing research based upon how it answers these questions. It also shows that the existence and properties of a cycle differ greatly depending upon which of the categories the researcher is using.

Full text available on-line at:

http://www3.interscience.wiley.com/journal/110433114/abstract

Selected Readings –February 2010 26

It is often suggested that non-linear models are needed to capture business cycle features. In this paper, we subject this view to some critical analysis. We examine two types of non-linear models designed to capture the bounce-back effect in US expansions. This means that these non-linear models produce an improved explanation of the shape of expansions over that provided by linear models. But this is at the expense of making expansions last much longer than they do in reality. Interestingly, the fitted models seem to be influenced by a single point in 1958 when a large negative growth rate in GDP was followed by good positive growth in the next quarter. This seems to have become embedded as a population characteristic and results in overly long and strong expansions. That feature is likely to be a problem for forecasting if another large negative growth rate was observed.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6V92-4H2G8VH- 1/2/6b8dcb49d724b3125b04645821283b4d

1.36 Jonathan Ohn and Larry W. Taylor and Adrian Pagan, 2004. "Testing for duration dependence in economic cycles," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 528-549, December.

In this paper, we discuss discrete-time tests for duration dependence. Two of our test statistics are new to the econometrics literature, and we make an important distinction between the discrete and continuous time frameworks. We then test for duration dependence in business and stock market cycles, and compare our results for business cycles with those of Diebold and Rudebusch (1990, 1991). Our null hypothesis is that once an expansion or contraction has exceeded some minimum duration, the probability of a turning point is independent of its age--a proposition that dates back to Fisher (1925) and McCulloch (1975).

Full text available on-line at:

http://www.lehigh.edu/~incbeug/Attachments/Taylor%20-%2011- ectj_Duration_Ohn.pdf

Selected Readings –February 2010 27

1.37 Harding, Don and Pagan, Adrian, 2003. "Rejoinder to James Hamilton," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1695-1698, July.

No abstract available.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6V85-45V6V3W- 6/2/a2a92d89fa20e8a6cf4b885e364929f2

This paper proposes a set of formal tests to address the goodness-of-fit of Markov switching models. These formal tests are constructed as tests of model consistency and of both parametric and non-parametric encompassing. The formal tests are then combined with informal tests using simulation in combination with non-parametric density and conditional mean estimation. The informal tests are shown to be useful in shedding light on the failure (or success) of the encompassing tests. Several examples are provided.

Full text available on-line at: http://www3.interscience.wiley.com/journal/118840027/abstract

1.39 Adrian R. Pagan and Kirill A. Sossounov, 2003. "A simple framework for analysing bull and bear markets," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 18(1), pages 23-46.

Bull and bear markets are a common way of describing cycles in equity prices. To fully describe such cycles one would need to know the data generating process (DGP) for equity prices. We begin with a definition of bull and bear markets and use an algorithm based on it to sort a given time series of equity prices into periods that can be designated as bull and bear markets. The rule to do this is then studied analytically and it is shown that bull and bear market characteristics depend upon the DGP for

Selected Readings –February 2010 28

capital gains. By simulation methods we examine a number of DGPs that are known to fit the data quite well-random walks, GARCH models, and models with duration dependence. We find that a pure random walk provides as good an explanation of bull and bear markets as the more complex statistical models. In the final section of the paper we look at some asset pricing models that appear in the literature from the viewpoint of their success in producing bull and bear markets which resemble those in the data.

Full text available on-line at:

http://www3.interscience.wiley.com/cgi-bin/fulltext/99016666/PDFSTART

1.40 Harding, Don and Pagan, Adrian, 2003. "A comparison of two business cycle dating methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1681-1690, July.

We study the suggestion that Markov switching (MS) models should be used to determine cyclical turning points. A Kalman filter approximation is used to derive the dating rules implicit in such models. We compare these with dating rules in an algorithm that provides a good approximation to the chronology determined by the NBER. We find that there is very little that is attractive in the MS approach when compared with this algorithm. The most important difference relates to robustness. The MS approach depends on the validity of that statistical model. Our approach is valid in a wider range of circumstances.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6V85-45W36N7- 4/2/dbf30fed0d426e414dc9de57c1bc02f2

1.41 Adrian Pagan and discussant, 2002. "What is a good macroeconomic model for a central bank to use? Panel discussion," Proceedings, Federal Reserve Bank of San Francisco, March.

No abstract available.

Selected Readings –February 2010 29

Full text available on-line at: http://www.frbsf.org/economics/conferences/0203/comments.pdf

1.42 Adrian Pagan, 2002. "Learning About Models And Their Fit To Data," International Economic Journal, International Economic Journal, Volume 16, Issue 2 Summer 2002 , pages 1 - 18.

The paper asks what is the most informative way of assessing the fit of a model to data. Often an answer comes from the context. In particular, from a consideration of how the model is to be used. Such information often leads one to seek transformations of the data that deliver the requisite information. Even in those instances in which we are sure of the best way of looking at fit, e.g. by the mean of the sample scores of an alternative model, it is often useful to augment the information provided by these tests through a decomposition of them. In time series such decompositions have often involved recursive analysis. In this paper we propose that the moments underlying tests be re-written as an integrated conditional moment, where the conditioning variable is chosen to elicit useful information. The idea is potentially useful in assessing non-linear models. To implement the approach non-parametric methods generally need to be applied to simulated data in order to perform the decomposition. A range of applications of the idea, drawn from published articles, is used to illustrate the advantages of the method.

Full text available on-line at: http://www.informaworld.com/smpp/content~db=all~content=a739422290

We maintain that the actions of researchers show that data mining is a necessary part of econometric inquiry. We analyse this phenomenon using the analogy of an industry producing a product (econometric analyses). There is a risk of selective reporting as Mayer indicates but we argue that other researchers (competition) will ensure that the

Selected Readings –February 2010 30

sensitivity of truly important findings is checked. Hence, initial researchers have an incentive to analyse sensitivity from the beginning and so produce a quality product. Some suggestions are made towards encouraging this process. The 'general to specific' approach to data mining as promoted by Hoover and Perez can be valuable but it is premature to eliminate other strategies.

Full text available on-line at: http://www.informaworld.com/smpp/content~content=a713771926~db=all

A factor analysis of long-term bond spreads is performed by decomposing international interest rate spreads into national and global factors. The factors are latent, and are assumed to have GARCH-type specifications as well as exhibiting serial dependence. An indirect estimator is used to compute estimates of the unknown parameters. The sampling performance of this estimator is investigated and compared with an alternative direct estimator based on the Kalman predictor. The factor model is applied to weekly data on long-bond spreads between five countries - Australia, Japan, Germany, Canada and the UK - and the USA over the period 1991 to 1999. The resulting factor decomposition is used to examine the international investor's optimal portfolio decision in a mean-variance framework.

Full text available on-line at: http://qed.econ.queensu.ca/jae/2000-v15.6/

1.45 McKibbin Warwick J., Pagan Adrian R. and Robertson John C., 1998. "Some experiments in constructing a hybrid model for macroeconomic analysis," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 113-142, December.

VAR analysis is a widespread method of quantitatively analyzing macroeconomic issues. In this paper we examine the use of “hybrid” VAR models that retain the short-run features of a VAR but are designed to reproduce selected characteristics of

Selected Readings –February 2010 31

calibrated models that are frequently used for the simulation of policy actions. The calibrated model we use is the McKibbin-Sachs Global (MSG2) model of the world economy. For permanent shocks we constrain the long-run responses in the hybrid model to match those from MSG2. For transitory shocks we match shorter-run cumulative responses. The estimated effects of a permanent US money-supply shock are broadly consistent with those of MSG2, but differ in some dimensions from those obtained from a standard recursive VAR.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6V8D-3WM4R46- 4/2/29b9988e881499d111ed347d5758e749

1.46 Levtchenkova, S and Pagan, A R and Robertson, J C, 1998. “Shocking Stories," Journal of Economic Surveys, Blackwell Publishing, vol. 12(5), pages 507-32, December.

The paper provides a survey of methods that decompose multivariate series into permanent and transitory components by using ideas drawn from the co-integration literature. We adopt a two stage procedure to effect the decomposition. In the first stage a basic set of permanent and transitory components is formed by using standard definitions of the shocks which they are constituted from. The resulting measurements are not unique and further information needs to be employed to get uniqueness. Such information can come in many forms but a particularly important one involves the values of the long-run multipliers for permanent shocks that are available from many calibrated models. A comparison of the methods of effecting the decomposition is performed using a well known data set.

Full text available on-line at: http://www3.interscience.wiley.com/cgi-bin/home

Selected Readings –February 2010 32

For many years economists have debated the 'causes' of business cycles. Very little of this analysis has been closely matched with business cycle characteristics as measured by NBER-type dating methods. After summarising data on business cycle characteristics for a wide variety of countries, the article shows that an extremely simple statistical model of output growth, viz. that it is uncorrelated from month to month or quarter to quarter, produces business cycles that are close to those seen in practice. The demonstration involves the analysis of data simulated from this simple statistical model as well as some analytical work using a standard definition of a recession as being two quarters of negative growth. As well as explaining the average length of a cycle this model also accounts for the asymmetry between the lengths of expansions and contractions through the relative magnitudes of the trend rate of growth of the economy and the standard deviation of the shocks that impinge upon it.

Full text available on-line at: http://www3.interscience.wiley.com/journal/119164297/abstract

1.48 Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.

The paper provides a survey of the work that has been done in financial econometrics in the past decade. It proceeds by first establishing a set of stylized facts that are characteristics of financial series and then by detailing the range of techniques that have been developed to model series which possess these characteristics. Both univariate and multivariate models are considered.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VFG-3VV58VG- 2/2/a031f07f8d978adf1998700e5a25500c

Selected Readings –February 2010 33

1.49 Pagan, Adrian, 1994. "Calibration and Econometric Research: An Overview: Introduction," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 9(S), pages S1-10, Suppl. De.

No abstract available.

Full text available on-line at:

http://www.jstor.org/pss/2285221

1.50 Pagan, Adrian R. and Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1- 2), pages 267-290.

This paper compares several statistical models for monthly stock return volatility. The focus is on U.S. data from 1834-1925 because the post-1926 data have been analyzed in more detail by others. Also, the Great Depression had levels of stock volatility that are inconsistent with stationary models for conditional heteroskedasticity. We show the importance of nonlinearities in stock return behavior that are not captured by conventional ARCH or GARCH models. We also show the non-stationarity of stock volatility.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6VC0-4582CY8- 28/2/e423880a23c517f4ff4341cca72d6878

1.51 Pagan, Adrian R. and Schwert, G. William, 1990. "Testing for covariance stationarity in stock market data," Economics Letters, Elsevier, vol. 33(2), pages 165-170, June.

This paper proposes several non-parametric tests for covariance stationarity and applies them to common stock return data from 1834–1987. Recursive variance plots, post-sample prediction tests, Cumulative Sum (henceforth, CUSUM) tests and modified scaled range tests all show strong non-stationarity in stock returns, primarily due to the large increase in volatility during the Great Depression. These tests should be useful as diagnostics for data where the assumptions underlying the desired statistical procedure require stationarity.

Selected Readings –February 2010 34

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6V84-4590XS9- 13B/2/e58c931bda786404467e3eb6b94be359

1.52 Pagan, Adrian R and Wickens, M R, 1989. "A Survey of Some Recent Econometric Methods," Economic Journal, Royal Economic Society, vol. 99(398), pages 962-1025, December.

This survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too. Our aim has been to try to bring the applied worker as up to date as possible, and in the process to improve the quality of applied work, by providing access to the latest ideas in econometrics. We have tried to describe and explain in a relatively non-technical way the main developments that have taken place in the last ten years. Partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time-series and cross-section analysis. Among the subjects covered are the following: the nature of data (including integrated and fractionally integrated data), four estimation methods (maximum likelihood, method of moments, M-estimators and non-parametric estimation), inference (with stationary and integrated regressors), a comparison of various model evaluation principles, the formulation of models (including dynamic specification, cointegration and conditional expectations in mean and variance).

Full text available on-line at: http://www.jstor.org/pss/2234084

1.53 Pagan, Adrian, 1989. "On the role of simulation in the statistical evaluation of econometric models," Journal of Econometrics, Elsevier, vol. 40(1), pages 125-139, January.

Macro model builders routinely utilise the techniques of dynamic and static simulation for model selection and evaluation, as well as for discovering the properties of their models. Some researchers have suggested that the output of these simulations might be used for the purpose of formally evaluating models. The present paper looks at what information is conveyed by such simulations. It is argued that, because of relationships existing between the simulation residuals and estimation

Selected Readings –February 2010 35

residuals, no new information is forthcoming from a simulation. Current proposals using simulation output for the purpose of model evaluation are analysed and it is shown that the same information could be extracted by a thorough analysis of the estimation residuals.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VC0-457V1JC- N/2/ef449e1ef67bd988bedf248b1daea8f5

This paper surveys the growing literature on diagnostic testing of models based on unit record data. We argue that while many of these tests are produced in a Lagrange multiplier framework they are often more readily derived, and more easily applied, if approached from the conditional moment testing view of Newey (1985) and Tauchen (1985). In addition we propose some new tests based on comparisons of parametric estimators with nonparametric estimators which are consistent under certain forms of misspecification. To illustrate the utility of the tests we employ them in the examination of some existing published studies.

Full text available on-line at: http://www.jstor.org/pss/2096593

1.55 Pagan, Adrian, 1988. "Comment on Poirier: Dogma or Doubt?," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 153-58, Winter.

This paper summarizes recent Bayesian research on unit roots for the applied macroeconomist in the way Campbell and Perron summarized the classical unit roots perspective. The appropriate choice of a prior is discussed in recognizing a consensus.

Full text available on-line at:

http://www.jstor.org/pss/1942746

Selected Readings –February 2010 36

1.56 Pagan, Adrian, 1988. "A note on the magnitude of risk premia," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 109-110, March.

No abstract available.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6V9S-458XK13- 9/2/08a7b3ff2163ecde8eb5e51a4a071b9b

1.57 Pagan, Adrian and Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley and Sons, Ltd., vol. 3(2), pages 87-105, April.

In this paper we have attempted to provide an integrated approach to the estimation of models with risk terms. It was argued that there exist orthogonality conditions between variables in the information set and higher-order moments of the unanticipated variable density. These could be exploited to provide consistent estimators of the parameters associated with the risk term. Specifically, it was recommended that an IV estimator should be applied, with instruments constructed from the information set. Four existing methods commonly used to estimate models with risk terms are examined, and applications of the techniques are made to the estimation of the risk term in the US/C exchange market, and the effects of price uncertainty upon production.

Full text available on-line at:

http://www.jstor.org/pss/2096582

Within the context of the linear regression model, the variable of interest may be termed the focus variable while those that can be deleted from the regression may be termed doubtful variables. In this note we derive the necessary condition for a sign reversal in the coefficient of the focus variable when the doubtful variables appear in any arbitrary linear combination.

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Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VC0-45828K2- G/2/80e3ac1bf0fdfb9c2b0f8b8290cf8ff0

Full text available on-line at:

http://www.jstor.org/pss/2648877

Increasing use has been made of predictive tests for assessing model adequacy, but it is sometimes difficult to generate predictions and their standard errors in dynamic or simultaneous equation models. Following earlier suggestions by Salkever and Fuller, this paper shows how the requisite information may be obtained by the use of specially constructed variables in a regression framework. The main use of the method will be in those situations where prediction information is not available as a standard option in econometric packages.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VC0-45828WM- 55/2/31aede9c3650b113ae8681ee4f1923b7

1.61 A. R. Pagan and A. D. Hall, 1983. "Diagnostic tests as residual analysis," Econometric Reviews, Taylor and Francis Journals, vol. 2(2), pages 159- 218.

Many applied workers are strongly oriented to residual analysis for assessing model adequacy. Formal test statistics of adequacy however are frequently derived from

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likelihood theory, particularly through Lagrange Multipliers. In contrast, the present paper derives the formal statistics by concentrating upon the distribution of residuals. It is shown that most existing tests can be derived in this way from a few elementary principles of specification analysis. One advantage of this alternative methodology is that it highlights some difficulties in existing approaches and simultaneously indicates a resolution of them; a good example being testing for heteroscedasticity in simultaneous equations. Other issues such as independence and robustness of diagnostic tests are also easily explored within the proposed framework.

Full text available on-line at:

http://www.informaworld.com/smpp/content~db=all?content=10.1080/073117683088 00039

1.62 A. R. Pagan and A. D. Hall, 1983. "Reply," Econometric Reviews, Taylor and Francis Journals, vol. 2(2), pages 249-254.

No abstract available.

Full text available on-line at:

http://www.informaworld.com/smpp/content~db=all?content=10.1080/073117683088 00045

1.63 Pagan, A R and Hall, A D and Trivedi, P K, 1983. "Assessing the Variability of Inflation," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 585-96, October.

Although there has been much argument over the impact of variable inflation rates upon economic performance, there has been surprisingly little attempt to define the term "variability of inflation" carefully or to test proposed hypotheses connecting variability and the level of inflation. Precise definitions are given in the paper and a model is constructed showing that the level/variability hypothesis may be formulated in terms of the presence of heteroscedasticity in a regression model. This theoretical model is used to criticize existing studies, while an empirical study with Australian data illustrates the application of the approach.

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Full text available on-line at:

http://www.jstor.org/pss/2297762

1.64 Nicholls, D F and Pagan, A R, 1983. "Heteroscedasticity in Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 51(4), pages 1233-42, July.

This article develops an empirically constant, data-coherent, error-correction model for inflation in Australia. The level of consumer prices is a markup over domestic and import costs, with adjustments for dynamics and relative aggregate demand.

Full text available on-line at:

http://www.jstor.org/pss/1912061

1.65 Hall Anthony David and Pagan Adrian Rodney, 1981. "The LIML and Related Estimators of an Equation with Moving Average Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 719-30, October.

This paper develops the instrumental variables estimator for a possibly incomplete, dynamic economic system with vector autoregressive moving average disturbances.

Full text available on-line at:

http://www.jstor.org/pss/2526171

No abstract is available.

Full text available on-line at: http://www.jstor.org/pss/2553695

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No abstract is available.

Full text available on-line at:

http://www.jstor.org/pss/2297111

Although various theoretical and applied papers have appeared in recent years concerned with the estimation and use of regression models with stochastically varying coefficients, little is available in the literature on the properties of the proposed estimators or the identifiability of the parameters of such models. The present paper derives sufficient conditions under which the maximum likelihood estimator is consistent and asymptotically normal and also provides sufficient conditions for the estimation of regression models with stationary stochastically varying coefficients. In many instances these requirements are found to have simple, intuitively appealing interpretations. Consistency and asymptotic normality is also proven for a two-step estimator and a method suggested by Rosenberg for generating initial estimates.

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1.69 Pagan, Adrian, 1979. "Some consequences of viewing LIML as an iterated Aitken estimator," Economics Letters, Elsevier, vol. 3(4), pages 369-372.

This note demonstrates that LIML can be formulated as Zellner's SUR estimator. The result provides an analytic formula for LIML and its derived reduced form estimator, expresses LIML as the sum of 2SLS and a correction factor and facilities exogeneity testing.

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Full text available on-line at:

http://www.sciencedirect.com/science/article/B6V84-458WM7M- F/2/7d3bbb745d19abba1769fbaae207e828

1.70 Breusch, T S and Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September.

A simple test for heteroscedastic disturbances in a linear regression model is developed using the framework of the Lagrangian multiplier test. For a wide range of heteroscedastic and random coefficient specifications, the criterion is given as a readily computed function of the OLS residuals. Some finite sample evidence is presented to supplement the general asymptotic properties of Lagrangian multiplier tests.

Full text available on-line at:

http://www.jstor.org/pss/1911963

1.71 Pagan, Adrian, 1978. "Rational and polynomial lags: The finite connection," Journal of Econometrics, Elsevier, vol. 8(2), pages 247-254, October.

This article demonstrates that, for a finite distributed lag, the polynomial distributed lag (PDL) approximation suggested by Almon is a special case of the rational lag method formalized by Jorgenson. The proof relies upon the fact that the PDL estimator imposes differencing restrictions upon the parameters while rational lag methods impose quasi-differencing restrictions. Because of this relationship, the PDL restrictions are nested inside the rational lag ones, and this provides for a sequence of tests to discriminate between the two. An example is performed and an appendix describes an asymptotically efficient two-step estimator.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6VC0-45828V6- 45/2/c4377fbecb0b80d0f5e2a7add042afd3

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1.72 Nicholls, D F and Pagan, A R, 1977. "Specification of the Disturbance for Efficient Estimation-An Extended Analysis," Econometrica, Econometric Society, vol. 45(1), pages 211-17, January.

Sometimes it is suggested that end users can improve forecasts by some kind of corrections. At least implicitly, the idea is to use such corrections if the forecasts appear too inaccurate by some criteria. Alternative forecasts can be defined based on Full text available on-line at:

http://www.jstor.org/pss/1913297

No abstract available.

Full text available on-line at:

http://www.jstor.org/pss/2297215

No abstract available.

Full text available on-line at:

http://www.jstor.org/pss/2525897

1.75 Pagan, Adrian R, 1975. "A Note on the Extraction of Components from Time Series," Econometrica, Econometric Society, vol. 43(1), pages 163-68, January.

Full text available on-line at:

http://www.jstor.org/pss/1913421

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No abstract available.

Full text available on-line at:

http://www.jstor.org/pss/2525888

1.77 Pagan, Adrian, 1973. "Efficient estimation of models with composite disturbance terms," Journal of Econometrics, Elsevier, vol. 1(4), pages 329- 340, December.

No abstract available.

Full text available on-line at:

http://www.sciencedirect.com/science/article/B6VC0-4582CV1- 2/2/47d8625052095a08ed8750684232d967

No abstract available.

Full text available on-line at: http://www.sciencedirect.com/science/article/B6VC0-4582CV1- D/2/306cc6d5fad7b38c0d215a907a1c555d

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2 CHAPTERS

No abstract available.

Full text available on-line at:

http://www.rba.gov.au/publications/confs/1995/pagan-fitzgerald.pdf

2.2 Adrian Pagan, 1993. "A Perspective," RBA Annual Conference Volume, in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia.

No abstract available.

Full text available on-line at:

http://www.rba.gov.au/publications/confs/1993/pagan.pdf

No abstract available.

Full text available on-line at: http://www.sciencedirect.com/science/article/B7GX7-4DXJCWR- Y/2/ebdcab71e3b04960ffca9cc02c4c6dea

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3 BOOKS

3.1 Preston, A. J. and Pagan, A. R., 2008. "The Theory of Economic Policy," Cambridge Books, Cambridge University Press, number 9780521070225.

This book provides a unified analysis of the theory of economic policy, presenting static and dynamic aspects of both the fixed and flexible objective policy problems. The authors conceive of the abstract theory of economic policy as the interaction of policy possibilities with policy-making requirements. Policy possibilities are depicted by a known, linear model relating sets of targets, instruments and other variables. Policy-making requirements are imposed in two forms: directly by nominating a specific fixed target in the tradition of Tinbergen; and indirectly by specifying preferences about targets - the flexible target associated with Theil.

3.2 Pagan, Adrian and Ullah, Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521586115.

This book systematically and thoroughly covers the vast literature on the nonparametric and semi parametric statistics and econometrics that has evolved over the last five decades. Within this framework this is the first book to discuss the principles of the nonparametric approach to the topics covered in a first year graduate course in econometrics, e.g. regression function, heteroskedasticity, simultaneous equations models, logit-probit and censored models. Nonparametric and semi parametric methods potentially offer considerable reward to applied researchers, owing to the methods’ ability to adapt too many unknown features of the data. Professors Pagan and Ullah provide intuitive explanations of difficult concepts, heuristic developments of theory, and empirical examples emphasizing the usefulness of the modern nonparametric approach. The book should provide a new perspective on teaching and research in applied subjects in general and econometrics and statistics in particular.

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