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  • "Identifying the Effects of Sanctions on the Iranian Economy using Newspaper Coverage", by Dario Laudati and M. Hashem Pesaran, forthcoming in Journal of Econometrics, January 2023, Cambridge Working Papers in Economics, CWPE2310.

    Abstract: This article is our personal perspective on the IPS test and the subsequent developments of unit root and cointegration tests in dynamic panels with and without cross-section dependence. In this note, we discuss the main idea behind the test and the publication process that led to Im, Pesaran and Shin (2003).
    JEL Classifications: C01, C23
    Key Words: Dickey and Fuller statistic, stationarity, panel unit root tests, prevalence of unit roots
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  • "Identifying the Effects of Sanctions on the Iranian Economy using Newspaper Coverage", by Dario Laudati and M. Hashem Pesaran, forthcoming in Journal of Applied Econometrics, October 2022, Cambridge Working Papers in Economics, CWPE2155.

    Abstract: This paper focuses on the identification and quantitative estimation of sanctions on the Iranian economy over the period 1989–2019. It provides a new time series approach and proposes a novel measure of sanctions intensity based on daily newspaper coverage. In absence of sanctions, Iran’s average annual growth could have been around 4-5 per cent, as compared to the 3 per cent realized. Estimates of the proposed sanctions-augmented structural VAR show that sanctions significantly decrease oil export revenues, result in substantial depreciation of Iranian rial, followed by subsequent increases in inflation and falls in output growth. Keeping other shocks fixed, two years of sanctions can explain up to 60 per cent of output growth forecast error variance, although a single quarter sanction shock proves to have quantitatively small effects.
    JEL Classifications: C32, E31, E65, F43, F51, O11, O53
    Key Words: Measures of sanction intensity, direct and indirect effects of sanctions, sanctions-augmented structural VAR, impulse responses, forecast error variance decompositions.
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  • "Social Distancing, Vaccination and Evolution of COVID-19 Transmission Rates in Europe", by Alexander Chudik, M. Hashem Pesaran and Alessandro Rebucci, forthcoming in IMF Economic Review, June 2022, Cambridge Working Papers in Economics CWPE2230, CESifo Working Paper No. 9754.

    Abstract: This paper provides estimates of COVID-19 transmission rates and explains their evolution for selected European countries since the start of the pandemic taking account of changes in voluntary and government mandated social distancing, incentives to comply, vaccination and the emergence of new variants. Evidence based on panel data modeling indicates that the diversity of outcomes that we document may have resulted from the non-linear interaction of mandated and voluntary social distancing and the economic incentives that governments provided to support isolation. The importance of these factors declined over time, with vaccine uptake driving heterogeneity in country experiences in 2021. Our approach also allows us to identify the basic reproduction number, R0, which is precisely estimated around 5, which is much larger than the values in the range of 2:4 - 3:9 assumed in the extant literature.
    JEL Classifications: D0, F60, C4, I120, E7
    Key Words: COVID-19, multiplication factor, under-reporting, social distancing, SIR model, stochastic network models, reproduction number, pandemics, vaccine.
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  • "A Spatiotemporal Equilibrium Model of Migration and Housing Interlinkages, by Wukuang Cun and M. Hashem Pesaran, forthcoming in Journal of Housing Economics, April 2022, Cambridge Working Papers in Economics, CWPE2225

    Abstract: This paper develops and solves a spatiotemporal equilibrium model in which regional wages and house prices are jointly determined with location-to-location migration flows. The agent’s optimal location choice and the resultant migration process are shown to be Markovian, with the transition probabilities across all location pairs given as non-linear functions of wage and housing cost differentials, endogenously responding to migration flows. The model can be used for the analysis of spatial distribution of population, income, and house prices, as well as for spatiotemporal impulse response analysis. The model is estimated on a panel of 48 mainland U.S. states and the District of Columbia using the training sample (1976-1999), and shown to fit the data well over the evaluation sample (2000-2014). The estimated model is then used to analyze the size and speed of spatial spill-over effects by computing spatiotemporal impulse responses of positive productivity and land-supply shocks to California, Texas, and Florida. Our simulation results show that states with a lower level of land-use regulation can benefit more from positive state-specific productivity shocks; and positive land-supply shocks are much more effective in states, such as California, that are subject to more stringent land-use regulations.
    JEL Classifications: E00, R23, R31
    Key Words: location choice, joint determination of migration flows and house prices, spatiotemporal impulse response analysis, land-use deregulation, population allocation, productivity and land supply shocks, California, Texas and Florida
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  • "Arbitrage Pricing Theory, the Stochastic Discount Factor and Estimation of Risk Premia from Portfolios", by M. Hashem Pesaran and Ron P. Smith, forthcoming in Econometrics and Statistics, November 2021, CESifo Working Paper No. 9001

    Abstract: The arbitrage pricing theory (APT) attributes differences in expected returns to exposure to systematic risk factors. Two aspects of the APT are considered. Firstly, the factors in the statistical asset pricing model are related to a theoretically consistent set of factors defined by their conditional covariation with the stochastic discount factor (SDF) used to price securities within inter-temporal asset pricing models. It is shown that risk premia arise from non-zero correlation of observed factors with SDF and the pricing errors arise from the correlation of the errors in the statistical model with SDF. Secondly, the estimates of factor risk premia using portfolios are compared to those obtained using individual securities. It is shown that in the presence of pricing errors consistent estimation of risk premia requires a large number of not fully diversified portfolios. Also, in general, it is not possible to rank estimators using individual securities and portfolios in terms of their small sample bias.
    JEL Classifications: C38, G12
    Key Words: Arbitrage Pricing Theory, Stochastic Discount Factor, portfolios, factor strength, identification of risk premia, two-pass regressions, Fama-MacBeth.
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