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We explore whether a protective role for savings against future financial hardship exists using household level panel data for a nationally representative sample of UK households. We jointly model the incidence and extent of financial problems, using a dynamic two-part approach allowing different data-generating processes for experiencing financial hardship and the extent of financial hardship experienced. Our results show that: (i) saving on a regular basis mitigates against the likelihood of experiencing, as well as the number of, future financial problems; (ii) state dependence in financial problems exists; (iii) interdependence exists between financial problems and housing costs, with higher housing costs associated with an increased probability of experiencing financial hardship.

This paper examines the influence of tax administration corruption on different types of innovation inputs and outputs in Vietnam. It utilizes firm-level panel data derived from biennial surveys of small and medium sized enterprises (SMEs) in Vietnam from 2005 to 2015. In terms of estimation method, the study applies the control function method for a dynamic binary response panel data model with endogenous explanatory variables, state dependence, and initial condition problems simultaneously. The key estimation results confirm the grease-the-wheels hypothesis that petty tax corruption positively affects all types of firm innovative activities. It is further found that innovation outputs and machinery innovation input of an SME are positively determined by its innovation 2 years earlier and innovation in the initial period. The key finding of the study implies that it is a challenge for governments in transition economies to fight against tax corruption, especially for Vietnam, which is known to be a high tax collection, high tax effort country.

This study analyses the persistence and true state dependence of overqualification, i.e. a mismatch between workers' qualifications and their jobs' educational requirements. Employing individual-level panel data for Germany, I find that overqualification is highly persistent among tertiary graduates over the first ten years of their career cycle. Accounting for unobserved heterogeneity, results from dynamic random-effects probit models suggest that only a small share of the observed persistence can be attributed to a true state dependence effect. Unobserved factors are found to be the main driver of the high persistence of overqualification. In particular, selection into initial overqualification at the start of the career is of high importance. Furthermore, overqualification persistence is shown to be partly attributable to observed heterogeneity in terms of ability and study characteristics.

We introduce a set of test statistics for assessing the presence of regimes in out of sample forecast errors produced by recursively estimated linear predictive regressions that can accommodate multiple highly persistent predictors. Our test statistics are designed to be robust to the chosen starting window size and are shown to be both consistent and locally powerful. Their limiting null distributions are also free of nuisance parameters and hence robust to the degree of persistence of the predictors. Our methods are subsequently applied to the predictability of the value premium whose dynamics are shown to be characterized by state dependence.

This study evaluates how the state of the economy, as measured by the rate of unemployment, influences the short-term effects of tax changes on output and employment. I examine the effects of narratively identified tax changes by adopting two alternative approaches to estimating state-dependent impulse response functions that have been widely used in the recent literature. Both approaches suggest that short-term effects of tax changes on output and employment are smaller during times of higher unemployment. I argue that increased labor market slack and tighter credit conditions in contractionary periods can reduce the responsiveness of labor supply to changes in labor income taxes, resulting in smaller effects on output from tax changes.

In the presence of occasionally binding borrowing constraints, the responses of output to monetary policy shocks depend on the Euler equation of unconstrained households. Conversely, the set of unconstrained households depends on the responses of output. I show analytically that this equilibrium interaction creates state-dependent and asymmetric output responses. When stockholders’ incomes are more pro-cyclical than non-stockholders’, output responds less to monetary policy in recessions, and contractionary monetary policy is more powerful than expansionary policy. These results are consistent with the empirical evidence.

This study systematically broadens the relevance of possible model performance asymmetries across business cycles in the spirit of the recent state‐dependent forecast evaluation literature (e.g. Chauvet & Potter, 2013) to hundreds of macroeconomic indicators and deepens the forecast evaluation of the recent factor model literature on hundreds of target variables (e.g. Stock & Watson, 2012b) in a state‐dependent manner. Our results are consistent with both strands of the literature and generalize the former to over 200 macroeconomic indicators and differentiate the latter across three levels of temporal granularity: We document systematic model performance differences in both absolute and relative terms across business cycles (longitudinal) as well as across variable groups (cross‐sectional) and find these performance differences to be robust across several alternative specifications. The cross‐sectional prevalence and robustness of state dependency shown in this article encourages economic forecasters to complement model performance assessments with a state‐dependent evaluation of predictive ability.

This article conducts a microeconometric analysis of individual participation in tourism activities. We examine the existence of habit formation in the form of state dependence by which past trips increase the taste for traveling. We also study the role of regional unemployment rates, regional price indexes, and climate conditions at origin on the likelihood of tourism participation. Individual and household characteristics are also controlled for. We use monthly longitudinal microdata for Spain between 2015 and 2018 involving more than 92,000 individuals. We estimate static and dynamic random effects Probit models finding evidence of habit formation. The initial conditions and participation in the previous month raise the propensity to make a tourist trip in the following period by 28 percentage points. Habit formation is found to be strongly associated with income and education.

PurposeThe purpose of this study is to enhance understanding labour supply dynamics of the UK workers by examining whether and to what extent there is state dependence in the labour supply at both the extensive and intensive margins.Design/methodology/approachA dynamic two-tiered Tobit model is applied to the first seven waves of Understanding Society: the UK Household Longitudinal Study. The model used accounts for observed and unobserved individual heterogeneity and serially correlated transitory shocks to labour supply to draw inferences on state dependence.FindingsThe results show that both observed and unobserved individual heterogeneity contributes to observed inter-temporal persistence of the labour supply of the UK workers, and the persistence remains after these factors are controlled for, suggesting true state dependence at both the extensive and intensive margins of the labour supply. The study also finds that at both the margins, the state dependence of labour supply is larger for females than for males and that for both genders the state dependence is larger for people with low education, mature aged workers and people with long-standing illness or impairment. The results also show that estimates from a conventional Tobit model may produce misleading inferences regarding labour supply at the extensive and intensive margins.Originality/valueThis study adds to the international literature on labour supply dynamics by providing empirical evidence for both the extensive and intensive margins of labour supply, while previous studies tend to focus on the extensive margin of labour force participation only. Also, unlike earlier studies that often focus on females, this study compares labour supply dynamics between males and females. The study also compares the estimates from the more flexible two-tiered Tobit model with that from the conventional Tobit model.

We examine whether discouraged and added worker effects are state-dependent, business cycle phase-dependent, or change stochastically. We use quarterly LFS data for the 1995–2016 period for Poland....

Purpose The purpose of this paper is to investigate the impact of a consumer confidence shock on GDP and different types of consumer spending during a slack state as well as a non-slack state of an economy. Design/methodology/approach The authors use the US quarterly data from 1960Q1 to 2014Q4 and apply Jorda’s (2005) local projection method to compute the impulse responses of macroeconomic variables to a consumer confidence shock. The local projection method allows us to include non-linearities in the response function. Findings In general, the response of output, following a consumer confidence shock, is similar in slack and non-slack states and indicate that an unfavorable confidence shock is contractionary. However, the intensity and duration of impact of a confidence shock on different components of spending are state dependent. Overall, a negative confidence shock appears to have a stronger impact on non-slack time than on a slack time. Practical implications Policy makers should be careful about undertaking a policy action that may affect consumer confidence adversely, particularly during an economic good time. An adverse confidence shock can trigger a downfall in a well-functioning economy and the dampening effect may last for several quarters before the economy rebounds. Originality/value US economy is subject to fluctuations; however, the literature on the impact of confidence shock in different economic states is limited. The incremental contribution of this paper is that it investigates how the consumers respond to the confidence shock in a state-dependent model. Furthermore, the authors use a more robust and alternative estimation method that tackles any non-linear problems.

We employ linear and nonlinear unit-root tests to examine the stationarity of five multi-century historical U.K. series of real output compiled by the Bank of England. Three series span 1270 to 201...

I apply prospect theory to explain patterns of flexible spending account (FSA) utilization that suggest the presence of status quo bias. Using prospect theory as an alternative to expected utility maximization, I show that loss aversion with an endogenous, interior reference level provides a plausible explanation for low participation rates and state dependence. Using 17 years of data from a private benefits firm, I find that FSA participation rates have increased but remain surprisingly low. I estimate models of FSA participation and find significant evidence of state dependence, meaning that past FSA participation is an important determinant of future participation.

This paper tests Uncovered Interest Rate Parity (UIP) using LIBOR rates for six major international currencies for the period January 2001 to December 2008. We find that UIP generally holds over a short-term (above 5-months) horizon for individual as well as groups of currencies. Our results suggest that it is important to consider the cross-correlation between currencies. We also find that “state dependence” plays an important role for currencies with a negative interest rate differential vis-à-vis the US dollar. This state dependence could also be instrumental in explaining exchange rate overshooting.

This paper investigates the relationship between self-reported health and material hardship among older Americans. Differently from income-based measures, material hardship provides a more specific description of the concrete adversities faced by the elderly. We have used the last six waves of the Health and Retirement Study to explore the relative contributions of state dependence, unobserved heterogeneity and time-specific shocks on reporting poor health, experiencing food insecurity and medication cutbacks. We have used a Latent Markov model to estimate a multivariate non-linear system of equations for panel data allowing time-varying unobserved heterogeneity. Our results reveal a high state dependence of both health and material hardship conditions. Estimated trajectories reveal that pathways of material hardship are associated differently with health. Material hardship is also spread across its dimensions.

The existence of state dependence derived from panel data has played a very important role in studying employment and labor policies. This study is about state dependence of the transportation sector using retrospective panel survey data. The Ministry of Land, Infrastructure and Transport of Korea has conducted the survey to monitor changes in vehicle ownership and usage nationwide and to prepare measures when oil prices tend to rise sharply. From this data, we identify the existence of state dependence on passenger cars, public transportation, and nonmotorized modes. To do this, we estimate and analyze the dynamic random effects probit model that explains the selection of each transportation mode after controlling for the unobserved individual heterogeneity. Our results indicate that despite the rise of oil prices, behavior of habitual use (i.e., state dependence) of transportation modes is found in all three modes. The amount of state dependence of nonmotorized modes was the largest, followed by passenger cars and public transportation. From the estimated models, important policy implications can be drawn from the fact that the presence of state dependence and the importance of early habit formation are important not only in nonmotorized modes but also in public transportation. In other words, if policy makers want to encourage people to use public transportation in a new city, it suggests that a sufficient and convenient public transportation network should be built before people move to the city. Once cities are built without sufficient public transportation networks and people have become accustomed to using private cars, then it will be more difficult to change their transportation modes, requiring much more social efforts and costs.

This study provides a comprehensive description of the intra-day dynamics of major US-Dollar spot exchange rates. We use quantile autoregression to investigate the presence of (non-)linear temporal dependence in foreign exchange returns at various intra-daily time-horizons, ranging from ten minutes up to three hours. Specifically, we investigate an 11-year long sample of non-intermittent high frequency returns for the Euro (EUR), the British Pound (GBP) and the Japanese Yen (JPY) against the US-Dollar (USD). In contrast to previous studies, we find the temporal dependence of intra-daily foreign exchange returns to be non-linear and symmetrically U-shaped. Specifically, we observe pronounced negative autocorrelation for moderate USD appreciations and depreciations (central quantiles). For extreme positive and negative USD movements, we detect positive autocorrelation. This symmetric non-linear form of temporal dependence is remarkably stable across different exchange rates and states of the market. It appears to be a unique feature of foreign exchange returns and might be related to the fundamental ‘two-sidedness’ of foreign exchange markets.

* Revised：The association between time preference and smoking behavior: A dynamic panel analysis [16-16, 2016]

Using the 2008‐2011 EU‐Statistics on Income and Living Conditions data, we implement a dynamic three‐level model to analyze poverty persistence in 26 EU countries. We isolate true state dependence phenomena by disentangling the effects of observed and unobserved heterogeneity at country level and employ cofactors not previously considered by the literature. Estimates show that unobserved heterogeneity across individuals remains large, even after explicitly controlling for the observable components of individual characteristics. The initial value of poverty has large effects on current poverty status but this effect is not uniform across countries. The risk of poverty is negatively related to the size of the structural middle class and to the level of structural social expenditure but it increases when lagged total public expenditure increases (with respect to the structural value). There is strong evidence of true state dependence.

This paper investigates how the presence of disabled member(s) affects the household risk of being socially excluded in Italy. By using a dynamic probit model with correlated random effects and accounting for endogenous initial conditions, we find that the presence of severely disabled member(s) increases the probability of being socially excluded by 2.5%. Importantly, we find that genuine state dependence is greater, by about 20% in relative terms, for households with disabled member(s) than their counterparts, indicating that the former experience greater difficulties in escaping from social exclusion. This suggests that policies aimed at preventing social exclusion would be particularly effective for households with disabled member(s). All these findings hold when accounting for endogeneity of disability and social exclusion because of possible feedback effects. Finally, our estimates confirm that in Italy low education, living in the South and the presence of children increase the probability of a household being socially excluded.

This paper documents state dependence in labor market \ud uctuations. Using a Threshold\ud Vector Autoregression model (TVAR), we establish that the unemployment rate, the job\ud separation rate, and the job finding rate exhibit a larger response to productivity shocks\ud during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model\ud with endogenous job separation and on-the-job search replicates these empirical regularities\ud well. We calibrate the model to match the standard deviation of the job-transition rates\ud explained by productivity shocks in the TVAR, and show that the model explains 88 percent\ud of the state dependence in the unemployment rate, 76 percent for the separation rate and\ud 36 percent for the job finding rate. The key channel underpinning state dependence in both\ud job separation and job finding rates is the interaction of the firm's reservation productivity\ud level and the distribution of match-specific idiosyncratic productivity. Results are robust\ud across several variations to the baseline model.

This paper investigates whether economic activity dynamics predict GDP revisions using panel data from 15 OECD countries. We find that economic activity predicts GDP revisions: early releases tend to overestimate GDP growth during slowdowns — and vice-versa. We also find that the source of the predictability could be related to the sampling of information collection. Finally, the predictability comes from short-term economic activity dynamics rather than business cycle position.

Highlights • We propose a model with uninsured unemployment risk that generates countercyclical spending multipliers • Government spending lowers precautionary saving, which further raises aggregate demand • Due to labor-market frictions, this channel is more potent in recession than in expansion, We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labor market and reduces unemployment. This in turn lowers unemployment risk and thus precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in total population increases in response to the spending shock. These features, along with the matching frictions in the labor market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk more in the former case than in the latter, giving rise to countercyclical multipliers.

Consumers are heterogeneous in their inertial responses to previous consumptions. Information on consumers&rsquo, structural state-dependence is valuable for evaluating consumers&rsquo, habit-forming strength and thus can be used for encouraging more sustainable consumption. Conventional methods of estimating such effects are complex and require repeated purchase data, which is difficult to obtain when consumers are inexperienced in buying sustainable products. In this paper, we utilize consumers&rsquo, previous switch behaviour data and investigate whether it can explain heterogeneous state-dependence effects. We demonstrate this in consumer-packaged goods markets using scanner datasets. Consumers&rsquo, normalized brand switches in a different product category several years ago are used to measure inter-temporal preference variations that are stable and are independent of products and markets. Accounting for household characteristics, we find that some variation in switch behaviour is highly stable: it explains a significant portion of consumers' structural state-dependence in the market under investigation. Therefore, consumers&rsquo, switch tendencies can be structural to their preference. The finding suggests that incorporating consumers&rsquo, switch behaviour from other choice domains can be a simple and effective method of understanding the heterogeneous effects behind habit formation. Our constructed measure has broad implications in shifting consumer behaviour to be more sustainable.

We study how demand for health insurance responds to family formation using a unique panel of young Australian women. Our data allow us to simultaneously control for the influence of state dependence and unobserved heterogeneity and detailed information on children and child aspirations. We find evidence that women purchase insurance in preparation for pregnancy but then transition out of insurance once they have finished family building. Children have a large, negative impact on demand for insurance, although this effect is smaller for those on higher incomes. We also find that state dependence has a large impact on insurance demand. Our results are robust to a variety of alternative modelling strategies.

We investigate the state dependence of the variance of the instantaneous variance of the S&amp, P 500 index empirically. Time-series analysis of realized variance over a 20-year period shows strong evidence of an elasticity of variance of the variance parameter close to that of a log-normal model, albeit with an empirical autocorrelation function that one-factor diffusion models fail to capture at horizons above a few weeks. When studying option market behavior (in-sample pricing as well as out-of-sample pricing and hedging over the period 2004&ndash, 2019), messages are mixed, but systematic, model-wise. The log-normal but drift-free SABR (stochastic-alpha-beta-rho) model performs best for short-term options (times-to-expiry of three months and below), the Heston model&mdash, in which variance is stationary but not log-normal&mdash, is superior for long-term options, and a mixture of the two models does not lead to improvements.

First published online: June 2020 This paper studies the unobserved factors accounting for the stickiness of unemployment and for its micro-level longitudinal accumulation. The paper disentangles 'genuine state dependence' from unobserved heterogeneity in individual characteristics and accounts for their weight and possible interplay. In addition, it proposes an innovative framework for investigating heterogeneity in unemployment persistence. In particular, the paper documents variation in unemployment dynamics across workforce segments defined by unobserved factors associated with patterns of past unemployment. Analyses apply correlated dynamic random-effects probit models to EU-SILC data from 2004 to 2015 for four European countries (DK, FR, IT and UK). Empirical results indicate that unobserved heterogeneity, genuine state dependence and their interaction, are relevant factors to take into account in explaining the recurrence and accumulation of unemployment and long-term unemployment risks. The analysis also shows how the role of these two factors and, relatedly, the dynamics of risks accumulation vary according to different institutional contexts. Finally, the paper discusses how the joint evaluation of unobserved heterogeneity, genuine state dependence and their interplay can provide fruitful insights for theories of cumulative advantages and the efficient design of policy measures intended to address the accumulation of occupational penalties over time.

Forecasts are a central component of policymaking; the Federal Reserve's forecasts are published in a document called the Greenbook. Previous studies of the Greenbook's inflation forecasts have found them to be rationalizable but asymmetric if considering particular subperiods, for example, before and after the Volcker appointment. In these papers, forecasts are analyzed in isolation, assuming policymakers value them independently. We analyze the Greenbook forecasts in a framework in which the forecast errors for different variables are allowed to interact. We find that allowing the losses to interact makes the unemployment forecasts virtually symmetric, the output forecasts symmetric prior to the Volcker appointment, and the inflation forecasts symmetric after the onset of the Great Moderation.

We introduce a state-dependent zero-inflation mechanism for count distributions with unbounded or bounded support. Instead of uniformly downweighting the parent distribution, this flexible approach allows us to generate most of the zeros from either low or high counts. We derive the stochastic properties of the inflated distributions and discuss special instances designed for zero inflation caused by, for example, excessive demand or underreporting. Furthermore, we apply the state-dependent zero-inflation mechanism to generalize existing models for count time series with bounded support.

We study the market for new (movie) DVDs in the United States. Our demand model captures seasonality, freshness (i.e., time between theatrical and DVD release), and state dependence. We also develop a structural model of dynamic competition in which studios balance waiting for high-demand weeks, against reduced freshness, and against competitive crowding. We find that studios emphasize DVD revenues from larger movies (by theatrical revenue) over DVD revenues from smaller movies. Studios also emphasize revenue from consumers who prefer larger and fresher movies. These behaviors are consistent with managerial conservatism: studio executives forgo DVD revenues from smaller movies to ensure the DVD success of larger movies. This paper was accepted by J. Miguel Villas-Boas, marketing.

This paper studies the effects of government spending on China’s output with a threshold structural vector autoregressive model. The empirical findings suggest that increasing government expenditure significantly raises China’s aggregate output. Contrary to the evidence of countercyclical fiscal multipliers in the advanced economies, China’s fiscal multiplier tends to be procyclical, suggesting a novel fiscal policy transmission mechanism in China.

In the last thirty years, migrant remittances have become a stable source of external finance for developing countries. In this paper, we investigate whether aggregate persistence can be traced back to individual remitting behaviour, as a result of migrants’ intertemporal choices. We propose a dynamic random-effects double hurdle model based on micro data from the German Socio-Economic Panel dataset. Our results show that there is significant state dependence in remitting behaviour, but in steady-state neither the probability to remit nor the transferred amounts are particularly large, thus suggesting that long-term intertemporal planning is rather sporadic. On these grounds, the medium-long term counterbalancing effect of remittances on the brain drain appears to be weak.

Purpose The purpose of this paper is to enhance the understanding of labour force participation behaviour of married Australian women, with a focus on identifying the sources of observed inter-temporal labour force participation persistence. Design/methodology/approach A dynamic Probit model is applied to the Household, Income and Labour Dynamics in Australia (HILDA) Survey, a national representative panel survey of Australian households. The model used accounts for observed and unobserved individual heterogeneity and serially correlated transitory shocks to labour supply. Findings The results show that both observed and unobserved individual heterogeneity contributes to observed inter-temporal persistence of labour force participation of married Australian women, but the persistence remains even after controlling for these factors. It is also found that failing to control for serially correlated unobserved transitory shocks would lead to underestimation of genuine state dependence of labour force participation; and that state dependence of labour force participation varies with age, education, health, immigration status and the number of children under the school age. Originality/value This study adds to the international literature on labour force dynamics of women by providing Australian empirical evidence and through a flexible modelling framework. The result that there exists genuine positive state dependence in married Australian women’s labour force participation suggests that policy intervention that increases married women’s labour supply would have a long-lasting effect.

The discrete stochastic nature of typical queuing problems calls for discrete-event simulation, rather than continuous simulation that would ignore the discrete details that may be important in que...

Despite poverty alleviation efforts, almost a quarter of households live below the poverty line in Turkey. This article aims to examine the dynamics of poverty focusing on poverty persistence in Turkey, utilizing Income and Living Conditions panel data belonging to 2010-2013. A random effects dynamic panel probit model has been employed. In order to tackle the initial values problem Heckman's reduced form approximation is utilized. Empirical results indicate that gender, educational attainment, employment type, and household structure have statistically significant impact on the probability of being poor. Besides, experiencing poverty has a positive impact on future poverty likelihood, signalling state dependence. Scientific and Technological Research Council of Turkey (TUBITAK)

Using the first 13 waves of the Household, Income and Labour Dynamics in Australia Survey, this study investigates the determinants of labour supply of married Australian women, with a focus on whether and to what extent there is state dependence in their labour supply. It is found that both observed and unobserved individual heterogeneity contribute to the observed inter‐temporal persistence of married Australian women's labour supply, but the persistence remains even after controlling for these factors. It is also found that non‐labour income, age, education, health and the number and age of young dependent children have significant effects on married Australian women's labour supply.

In transportation planning and design studies it is customary to consider the network in its equilibrium state. Equilibrium conditions in the presence of Advanced Traveller Information Systems (ATIS) and recurrent congestion have been formulated either according to some behavioural principle derived from Wardrop’s assumption, or as fixed-point states of day-to-day dynamic assignment processes. In the latter approach only, a differentiation has been introduced between predictive ATIS and ATIS providing static information, but the impacts on equilibrium travel times are relatively unexplored. In addition, the route choice updating model is formulated without consideration of state-dependent effects, such as inertia to change. This forms the motivation for the present paper. According to traffic information sources, three classes of users are considered: (a) users with predictive information, (b) users with static information and compliant, (c) users not equipped with ATIS or noncompliant. Users of the three classes make choices in a stochastic manner based on a logit model subject to inertia. Users of the first class have lower perception variance in view of the higher information quality. The compliance rate is endogenous and dependent on the information accuracy of the static ATIS. The fixed points in the class-specific route flows of the dynamic day-to-day processes characterise a new concept of network equilibrium, referred to as Mixed User Equilibrium (MUE), where, if each user shifts from her currently used route to her newly chosen route, the observed class-specific route flows do not change. A variant of the method of successive averages is proposed for computing MUE. The model is illustrated by an example related to the Nguyen-Dupuis network. The impacts on equilibrium travel times of the market penetration of ATIS with different functionalities as well as of inertia are examined.

This study examines dynamics of solo self-employment. In particular, we investigate the extent of true state dependence and cross state dependence, i.e., whether experiencing solo self-employment causally affects the probability of becoming an employer in the future. We use data from the German Socio-Economic Panel to estimate dynamic multinomial logit models. Our results show that the extent of true (cross) state dependence is rather small. The observed persistence in solo self-employment as well as transitions from solo self-employment to employership can largely be explained by observed and unobserved heterogeneity.

In this paper we argue that inappropriate handling of technological heterogeneity distorts the benchmarking process eroding performance scores. Country- and industry-specific frontier studies have been the dominant approaches in explaining productivity differentials stating that heterogeneous performance patterns are attributed to different sources. However, studies bringing together the above approaches have not been surfaced yet. We fill that void by partitioning the metafrontier to account for alternative technological hierarchies. To disentangle the layers of complexity triggering heterogeneous performance, we introduce two types of heterogeneity each one referring to different stages of the performance evaluation process. To identify the Decision making unit-Specific Heterogeneity type, attached to each entity, we propose the w-ratio as a result of an iterative algorithm developed herein. In order to identify the Hierarchical Structural Heterogeneity type arising under alternative hierarchical structures, we define thresholds of heterogeneity. Using data on seventeen European countries and thirteen industries from manufacturing and transportation from 1999 through 2006 and employing a control function approach with one endogenous covariate, we find that the DSH and the HSH type are endogenously related via the role of the state dependence while the path dependence phenomenon is a major catalyst for future technological achievements and productivity improvements. Transition economies and fragmented industries exhibit persistent technological heterogeneity regardless of the technological structure adopted, since further development is mostly affected by past characteristics of the economic environment implying low subsequent competitiveness.

The Integrated Multimodal Travel Information (IMTI) plays an important role in the evolution process of holiday travel behaviour, which is seldom investigated. To fill this gap, this study analyses holiday travel behaviour dynamics with IMTI usage, based on the life-oriented approach. IMTI usage is taken as a separate life domain in this study, and a two-way relationship between holiday travel biography and IMTI usage biography over the life course, is examined after controlling for the effects of residential, household structure, employment/education, and car ownership biographies. Based on the web-based life history survey data, statistical characteristics of mobilities in each life biography are first analysed. Then, different random-effects ordered logistic models are established to investigate the biographical interdependencies from three aspects: intra-domain interdependency, inter-domain interdependency and outer-domain interdependency. The results show that the life biography is not only affected by a personal life course, but also affected by external background of the times. Under the interaction of inner individual factors and outer environment factors, there is an obvious dynamic two-way relationship between holiday travel biography and IMTI usage biography. Meanwhile, residential, household structure, employment/education and car ownership biographies have significant effects on these two life biographies. Especially, the influence of long-term state dependence for different life domains, over the life course, is much more obvious when explaining holiday travel behaviour dynamics and IMTI usage mobilities. Therefore, the life-oriented approach provides a valid method for analysing the dynamics of holiday travel behaviour with IMTI usage.

People are intent to make similar choices especially in consumer goods markets. To address both explanations of this persistence, i.e. state dependence and heterogeneity in preferences, we use random coefficient logit model based on scanner panel data on juice purchases. The product differentiation of the chosen category allows us to model three dimensions of state dependence on brand, size and flavor characteristics. We provide evidence that the persistence in brand choices is positively correlated with persistence in size and flavor choices, thus the consumer pattern is prone to be inertial or variety seeking in every product characteristics. Simultaneously we show that the more sensitive to price and promotional activities consumers are, the less inertial is their behavior.

An individual's economic ill fare can be assessed both objectively, looking at one's income with reference to a poverty line, or subjectively, on the basis of the individual's perceived experience of financial difficulties. Although these are distinct perspectives, income poverty and perceptions of financial difficulties are likely to be interrelated. Low income (especially if it persists) is likely to negatively affect perceptions of financial difficulties and, as recently suggested by the behavioural economics literature, (past) subjective sentiment may in return influence individual's income generating ability and poverty status. The aim of this paper is to determine the extent of these dynamic cross-effects between both processes. Using Luxembourg survey data, our main result highlights the existence of a feedback effect from past perceived financial difficulties on current income poverty suggesting that subjective perceptions can have objective effects on an individual's behaviour and outcomes Ayllón gratefully acknowledges financial support from NEGOTIATE (Horizon 2020, Grant agreement No. 649395) and the Spanish projects ECO2013-46516-C4-1-R, ECO2016-76506-C4-4-R and 2014-SGR-1279 and Fusco from the Luxembourg Fonds National de la Recherche through the funding of the PersiPov project (contract C10/LM/783502) and by core funding for the Luxembourg Institute of Socio-Economic Research (LISER, formerly CEPS/INSTEAD) from the Ministry of Higher Education and Research of Luxembourg

Focusing on the individual heterogeneity, this article examines the causes of an individual’s employment status choice and the extent of state dependence in the Korean labour market. We estimate a dynamic multinomial logit model using the panel data drawn from the first to fifteenth wave of the Korean Labour and Income Panel Study. The results suggest the presence of state dependence. Individual characteristics and growth background have a significant effect on the choice of employment status. Gender is still an important employment factor; males are more likely to be employed and this gender effect is highest for regular employment (RE). One’s educational attainment and age operate in opposite directions. That is, educational attainment (age) has a positive (negative) impact on the choice of a regular job and a negative (positive) impact on the choice of a non-regular job. Contrary to our expectations, a wealthy family background reduces the probability of individuals being wage workers, and rais...

This paper explores and quantifies the importance of parent brand state dependence to forward looking pricing outcomes in the area of umbrella branding and multi-product firms. We show through numerical simulations that loyalty (inertia) to the parent brand can decrease prices and reduce profits, as well as mitigate or even reverse the benefits of joint profit maximization relative to sub-brand profit maximization. These effects are mediated by brand asymmetries and the relative magnitude of sub-brand state dependence effects. Empirically, we focus on the Yogurt category, where we consider parent brands with several sub-brands. Using household level scanner data, we estimate the parameters that characterize consumer demand while flexibly accounting for consumer heterogeneity. We also estimate unobserved product costs based on a forward looking price setting game. Through counterfactual analysis, we study the overall effect of parent brand state dependence on prices and profits, as well as the empirical impact of joint profit maximization and changes in firms’ beliefs regarding consumer inertia. Our findings have implications for markets where demand is likely characterized by parent brand dynamics.

Using Australian labour force data, both cross-sectional and longitudinal, this study examines the dynamics of self-employment with a particular focus on workers transitioning between self-employment and salaried employment, and the extent to which self-employment is the result of workers' observed and unobserved characteristics or is instead determined by their prior employment experience itself. Probability models of self-employment using both pooled-panel probit and dynamic random-effects panel probit methods are estimated, and the results are found to be extremely sensitive to the differences in the econometric methods. Once unobserved heterogeneity and initial conditions are controlled for in the dynamic model, the importance of observed characteristics in determining self-employment is greatly diminished. Instead, workers' past experience in self-employment (as opposed to salaried employment) is found to have a large favourable effect on their future self-employment prospects. The influence of this state dependence is also considerably more important in determining self-employment outcomes than salaried ones. Despite establishing the importance of state dependence, however, what this effect implies about why individuals choose to become self-employed or the role that self-employment plays in the labour market remains unresolved. [ABSTRACT FROM AUTHOR]

In this study we empirically examine the persistence across input and output indicators of innovation using a panel of Spanish manufacturing firms during the period 1990–2013. We use R&D as innovation input and technological innovation, product innovation and process innovation as output measures. We analyse the transition matrices and design an econometric strategy consisting of the estimation of various specifications using random effects dynamic probit models that account for state dependence, unobserved heterogeneity and endogenous initial conditions. Findings indicate the presence of true persistence in all our innovation indicators. They also show the existence of different degrees of persistence depending on the innovation measure used. Persistence in R&D increases around 20% the probability of conducting R&D. The highest persistence is associated with technological innovation. The probability of introducing a technological or process innovation is 28% higher for firms that have innovated i...

Drawing on firms’ reactions to the changing macroeconomic conditions prior to and after the global financial crisis of 2008–09, this article presents evidence for the state dependence of wage setting. Further, the article investigates the underlying mechanisms of state dependence by distinguishing between firms’ general characteristics and financial performance and the environment in which firms operate. The results, based on a survey of Czech firms, show that the frequency of wage adjustment is higher for large firms, foreign-owned firms, firms covered by collective agreements, firms in good financial condition, and firms facing positive shocks, while negative demand shocks and strong competition reduce the frequency of wage adjustment.

Employing the U.S. data for the 1990’s, we disentangle state dependence from unobserved heterogeneity in earnings mobility. The fixed effects dynamic multinomial logit utilized to model earnings qu...

This article is one of the first to examine how the use of fixed-term employment contracts (FTCs) affects firm competitiveness (i.e. productivity, wages and profits) while controlling for key econometric issues such as time-invariant unobserved workplace characteristics, endogeneity and state dependence. We apply dynamic panel data estimation techniques to detailed Belgian linked employer–employee data covering all years from 1999 to 2010. Results show that the effects of FTCs on firm competitiveness vary across sectors: while temporary employment is found (at the 10 per cent significance level) to enhance productivity and profits in (labour-intensive) services, this is not the case in manufacturing and construction.

This study investigates the dynamics of adolescents’ life satisfaction and the effects of academic success on life satisfaction using the Korean Youth Panel Survey (KYPS) 2003–2007 data. Unlike previous studies, our dynamic ordered probit models allow for persistence in life satisfaction which is attributable both to unobserved individual heterogeneity and to state dependence. First, we find that strong state dependence exists in adolescents’ life satisfaction, that is, current life satisfaction is significantly affected by the previous state. Second, we show that academic success undoubtedly has a positive effect on adolescents’ life satisfaction even after controlling for state dependence. Finally, we present that there exists an interesting gender difference: boys show stronger persistence in the state of high life satisfaction, whereas girls have stronger persistence in dissatisfaction.