Tallinn University of Technology

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP) [www.taltech.ee/en/ibep], which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the seminar coordinator Kadri Männasoo, kadri.mannasoo@taltech.ee.

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Seminar schedule for the 2021/2022 academic year

*Please note that the programme is preliminary and that changes can be made

Date Presenter Topic
08.09.2021 SOC-414 / MS Teams Michael Funke (University of Hamburg / TalTech) The Political Globalisation Trilemma Revisited: An Empirical Assessment Across Countries and Over Time
29.09.2021 SOC-415 / MS Teams Kaire Põder (EBS) and Triin Lauri (Tallinn University) The Paradox of State-Funded Higher Education: Winner Still Takes it all?
MS Teams
Simona Ferraro Measuring Mismatch in the Estonian Labour Market
27.10.2021 SOC-413 / MS Teams Simona Ferraro Non-Profit Youth Work Organizations in Estonia: an Analysis of Efficiency
10.11.2021 SOC-413 / MS Teams Aaro Hazak and Marit Rebane COVID-19 and Self-Reported Health Indicators among the Estonian Labour Market Segment
24.11.2021 SOC-413 / MS Teams Helery Tasane How the EU Cohesion Policy Targeted at R&D and Innovation Impacts the Productivity, Employment and Exports of SMEs in Estonia
08.12.2021 SOC-413 / MS Teams Flavio Hafner (Aalto University) The Equilibrium Effects of Workers' Access to Jobs: Evidence from a Labor Market Integration
09.02.2022 SOC-413 / MS Teams Michael Funke (University of Hamburg / TalTech) The US-China Phase One Trade Deal: An Economic Analysis of the Managed Trade Agreement, by Michael Funke and Adrian Wende
09.03.2022 SOC-413 / MS Teams Artjom Saia R&D Varying CO2 Emissions Regime Shift: A Panel Smooth Transition Regression Analysis
23.03.2022 SOC-413 / MS Teams Kaido Kepp and Karin Jõeveer What Drives Drivers? Switching, Learning and the Impact of Claims in Car Insurance
06.04.2022 SOC-413 / MS Teams João Paulo Vieito (Polytechnic Institute of Viana do Castelo) Herding Behavior in Integrated Financial Markets: The Case of MILA
22.04.2022 SOC-413 / MS Teams Matthijs Lof (Aalto University) What matters to individual investors in a welfare state?
04.05.2022 SOC-413 / MS Teams Merike Kukk

Personal Inflation Experience and Households’ Choices, by Christoph Basten, Merike Kukk and Jan Toczynski

Date Presenter Topic
SOC-310 / MSTeams
Jaan Masso (University of Tartu) The role of firms in the gender wage gap
MS Teams
Yair Antler (Tel Aviv University) Multilevel Marketing: Pyramid-Shaped Schemes or Exploitative Scams?
MS Teams
Ayala Arad (Tel Aviv University) Turning-on Dimensional Prominence in Decision Making:Experiments and a Model
SOC-311 / MS Teams
Niveditha Prabakaran (EBS) Do property rights solve the tragedy of commons under free trade? Evidence from Brazil
MS Teams
Kadri Männasoo Working hours and gender wage differentials: evidence from American working conditions survey
MS Teams
Michael Ungeheuer (Aalto University) Information, Trade, and Salient Returns
MS Teams
Merike Kukk The gender wealth gap in Europe: A comparative study using a model averaging methodology
MS Teams
Kadri Männasoo Investment Irreversibility and Cyclical Adversity: Implications for the Financial Performance of European Manufacturing Companies
MS Teams
Toomas Laarits (NYU Stern School fo Business) Discounting Market Timing Strategies
MS Teams
Ciprian Domnisoru (Aalto University) The Rise of For-Profit Higher Education: A General Equilibrium Analysis
MS Teams
Aaro Hazak Techno-economic assessment of CO2 capture possibilities in shale oil production
MS Teams
Leonardo Ivarola (University of Buenos Aires) Economic models, realism and similarity
Date Presenter Topic
12.09.18 Ivo Bischoff (University of Kassel) Cooperation on a competitive ground? An empirical investigation of the emergence of inter-local business parks in Germany
26.09.18 Natalie Lubenets, Mart Maiväli (European Commission) Digitigrating e-Estonia: applying  the Hedgehog and the Fox analogy* to resolve the issue of measuring
11.10.18 Tilsa Oré-Mónago (Stoney Brooks) Competition with endogenous and exogenous switching costs
24.10.18 Kristof De Witte (KU Leuven) Does it matter when your smartest peers leave your class? Evidence from Hungary
07.11.18 Karsten Staehr Current Account Dynamics in Central and Eastern Europe: Pull, Push and Exchange Rate Regimes
21.11.18 Laivi Laidroo The role of location in FinTech formation
12.12.18 Ton Notermans  Two Decades of Italian EMU Membership: Structural Reforms versus Hysteresis
13.02.19 Yassine Bakkar (TalTech ärikorralduse instituut) Internationalization, Foreign Complexity and Systemic Risk: European Banks Perspective
27.02.19 Katrin Schwanitz (Estonian Institute of Population Studies, TLÜ) Young Adults’ Domestic Comfort at Home – Inter-Generational Time Exchanges in 6 Countries
06.03.19 Till Grüne Yanoff (KTH Royal Institute of Technology in Stockholm)

From Preferences to Well-Being: The Need for Cognitive Mechanisms

13.03.19 Laivi Laidroo & Mari-Liis Kukk Institutional Drivers of Crowdfunding Volume
27.03.19 Merike Kukk What explains the gender gap in wealth? Evidence from administrative data.
10.04.19 Simona Ferraro Local governments’ efficiency and educational results: empirical evidence from Italian primary schools
08.05.19 Simona Ferraro & Orsolya Soosaar Minimum Wage, Employment and Firm Productivity
22.05.19 Merike Kukk Who Owns the Savings in the Family? Joint and Individual Financial Assets


Leonardo Ivarola (Buenos Aires University) Institutions and social behavior in complex systems 
Date Presenter Topic

Kalle Ahi, Laivi Laidroo

New Evidence on the Relationship between Banking Market Competition on Bank Risk-taking in Europe
18.05.16 Amaresh K. Tiwari Microeconometric Evidence of Financing Frictions and Innovative Activity
11.05.16 Kaire Põder, Andre Veski Efficiency and fair access in kindergarten allocation policy design
13.04.16 Kadri Männasoo Endowment, commitment and convergence: The unfolding of the sources of productivity growth
23.03.16 Dominika Fijałkowska Behaviour of Informed and Uninformed Investors: Ex-ante Uncertainty Vs. Signalling Theory
09.03.16 Enn Listra (Fifty) Shades of Grey in Competition: The Concept(s) in a Unifying Framework
10.02.16 Tõnn Talpsepp How Does Learning and Education Help to Overcome the Disposition Effect?
09.12.15 Karin Jõeveer The Economics of Collateral
11.11.15 Aleksei Netšunajev Structural Vector Autoregressions with Smooth Transition in Variances: The Interaction Between U.S. Monetary Policy and the Stock Market
28.10.15 Marit Rebane Shorter Dinner and Other Aspects of Growing Up with a Single-Mother
14.10.15 Ricardo Vicente Picking Big Winners and Small Losers: An Evaluation of Estonian Government Grants for Firms
09.09.15 Karsten Staehr Uncovered Interest Parity and Expectations. New Results from Central and Eastern Europe
07.09.15 Madhav Govind Role of Intermediary Organizations in Transfer and Commercialization of University Generated Knowledge: Indian Experiences
Date Presenter Topic
14.05.14 Grigori Gainštein Trade Dynamic and Adjustment Costs in the Baltic States
03.03.14 Marco Lopriore The pillars of EU economic governance
12.02.14 Kadri Männasoo Banks’ Risk-taking with Credit Commitments: Comparative European Evidence
11.12.13 Kaire Põder, Triin Lauri Swedish, Finnish and Estonian schools: Family background effect and the moderating effect of school level choice policy
27.11.13 Abel Polese The Informal Post-Socialist Economy
13.11.13 Laivi Laidroo Banks’ CSR disclosures – headquarters versus subsidiaries
16.10.13 Tõnn Talpsepp A Closer Look at the Disposition Effect: Speculating in Gains, Waiting in Losses
Date Presenter Topic
 09.05.12 Kadri Männasoo Krediidipiirangud ja T&A: Mikroökonomeetriline analüüs nõudluse tõusu- ja mõõnaperioodil
11.04.12 Karsten Staehr Price Convergence and the Dynamic Penn Effect in Central and Eastern Europe: Convergence Speed and Cross-Country Heterogeneity
04.04.12 Angelika Kallakmaa-Kapsta Estonian housing market: affordability problem and regulatory framework
14.03.12 Laivi Laidroo Kvartalitulemuste avaldamisele järgnevate hinnareaktsioonide asümmeetria testimine Tallinna, Riia ning Vilniuse börsil aastatel 2000-2009
08.02.12 Guido Baldi Can the Distinction between Productive and Unproductive Government Spending Help Explain Puzzling Empirical Results about the Effects of Fiscal Policy Shocks?
14.12.11 Kaire Põder Hariduse võrdsus ja efektiivsus ning koolivaliku poliitika: kvalitatiivse ja kvantitatiivse meetodi ühendamine
09.11.11 Karsten Staehr Is There a ‘Baltic Way’ of Economic Transition? Reforms, Results and Challenges in Comparative Context


4 May 2022: Merike Kukk, "Personal Inflation Experience and Households’ Choices"

We use an account-level dataset from Estonia to study the effects of personally experienced inflation on households’ financial decisions. By exploiting households’ differential exposure to inflation over time we find that personally experienced price growth affects consumption beyond the impact of headline inflation. We estimate that a 1 p.p. increase in quarterly experienced inflation leads to a sizeable 6 percent increase in real spending. We explain the results by different mechanisms at work such as intertemporal consumption allocation and money illusion. Additionally, we find that households react to higher experienced inflation with increasing large purchases while they use savings and consumer loans to finance increased spending. Our findings are important for policy-makers by showing that aggregate effects of inflation on spending are heterogeneous across population subgroups. Hence, real effects of monetary policy depend on the composition of headline inflation and distributional characteristics of the population.

Keywords: experienced inflation, consumption, saving, money illusion, intertemporal choices
JEL classification: D14, D15, E21, E3

20 April 2022: Matthijs Lof (Aalto University), "What matters to individual investors in a welfare state?"

We survey a representative sample of Finnish individual investors to rank the importance of 37 factors in equity allocation and compare the results to a recent US study (Choi and Robertson, Journal of Finance, 2020). US investors cite saving for retirement and hedging labour income, home value, health, and rare disaster risks as most important equity allocation factors. In contrast, Finnish investors put more emphasis on the media, the belief that stock markets mean-revert, their personal experiences, and short-term return expectations and consumption needs. Compared to their US peers, Finnish individual investors thus perceive the stock market more as a game in which one can either win or lose, and less as an instrument for retirement saving and insuring against lifetime shocks. These different attitudes are likely to reflect the differences in social welfare policies between these two countries.

6 April 2022: João Paulo Vieito (Polytechnic Institute of Viana do Castelo), "Herding Behavior in Integrated Financial Markets: The Case of MILA"

The purpose of this study is to investigate whether there is any financial herding behavior in the Latin American Integrated Market (MILA), a transnational stock market composed of Chile, Peru, Colombia, and Mexico stock exchanges, and whether there is any ARCH or GARCH effect in the herding behavioral models. The study found strong herding behavior under the general market conditions, and moderate and partial herding behavior under some specified markets circumstances, such as bull and bear markets, and high-low volatility states. Moreover, the pre-MILA period exhibits more herding behavior than the post-MILA period. Our empirical results show that the past information of stock returns and market volatility significantly affect the volatility of following periods, which can also explain the formation of herding tendency among investors.

Keywords: Herding behavior; Emerging markets; MILA, Integrated market, Transnational stock market, ARCH and GARCH effects

JEL classification: G40, G00, F14, F15, F30, F36

23 March 2022: Karin Jõeveer and Kaido Kepp, "What Drives Drivers? Switching, Learning and the Impact of Claims in Car Insurance"

People rarely change their incumbent service provider. This inertia is usually interpreted as market friction, mainly due to search or switching cost, or explained with learning about an intangible good. Less studied are the actual triggers for learning, especially whether the learners’ own behavior triggers the learning. We analyze field data on car insurance renewal choices, in which all offered and chosen features, including claims details, are known. We follow a random utility approach and find that switching insurers is mainly driven by direct monetary gains resulting from changes within consideration sets rather than changes in default good. The learning effects are present, and surprisingly, there is a difference in consumer behavior. The ones at the fault of a claim tend to switch significantly less than those who suffered a third-party induced claim compared to other causes.

JEL Classification: D12, D83, G4, G52

Keywords: consumer behavior, learning, switching, insurance claims

9 March 2022: Artjom Saia, "R&D Varying CO2 Emissions Regime Shift: A Panel Smooth Transition Regression Analysis"

This research explores the relationship between digitalization, human capital, economic growth and CO2 emissions to find evidence of the inverted U-shaped environmental Kuznets curve hypothesis. The paper tests the environmental Kuznets curve hypothesis with a Panel Smooth Transition Regression (PSTR) that allows for time and unit varying coefficient estimates within two regimes in the extended framework that includes human capital and digitalization variables beyond the country’s income level measured in GDP per capita. The study covers 55, primarily developed and developing economies for the period 1996-2019. The analysis finds support for the environmental Kuznets curve hypothesis and detects that CO2 emissions have an inverted U-shaped relationship with income level and digitalization, and that this nonlinear relationship transitions smoothly in the exogenous R&D output level. The threshold at which the transition function makes a shift between the two regimes is 41.2, which is the R&D metric representing the number of total patents for all technological inventions per million inhabitants.

Keywords: Panel Smooth Transition Regression (PSTR), Carbon dioxide emissions, Digitalization, Human capital, Environmental Kuznets curve, Panel data

9 February 2022: Michael Funke (Hamburg University / TalTech), "The US-China Phase One Trade Deal: An Economic Analysis of the Managed Trade Agreement"

In light of the recent tit-for-tat trade dispute between China and the US, interest in quantifying the effects of the so-called phase one agreement has risen. To this end, the paper quantifies the impact of the asymmetric managed trade agreement using such a multi-country open-economy dynamic general equilibrium model. Besides assessing the direct implications for China and the US, trade diversion effects are also analyzed. The model-based analysis finds noticeable positive (negative) impacts of the agreement for the US (China) as well as negative spillover effects for countries not directly affected by the managed trade deal due to trade diversion. The impact of possible future trade agreements is also examined.

JEL Classification: F130, F410, F420.

Keywords: phase one deal, managed trade, open-economy dynamic general equilibrium model, United States, China

Michael Funke - Hamburg University and Tallinn University of Technology, Department of Economics and Finance
Adrian Wende - Hamburg University

8 December 2021: Flavio Hafner (Aalto University), "The Equilibrium Effects of Workers’ Local Access to Jobs: Evidence from a Labor Market Integration"

I study an integration of local labor markets which made it easier for French border commuters to get a job in the high-wage Swiss labor market. The research design compares how labor market outcomes of employees in France evolve in treated labor markets relative to a matched control group of labor markets in other parts of France. While the reform attracted more highly educated workers to the Swiss market, it had three impacts on French labor markets: First, there is a small increase in wages, primarily among lower-skill workers. Second, employment in French firms does not decline and increases among low-skill workers. This stems, third, from an overcompensating response of labor supply: The active labor force increases both through an increase in the resident population and higher labor force participation, and this more than offsets the increase in commuting. The unemployment rate increases because not all workers find jobs. The effects are consistent with an equilibrium search model where the integration increases the value of job search and thus local labor supply. The newly entering workers create a search externality on the market: On one hand, firms’ vacancy filling rate increases, leading to an employment spillover in France. On the other hand, workers’ job finding rate decreases, which increases unemployment and dampens the direct wage impact from the access to Swiss jobs.

JEL Classification: J08, J21, J31, J42, J60, R23

24 November 2021: Helery Tasane, "How the EU Cohesion Policy Targeted at R&D and Innovation Impacts the Productivity, Employment and Exports of SMEs in Estonia"

The aim of this empirical investigation is to assess how the support targeted at R&D and innovation in the European Union Cohesion Policy Programme 2014-2020 affects the labour productivity, employment and exports of small and medium-sized companies. We estimate the treatment effects of two R&D financial support activities using a semiparametric efficient estimator with over-identified moment conditions and inverse probability weighting. The impact assessment uses population data on small and medium-sized enterprises in Estonia, the European Union member state that benefits most per capita from Cohesion Fund allocations. We found that support for R&D and innovation from the Cohesion Policy had a positive short-term effect on labour productivity and employment over the estimation period 2014-2018, and that the size and robustness of the effect were strongest for labour productivity. The short-term effect on exporting was ambiguous.

Keywords: Cohesion Policy evaluation, R&D, innovation, small and medium-sized enterprises, productivity, employment and job creation, exporting, Estonia

JEL Classification: C54, J21, J24, L26, O38, R11, R58

Simona Ferraro Department of Economics and Finance, Taltech
Kadri Männasoo Department of Economics and Finance, Taltech
Helery Tasane Department of Economics and Finance, Taltech

10 November 2021: Aaro Hazak and Marit Rebane, "COVID-19 and Self-Reported Health Indicators among the Estonian Labour Market Segments"

The first wave of COVID-19 pandemic brought along not only a new disease but assumedly taxed mental health. The paper studies self-reported mental health issues and related use of medications across labour market segments before and during the COVID-19 pandemic in Estonia. We show that adverse effects on mental health indicators under the first wave of the pandemic are particularly visible in some relatively vulnerable groups at the labour market, like females, those with minority ethnic background, chronic diseases and at lower occupational status, and the unemployed. This theoretically grounded explorative empirical research is founded on the biennial Health Behaviour among Estonian Adult Population surveys from 2008 to 2020.

Keywords: COVID-19, labour market segments, mental health, work, stress, Estonia

JEL codes: I140, J10

Marit Rebane, Department of Economics and Finance, Taltech
Aaro Hazak, Department of Economics and Finance, Taltech
Kadri Männasoo, Department of Economics and Finance, Taltech

27 October 2021: Simona Ferraro, "Non-Profit Youth Work Organizations in Estonia: an Analysis of Efficiency"

This study aims to assess the efficiency of youth non-profit organizations in Estonia by adopting non-parametric efficiency analysis. A quantitative approach with the Data Envelopment Analysis method is applied focusing on 16 nationwide youth work organisations that are strategic partners of the Estonian Ministry of Education and Research and, which receive an annual grant from this institution. Findings show that 8 out of 16 organisations are inefficiently using their resources.

Keywords: non-profit organisations, efficiency analysis, non-parametric analysis, Data Envelopment Analysis

Simona Ferraro, Department of Economics and Finance, Tallinn University of Technology
Aivar Kamal, Tallinn University of Technology

13 October 2021: Simona Ferraro, "Measuring Mismatch in the Estonian Labour Market"

This article analyses and quantifies the mismatch in the Estonian labour market at the county (regional), occupational and industrial levels, for the time span 2011-2021. Applying the search and matching theory and the mismatch index framework, findings show that around 4-5 percent of hirings have been lost due to mismatch. Moreover, the matching efficiencies shows that certain disaggregated labour markets are subject to frictions resulting from possible mismatch. 

Keywords: search and matching theory, mismatch index, regional mismatch, occupational mismatch, unemployment, vacancies

Simona Ferraro, Department of Economics and Finance, Taltech
Pauline Kommer, Tallinn University

29 September 2021: Kaire Põder (Estonian Business School) and Triin Lauri (Tallinn University), "The Paradox of State-Funded Higher Education: Winner Still Takes It All?"

Contrary to tendencies to increase student participation in the financing of higher education, Estonia abolished student tuition fees in 2013. We study the effects of this reform on the extensive and intensive margin of student participation in higher education, concentrating mostly on increased access, admission, and graduation of rural and remote students. Extensive margin is operationalized by three metrics – probability of university admission, probability of admission to applied curricula, and probability of admission to prestigious curricula. Intensive margin is measured by the probability of graduation with nominal time. We confirm the tendency that high socioeconomic status increases the probability of being admitted to high-rank curricula and reduces the probability of choosing an applied curriculum. While the reform weakly improved rural student's tendency to graduate on time it diminished the probability that they get admitted to the high-rank curriculum. So contrary to reform intention and intuition – state-financing is not improving the equity in university admission.

Keywords:  Regional disparity, Higher education financing, Regression discontinuity


Kaire Põder (kaire.poder@ebs.ee) is a professor of Economics at the Estonian Business School. Her empirical research concentrates on education and labour economics, touching upon market efficiency and stability, while revealing its effect on the distribution of outcomes, e.g. equity.

Triin Lauri (triin.lauri@tlu.ee) is an associate professor of Public Policy at Tallinn University and running her postdoctoral project at University of Konstanz in 2020-2023. Her research concentrates on comparative welfare policies and educational inequalities.

8 September 2021: Michael Funke (University of Hamburg / TalTech), "The Political Globalisation Trilemma Revisited: An Empirical Assessment Across Countries and Over Time"

The political hyperglobalisation trilemma asserts that a government cannot simultaneously opt for deep international integration, national sovereignty and democratic politics, but rather is constrained to choosing two of the three at most. This paper presents a new and comprehensive cross-country panel dataset operationalising the multifaceted three vertices of the trilemma. After an explorative data analysis, we employ panel error-correction techniques to uncover the mutual interdependencies among the variables in the system. The econometric evidence supports the existence of a long run relationship between economic integration, national sovereignty and democratic politics as postulated in the political globalisation trilemma.

JEL Classification: F60; F62; F15; F68

9 June 2021: Leonardo Ivarola (University of Buenos Aires), "Economic models, realism and similarity"

In the present paper it is argued that differences among economic models are basically differences in their selected part of the real world these models try to account for. Therefore, their range of applicability to a target system turns out to be important for their selection to particular purposes. In this respect, an approach based on the similarity of models to a target system and to the modelers’ purposes is provided. It is also argued that models vary in values of similarity. These values will help agents to select the model that best meets the role of examining some phenomenon of interest.

Keywords: similarity; economic models; mechanisms; possibility tree; substantive assumptions; domain of applicability.

12 May 2021: Aaro Hazak, "Techno-economic assessment of CO2 capture possibilities in shale oil production"

CO2 capture possibilities in the carbon intensive shale oil production have received limited attention in literature. We present techno-economic assessment of potential CO2 capture with post-combustion technology, and where relevant with oxy-fuel combustion technology, for existing key shale oil production facilities in Estonia – one of the largest shale oil producers globally, and a unique country for its large industrial use of oil shale as a fossil resource. Our results show that oxy-fuel combustion would slightly outperform post-combustion capture in shale oil production with the Enefit-280 technology. Post-combustion capture would be the primary solution for the Petroter shale oil production technology. Our economic analysis based on futures prices of low sulfur fuel oil, as a traded commodity comparable to shale oil, and CO2 European Emission Allowances prices in the EU Emissions Trading System reveals that without CO2 capture shale oil is envisaged to remain competitive on the export market in some sub-periods, but several uncertainties may undermine the outlook. CO2 capture and storage, adding costs of at least 135 euros per tonne of shale oil, would however not be currently feasible, remaining inferior to incurring the CO2 emission allowance fees and environmental charges.

Authors: Artjom Saia1, Dmitri Neshumayev1, Aaro Hazak1, Priit Sander2, Markus Somp1, Oliver Järvik1, Alar Konist1

1 Tallinn University of Technology
2 University of Tartu

28 April 2021: Ciprian Domnisoru (Aalto Univeristy): "The Rise of For-Profit Higher Education: A General Equilibrium Analysis"

We develop a quantitative framework of competition between public and for-profit institutions in the U.S. four-year college market. The model matches tuition and instructional spending levels at for-profit colleges, and the sorting of traditional and nontraditional students across universities.  In counterfactual policy experiments, we find that raising the Pell Grant cap leads to a drop in tuition and instructional spending in the for-profit sector, which attracts relatively more low-income students. For-profit colleges prefer to comply with “gainful employment” legislation that links access to federal funding for universities to their graduates’ debt-to-earnings ratios. However, in doing so, they lower instructional quality.

Authors: Ciprian Domnisoru, Ioana Schiopu

14 April 2021: Toomas Laarits (NYU Stern School of Business), "Discounting Market Timing Strategies"

The finance literature has documented numerous market timing strategies that allow investors to obtain seemingly superior Sharpe ratios and alphas relative to underlying buy-and-hold strategies. I document a novel fact regarding such strategies: practically every timing strategy documented in the literature exhibits a risk-return tradeoff that deteriorates as the holding period increases. While the aggregate market shows mean reversion over holding periods longer than five years, such timing strategies exhibit variance ratios that keep increasing as the holding period lengthens, rendering them less appealing to long horizon investors. I show that such seasonalities obtain in a model with predictable time-varying conditional volatility of underlying state variables. Overall, the results illustrate how such timing strategies can persist in equilibrium and underline the importance of capturing long-horizon risk exposures.

10 March 2021: Kadri Männasoo, "Investment Irreversibility and Cyclical Adversity: Implications for the Financial Performance of European Manufacturing Companies"

This investigation shows how the irreversibility constraints of fixed tangible investments conditioned on the debt flows and financial standing of a company affect its financial performance in cyclical adversity. The Dynamic General Method of Moments (GMM) estimator evaluates the endogenous link between the investment-financing flows of companies and the risk-adjusted returns on assets and invested capital. The detrimental effects on financial returns stem from the ill-fated timing of irreversible or partially irreversible fixed tangible investment and arise for companies when there is a deep cyclical gap in real value added, where this adverse effect is particularly strong under concomitant high uncertainty in producer prices.

JEL Classification: D81, G01, G31, G32, E22, E32

Keywords: irreversibility of investments, financial performance, cyclicality in asset and capital returns, value added gap, uncertainty in producer prices.

Authors: Kaido Kepp and Kadri Männasoo.

10 February 2021: Merike Kukk, "The gender wealth gap in Europe: A comparative study using a model averaging methodology"

There is abundant evidence on the gender wage gaps across countries, but much less is known about the gender differences in personal wealth. This paper provides comparative estimates of the gender wealth gaps for 21 European countries, employing data from the Household Finance and Consumption Survey. A common problem for studies focusing on this topic is that the data on wealth are usually provided at the household level and not at the individual level. This means it is only possible to estimate gender wealth gaps for single-person households. To overcome this constraint, we propose a novel approach using a model averaging methodology to predict individualised wealth data for multi-person households. We find that the gender wealth gaps tend to be in favour of men in the whole population, especially when estimated at the top of the wealth distribution. In contrast, the estimated gaps in the subset of single-person households tend to be statistically insignificant. The country-level gender wealth gaps are correlated with overall wealth inequality but not with gender gaps in pay and employment.

JEL Classification: D31, G51, J16, J71

Keywords: gender gap, imputation, model averaging, wealth distribution, inequality, intra-household allocation of wealth, household finance, Europe

9 December 2020: Michael Ungeheuer (Aalto University), "Information, Trade, and Salient Returns"

We show that a substantial part of information acquisition and trading in stock markets is driven directly by salient returns, above and beyond the effects of underlying causes of returns. To establish causality, we first analyze overnight earnings announcements. Larger surprises lead to more information acquisition only after the market opens, consistent with salient returns as a cause. Second, we exploit Wall Street Journal rankings to show that prominently placed salient returns drive information acquisition and trading. Finally, we document that stocks experiencing salient returns are particularly mispriced, in line with return-induced uninformed trading as a major moderator of anomalies.

JEL Classification: G12, G14

Keywords: salience, information placement, returns, information acquisition, trading activity, mispricing

25 November 2020: Kadri Männasoo, "Working Hours and Gender Wage Differentials: Evidence from American Working Conditions Survey"

Using the 2015 American Working Conditions Survey (AWCS), the author studies gender wage differentials conditional on weekly working hours. The labor supply selection corrected mean difference and quantile estimates show that the female wage gap is significant and it is the largest in the upper middle of the wage distribution. For the identification of wage determinants, the study proposes a triangular estimation framework that controls for labor supply both in reservation hours and in actual working hours. The findings show that simultaneous estimation of wage, desired and actual working hours and letting working hours take nonlinear quadratic and linear spline forms in the wage equation renders gender wage differentials insignificant.

JEL Classification: J22, J7, J31, J81

Keywords: gender wage differentials, working hours, reservation hours, hours restrictions, joint wage-hours estimation, nonlinear budget constraint, The American Working Conditions Survey

28 October 2020: Niveditha Prabakaran (Estonian Business School), "Do Property Rights Solve the Tragedy of Commons under Free Trade? Evidence from Brazil"

This paper is one of the first to theoretically and empirically analyze the effect of property rights establishment on exports. Using a dynamic model of land allocation, I show that property rights unambiguously leads to more forest land and fewer wood exports in the long run, though deforestation can increase during the transition. Indeed, I find empirically that wood exporting from the Amazon intensifies for two years following registrations through the Brazilian government’s Amazon region land-titling program Terra Legal, peaking in the third quarter post-rollout, before declining. Evidence further suggests that medium-sized farms, which obtain the rights cheaply, clear forest land for livestock production. To estimate the effect precisely, I use confidential, municipal-level export data, which captures the extent of deforestation, and control for municipal-product and quarter-year trends, relying on the scheme’s phased rollout for identification.

JEL Classification: R11, F18, O13

Keywords: Property Rights, Trade, Deforestation, Land Conversion

14 October 2020: Ayala Arad (Tel Aviv University), "Turning-on Dimensional Prominence in Decision Making: Experiments and a Model"

Many choices involve a large number of dimensions that ought to be considered before reaching a final decision. It is well accepted that decision makers sometimes place more weight on salient dimensions. But what makes one dimension more salient than another? Köszegi and Szeidl (2012) and Bordalo et al. (2013) suggest that dimensions are more prominent if, roughly speaking, the variance of their values in the choice set is larger. We provide experimental evidence of another determinant of salience|whether dimensions are turned-on or turned-off. Intuitively, a dimensioon of an alternative is turned-on if its value is in the range of its attractive facet. In one study, we show that introducing a small interest rate on checking accounts may actually decrease allocations to checking accounts and increase the share of riskless investments. We provide evidence that the small interest rate highlights or turns-on the safe gains dimension, bumping up its decision weight while shrouding other considerations, such as liquidity. Consequently, choices shift from the checking account to safe investments with superior returns. In another study, social preferences expressed over two unequal allocations are reversed depending on whether a third available allocation is equal or not. In this case, the all-equal split turns-on egalitarian considerations that shift preferences toward equality even when expressed over unequal splits. We present the Turned-on-Dimensions (ToD) model that draws on Köszegi and Szeidl (2012) and adds a discontinuous channel to the determination of decision weights, which allows to accommodate our findings.

Keywords: Dimension, Experiment, Salience, Social Preferences, Uncertainty.

23 September 2020: Yair Antler (Tel Aviv University), ''Multilevel Marketing: Pyramid-Shaped Schemes or Exploitative Scams?"

Motivated by the growing discussion on the legitimacy of multilevel marketing schemes and their resemblance to pyramid scams, we compare the two phenomena based on their underlying compensation structures. We identify the conditions on the tendency of agents to spread information by word of mouth, under which a principal can design a pyramid scam to exploit a network of agents whose beliefs are coarse. We find that a pyramid scam is sustainable only if its underlying reward scheme compensates each participant based on at least two levels of recruitment, i.e., the people he recruits and the people they recruit.

9 September 2020: Jaan Masso (University of Tartu), "The role of firms in the gender wage gap"

Recent research suggests that firm-level factors play a significant role in the gender wage gap. This paper adds to this literature by analysing the role of sorting between firms and bargaining within firms using the methodology of Card et al. (2016). We employ linked employer-employee data for the whole population of firms and employees from Estonia for 2006–2017. Estonia is a country with the highest gender wage gap in the EU with about two-thirds of that unexplained by conventional factors. The results show that firm-level factors are important determinants of the gender wage gap, explaining as much as 35% of the gap. We find that within-firm bargaining plays a larger role in the gender wage gap than similar prior papers. This could be related to lenient labour market institutions, as reflected in low minimum wages and union power, and to lower bargaining skills of women. Further, the role of firm-level factors in the gender wage gap have increased over time, and these are especially important at the top of the wage distribution and among workers that are more skilled. There is a heavy penalty for motherhood in wages, 4–9 log points, but this is not related to firm-specific time-invariant productivity premiums.

JEL Classification: J31, J71, J16, D22

Keywords: Gender wage gap, firm-level productivity premiums, sorting and bargaining, distribution of wages, skills, motherhood penalty

27 May 2020: Jaan Masso (University of Tartu), "The role of firms in the gender wage gap"

Recent research suggests that firm-level factors play a significant role in the gender wage gap. This paper adds to this literature by analysing the role of sorting between firms and bargaining within firms using the methodology of Card et al. (2016). We employ linked employer-employee data for the whole population of firms and employees from Estonia for 2006–2017. Estonia is a country with the highest gender wage gap in the EU with about two-thirds of that unexplained by conventional factors. The results show that firm-level factors are important determinants of the gender wage gap, explaining as much as 35% of the gap. We find that within-firm bargaining plays a larger role in the gender wage gap than similar prior papers. This could be related to lenient labour market institutions, as reflected in low minimum wages and union power, and to lower bargaining skills of women. Further, the role of firm-level factors in the gender wage gap have increased over time, and these are especially important at the top of the wage distribution and among workers that are more skilled. There is a heavy penalty for motherhood in wages, 4–9 log points, but this is not related to firm-specific time-invariant productivity premiums.

JEL Classification: J31, J71, J16, D22

Keywords: Gender wage gap, firm-level productivity premiums, sorting and bargaining, distribution of wages, skills, motherhood penalty.

13 May 2020: Raul Ruubel, "Working Schedules and Efficient Time-Use in R&D Work"

While companies are constantly looking for competitive advantages under global competition, improvements in the efficiency of work schedules of knowledge employees is becoming an increasingly important area in order to enhance innovation and achieve productivity gains and cost reductions. A key challenge for organisations is how they manage to strike the balance between employees’ utility maximisation aims and organisational efficiency maximisation goals. Employees may maximise their utility from an optimal division of time between work and leisure, whereas companies try to improve efficiency with work organisation by reducing transaction costs and increasing unit productivity. A key source of distortion relates to individual heterogeneities in preferences for work arrangement and work schedules in confrontation with rigidity in work schedules. If the knowledge employees are required to work during hours that they would not prefer to allocate for doing their work, they may wish to get a wage premium for the inconvenience or related risks. Moreover, the use of labour resource from the perspective of the employer is inefficient due to potential impairments in work outcomes or work commitment, which in turn may lead to suboptimal wages. As a consequence, there are potentially large financial implications of work schedules for companies, both on the revenue and cost side. This thesis is based on three published empirical papers that study differences between R&D employees’ preferences for daily and weekly working schedules, disparities between their actual, contractual and desired working schedules, the types of employees that are more likely to be satisfied with either flexible or fixed working schedules, and what drives some other time related aspects of job autonomy. The contribution of the thesis lies in providing novel empirical evidence on the above research questions on data from a pilot questionnaire study among Estonian creative R&D employees that brings together unique time use, work organisational, economic, health and sleep related information; and discussion of the background and results in the papers and thesis that helps to better understand the linkages between working time schedules of R&D employees and companies financial performance and economic efficiency. The results of the thesis could be useful for employers and regulators in designing work schedules and could potentially help companies to improve their financial performance either by productivity enhancements or cost reduction, and thereby support economic development at large. The research in this thesis contributes to existing literature by adding empirical evidence on how some individual characteristics like gender, education and sleep patterns are strongly linked with the preferences for different work schedules. In addition, the thesis helps in understanding how various working arrangements and individual characteristics may shape restrictions on time-wise job autonomy, and what may be the opportunities to alleviate these restrictions.

15 April 2020: Juan Carlos Cuestas Olivares, "The EU real exchange rates: Asymmetries and crises"

In this paper we contribute to the long literature on determining the real exchange rate by using models that incorporate structural breaks and nonlinearities. We estimate cointegrated dynamic ordinary least squares regressions, Bayesian vector autoregressions (VAR), and interactive panel VARs. We find that the estimated coefficients for the CEECs and for the other member states differ from each other. We also find that the models are different before and after the crisis, and appreciations and depreciations of the RER seem to condition the long run equations for the EU15+2.

Keywords: Real exchange rates, competitiveness, quantile regression, Bayesian, asymmetric model, structural breaks, European integration.

11 March 2020: Natalia Levenko, "Is the shift in the uncertainty level provoked by the Great Recession? A non-linear approach to the survey uncertainty"

At the time of the Great Recession, there occurred a noticeable shift in the level of survey uncertainty measured as the mean individual variance of density forecasts. Meanwhile, the disagreement of forecasters, or cross-sectional variance of point forecasts derived from the same dataset, has shown completely different and much more expected countercyclical dynamics. Seeking to explain a puzzling regime shift in the mean individual variance, the paper applies smooth transition regression analysis to the data from European Survey of Professional Forecasters and shows that this measure of uncertainty has a long-run nonlinear relationship with the share of non-rounded responses in the survey. Results suggest that the mean individual variance, often referred to as a direct measure of uncertainty, is a “noisy” variable directly associated with the changes in the methodology used by forecasters and as such absorbs information irrelevant for measuring uncertainty. The results are robust after having accounted for potential endogeneity.

Keywords: survey uncertainty; disagreement of forecasters; density forecasts; surveys of professional forecasters; Great Recession; smooth transition; instrumental variables.

JEL codes: C25, C32, C83, D81, E32, E37

17 December 2019: Jon Pareliussen (OECD), "Digital technology adoption, productivity gains in adopting firms and sectoral spill-overs – Firm-level evidence from Estonia"

Age conditions are frequently encountered in policy rules, lending themselves to regression discontinuity designs (RDD). Yet, age is a specific forcing variable and several issues may arise. We address them using a panel administrative dataset covering the whole Danish population. We focus on the sharp increase in social assistance levels at age 25 during the period 2000-06. Cross-sectional RDD based on age variation points to a significant effect of welfare payments on the employment level of high-school dropouts at 25. Using the panel dimension, we validate this result while unveiling the dynamics underlying the RDD estimate. First, we show that the effect is not much affected by business cycles or cohort effects. Then, we track different cohorts as they pass through the discontinuity and confirm the interpretation in terms of an adverse employment effect. The timing of adjustment is well identified and does not invalidate the RDD approach. Only two-thirds of the effect is attributable to transitions from work to welfare, while another third is due to a reduced entry on the labor market, with potentially different policy implications. Finally, we provide heterogeneous estimates of the employment response along the earnings distribution, confirming that high responses are concentrated at very low earnings levels, which is a crucial input for optimal tax-benefit designs.

11 December 2019: Olivier Bargain (University of Bordeaux), "Welfare’s Disincentive for the Youth: Evidence from Danish Administrative Panel Data"

Age conditions are frequently encountered in policy rules, lending themselves to regression discontinuity designs (RDD). Yet, age is a specific forcing variable and several issues may arise. We address them using a panel administrative dataset covering the whole Danish population. We focus on the sharp increase in social assistance levels at age 25 during the period 2000-06. Cross-sectional RDD based on age variation points to a significant effect of welfare payments on the employment level of high-school dropouts at 25. Using the panel dimension, we validate this result while unveiling the dynamics underlying the RDD estimate. First, we show that the effect is not much affected by business cycles or cohort effects. Then, we track different cohorts as they pass through the discontinuity and confirm the interpretation in terms of an adverse employment effect. The timing of adjustment is well identified and does not invalidate the RDD approach. Only two-thirds of the effect is attributable to transitions from work to welfare, while another third is due to a reduced entry on the labor market, with potentially different policy implications. Finally, we provide heterogeneous estimates of the employment response along the earnings distribution, confirming that high responses are concentrated at very low earnings levels, which is a crucial input for optimal tax-benefit designs.

27 November 2019: Cho Hyejin (Université Paris 1 - Panthéon Sorbonne), "Market Imperfection - Credit Rationing and Excess Liquidity"

The purpose of this study is to define macroeconomic demand deposits for measuring excess liquidity in the 19 euro-area countries. At the country level, there is the threshold of rationed inequality according to required reserve ratio from none, 1.00% (19 euro area countries) up to 30% and credit rationing. Results of the euro-area financial sector variable on longitudinal measures of excess liquidity show hat p-value of deposits is 0.14% and demand deposits is 46.5% in the post-crisis period. Hence, two indices of credit channels are 1) creating money where demand deposits (DD) are greater than reserves (R), DD > R and (2) holding excess reserves where reserves (R) re greater than required reserves (RR), R-RR. Credit rationing suggests the guideline to regulate countries who claim loans with a high interest rate.

20 November 2019: Yutaka Horiba (Tulane University), "The Empirical Determinants of Defined Contribution Pension Plans in Japan"

Traditional Japanese corporate pension plans with defined benefits (DB) for their retiring employees have been saddled with serious underfunding difficulties since the major stock market crash of the early 1990s. Partly in response to the deteriorating corporate pension conditions, the Japanese parliament passed new laws in 2001 allowing the establishment of defined contribution (DC) pension plans by corporations. The DC plan circumvents the underfunding problem by linking the benefit payout to the actual market valuation of the accumulated pension assets which are managed by individual employees in collaboration with an independent financial contractor of the plan.

This paper is based on a detailed examination of the comprehensive set of Japanese corporations listed on the Tokyo Stock Exchange as to the factors that led to their decision to adopt a DC plan during the period 2001-2015. The covariates examined are a mix of financial and labor organizational factors including the employment size, the extent of the existing DB underfunding liabilities, overall debt exposure, operational profit and its variability, stock market valuation of the firm, firm-wide average age of the employees, job turn-over rate, the strength of the enterprise union representing the employees, and the cross-share holdings of the corporation’s equity by financial institutions.

Rigorous statistical testing is performed with the use of the multivariate, time-varying Cox proportional hazard model to explain the relevance of each proffered hypothesis. The result reveals a starkly different outcome in contrast with empirical findings reported in the literature focusing mainly on U.S. corporate behavior. Our findings point to the relevance of several unique aspects and features of Japanese regulations as well as business practices in explaining the Japanese corporate DC adoption decision.
Keywords: pension, defined-contribution, Japanese corporations

13 November 2019: Rachatar Nilavongse, "Government Expenditures and Unemployment in a New Keynesian Model"

Motivated by empirical studies, we introduce the complementarity between private and public consumption into a New Keynesian model with unemployment. We use our model to study the impacts of government spending shocks under different macroeconomic frictions. First, we find that a rise in government consumption leads to an increase in private consumption and a decline in the unemployment rate as the complementarity effect dominates the real interest rate effect. Second, wage frictions play a more important role in the transmission of government spending shocks than price frictions. Third, an increase in hiring frictions mitigates the effectiveness of government spending. Lastly, we explore the role of a countercyclical fiscal policy during a recession and when the monetary policy is ineffective.

22 October 2019: Gazi Salah Uddin (Linköping University), "Systemic Risk in the Scandinavian Banking Sector"

The banking sectors in the Scandinavian countries are concentrated and suffered through a banking crises in the 1990’s followed by international shocks in combination with undercapitalization. This paper analyses the systemic risk in Denmark, Norway and Sweden focusing on the risk transmission from individual banks to the whole sector by using, partly in a new way, conditional cross-quantilograms. We find that the cross-quantilograms are positive and statistically significant in the low and high quantiles, indicating that the Scandinavian banks are systemically linked and show a tendency to boom and crush along with the market. These results hold even after controlling for equity market volatility and economic policy uncertainty. We further observe that the systemic risk was insignificant from the early-2000 to the outbreak of the global financial crisis (GFC). After the GFC and the euro zone crises it has increased substantially. Finally, we find that bank size has a positive relationship with systemic risk while return on asset and loan to deposit ratio exhibits a negative influence. Further, these relationships are asymmetric across quantiles.

11 September 2019: Karsten Staehr, "Contribution to Voluntary Pension Investment in a Three-Pillar System"

This paper considers the effect of various factors for the decision of individuals to contribute to voluntary and tax-exempt pension investment in a three-pillar system. The analysis uses the full population data for Estonia in 2014 and the estimations are carried out using the Heckman selection model. The effects on the participation choice and the amount contributed differ for some of the factors considered. The combined marginal effect evaluated at the means is negative for men, negative for the age of the individual and positive for wage income. Notably, the marginal effect is positive for the already accumulated voluntary third pillar assets while the effect for the compulsory second pillar assets are difficult to pinpoint. Finally, the available proxies for risk and time preferences also appear to be of some importance for third pillar investment.

29 May 2019: Leonardo Ivarola (Buenos Aires University), "Institutions and social behavior in complex systems"

The model explores an artificial society where agents choose between different rules or institutions, each one with different social outcomes. Using some ideas from the paradigm of complexity, it is assumed that the social emerging patterns are unpredictable from an individualistic point of view. In contrast, it is crucial to investigate what occurs at the “meso” level (the place where people interact each other and with their environment). Some policy implications are also explored. In particular, it is shown that, in some occasions, “nudging” may be enough for re-direct the aggregate pattern to a desired one. In other occasions, more structural changes are necessary.

22 May 2019: Merike Kukk, "Who Owns the Savings in the Family? Joint and Individual Financial Assets"

The paper investigates the distribution of financial assets within a family and how the pooling affects the individual savings of the partners. We use anonymized monthly transactional data from ING Bank observing financial data of Dutch couples in 2014-2016. We find that there is a substantial share of households where savings are unequally allocated. However, there are no systematic differences across gender. The pooling of some resources results in larger differences in individual financial assets of partners, suggesting that agreement on joint savings does not lead to more equal share of individual savings but the opposite. The effect is more pronounced for households in their 20-s and for saving accounts. The finding of the paper highlights the need to understand the decision making process in a family about the sharing rule applied to savings.

8 May 2019: Simona Ferraro and Orsolya Soosaar (Bank of Estonia) "Minimum Wage, Employment and Firm Productivity"

According to most empirical studies, minimum wages have not led to significant reductions in employment. This implies, that firms adjust to labour cost increases due to minimum wages through other channels. This paper investigates whether this adjustment takes place through productivity using data on the Estonian national minimum wage increases. Using employee-employer data the effect of the minimum wage increases are identified by comparing the trends in productivity of firms that are more affected by the minimum wage increase with the trends of firms less affected. Results suggest that the minimum wage increases did have a positive effect on the labour productivity for the affected firms.

27 March 2019: Merike Kukk, "What explains the gender gap in wealth? Evidence from administrative data"

This paper studies the gender gap in net wealth. We use administrative data on wealth that are linked to the Estonian Household Finance and Consumption Survey, which provides individual-level wealth data for all household types. We find that the unconditional gender gap in mean wealth is 45% and it is caused by large wealth disparities in the upper end of the wealth distribution.  The structure of assets is more diversified for men than for women. Men own more business assets and vehicles, while women own more deposits. The gender gaps in these asset components cannot be explained by observable characteristics. For partner-headed households the raw gender gaps across deciles are mostly in favour of men, and more strongly so for the married couples, indicating that resources are not entirely pooled within households. For single-member households the raw gaps across quantiles are partially in favour of women. Accounting for observable characteristics renders the unexplained parts of the gaps mostly insignificant for all household types.

27 February 2019: Katrin Schwanitz (Estonian Institute of Population Studies, TLÜ), Young Adults’ Domestic Comfort at Home – Inter-Generational Time Exchanges in 6 Countries

Demographic research has shown that young adult’s time benefits and comfort in the parental home are considerably greater in Italy than in France. Also, young women in both Italy and France benefit much less from time transfers than young men. I revisit this research problem (“the gilded cage hypothesis”) and test if there are gendered, intergenerational time transfers of young adults in the parental home in other countries, too. I study whether a higher degree of well-being and domestic comfort in the parental home compared to other living arrangements (living single on their own, co-residing with peers or living with a partner) could play a central role in young adults’ choices to stay in the nest across different leaving home regimes. I draw on Multinational Time Use Study (MTUS) data for six countries: Denmark, Estonia, Finland, Norway, Sweden, and the United Kingdom. I use the most recent comparable time-use survey suited for the analysis, between 1999 (Finland) and 2001 (Denmark and Sweden), on both the parents and their children (N = 48,204 person-diaries). Preliminary descriptive analyses confirm crossnational differences in family situations and living arrangements, as well as time use. In next steps, I will estimate the amount of time that young adults spend on domestic tasks and compare young people’s participation in domestic tasks in the different countries when they live: (1) with their parents and (2) as singles or couples outside the parental home. In addition, I will assess (3) the transfer of time from parents (in terms of domestic services) enjoyed by young co-residing adults. The cross-national comparison can prospectively provide useful insights into the reasons behind differences in young adults’ leaving home behavior across Europe.

13 February 2019: Yassine Bakkar (TalTech Department of Business Administration), "Internationalization, Foreign Complexity and Systemic Risk: European Banks Perspective"

We evaluate the impact of the international organization structure and the geographic expansion of 105 European listed banks that have foreign affiliates around the world on bank level measures of systemic risk during the 2005–2013 period. We investigate how the peak of the global financial crisis of 2008–2009 and the height of the European sovereign debt crisis of 2010–2011 might have affected such measures. We find that internationalization and foreign complexity are important drivers of bank systemic risk, particularly during the 2008–2013 financial stress years. Our findings contribute to the ongoing debate on the merits of imposing systemic risk-based and organizational complexity capital surcharges (as in Basel III requirements), and carry various policy implications for too-complex and systemically important banks.

12 December 2018: Ton Notermans, "Two Decades of Italian EMU Membership: Structural Reforms versus Hysteresis"

Two decades of EMU membership have turned Itlay from and Europhile to a Euroskeptic country, leading to the formation of a government  made up entirely of populist and integration-critical parties in 2018. Italy thus has become a more extreme instance of the political rise of populism that can be observed across virtually all OECD economies. The roots of Italian Euroskepticism lie in the country’s growing socio-economic disparities and almost three decades of anaemic growth, which have led EMU and the EU to become seen as a continuant rather than the solution to the country’s economic woes. The countries poor economic performance is commonly attribute to its profligate spending habits and its political inability to implement the structural reforms that would put the economy on an even keel again and allow it to prosper within the confines of the common currency. This paper argues that there has been no lack of structural reforms and its large accumulated public debt primarily is a legacy problem of the politically troubled 1970s. Instead it suggests that the root cause if its anaemic performance lies in a host of hysteresis mechanisms while proposing several changes to the institutional architecture of the common currency.

21 November 2018: Laivi Laidroo, "The role of location in FinTech formation"

Given the rapid emergence of FinTechs, the objective of this paper is to determine location-specific factors associated with FinTech establishment intensity. The analysis is based on a country-level dataset covering the period of 2007-2017 and 99 countries. The results reveal that greater FinTech establishment intensity characterizes smaller countries, countries with stronger financial services clusters, and countries which have experienced a crisis during the period of 2006-2016. Greater FinTech establishment intensity is observed in countries with higher tertiary education enrolment rates, stronger university-industry cooperation, and wider Internet use. The macroeconomic situation, indicators of financial development and the level of technological development prove to be important determinants of FinTech formation. Given the importance of several dimensions of location’s diamond in FinTech formation, the attention of policy makers and governments should be directed towards the diamond dimensions which are more important for FinTechs and in which they are weak.

7 November 2018: Karsten Staehr, "Current Account Dynamics in Central and Eastern Europe: Pull, Push and Exchange Rate Regimes"

The paper seeks to determine factors that drive the current account dynamics of the 11 EU members from Central and Eastern Europe (CEE). Panel data models are estimated on annual data for the period 1997-2017 and both domestic pull factors and external push factors are included. The models are, as a key innovation, estimated separately for floating and fixed exchange rate regimes. The current account exhibits substantial persistence in both cases. For the floaters, the current account has been driven by domestic factors while external factors appear unimportant. For the fixers, the current account has mainly been driven by external factors, suggesting there is substantial vulnerability to external developments. The analysis underscores the importance of the exchange rate regime for the drivers of current account balance in the CEE countries.

24 October 2018: Kristof De Witte (KU Leuven), "Does it matter when your smartest peers leave your class? Evidence from Hungary"

Elite schools in Hungary cherry pick high achieving students from general primary schools. The geographical coverage of elite schools has remained unchanged since 1999, when the establishment of new elite schools stopped. We exploit this geographical variation in the immobile Hungarian society and estimate the impact of high achieving peers leaving the class on student achievement, behavior, and aspirations for higher education. Instrumental variable estimates indicate moderate but heterogeneous effects on those left behind in general primary schools.

11 October 2018: Tilsa Oré-Mónago (Stoney Brooks), "Competition with endogenous and exogenous switching costs"

On the race to gain market power, companies may use strategies to expand and secure their consumer base, by for example, reinforcing consumer inertia by making (to consumers) costly to switch providers. I present a theoretical model I developed on the effect of switching costs in market outcomes and complement it with an empirical application to Peruvian mobile phone market.

I developed a general theoretical framework for dynamic competition under the presence of two types of switching costs: switching fees (endogenous to providers), and individual-specific costs (exogenous to providers). In a two-period game, two providers compete in prices and switching fees, and can price discriminate between old (loyal) and new (switchers) consumers. I found there are symmetric subgame perfect equilibria in pure strategies, where the market is split equally between providers and a third of the population switch in the second period. Equilibrium prices and switching fees are not uniquely determined, but total discounted payoffs for providers and consumers are. These total payoffs are unaffected by the ability to set switching fees but are directly affected by individual (exogenous) switching costs. Switching fees are neutral; they only intensify intertemporal price variation and, therefore, affect intertemporal payoffs by accentuating the trade-off between present and future benefits. These results explain the coexistence of competing providers that set and dismiss switching fees. They also suggest that regulatory policies should reduce individual switching costs (policies such as number portability, standardization or compatibility) rather than eliminate or regulate switching fees.

Based on this theory, I then present some empirical evidence from the Peruvian mobile telecommunications market that supports some of my theoretical predictions. I estimate the effect of the unlocked-handset policy recently implemented on prices and demand. I found a significant negative effect of switching costs on demand for voice traffic (which suggest a positive effect of the unlocked-handset policy on demand) and positive network effects on the demand. The policy, by reducing consumer switching costs, would have generated an increase of 39.7% in the minutes consumed by switchers. Moreover, any change of consumer status (company or consumption plan) is associated with 31.2% increase in minutes consumed. I also found that, with lower significance level, the policy would have induced a reduction of per-minute prices by 9.6%.

26 September 2018: Natalie Lubenets and Mart Maiväli (European Commission), "Digitigrating e-Estonia: applying the Hedgehog and the Fox analogy* to resolve the issue of measuring"

Challenges of measuring the effects of digitalisation on the economy have become known as the productivity paradox (Brynjolfsson, 1993; Gordon, 2000). The available measuring methods usually focus on estimating inputs and outputs using econometric and approximation techniques that only partly capture the complex processes, and are subject to serious disclaimers**. Natalie Lubenets and Mart Maiväli  (DG ECFIN, European Commission) will share their observations about the challenges of measuring the performance of e-Estonia, focusing on productivity and innovation. They will propose a methodological solution based on policy experimentation***. The seminar will consist in three parts: 1) exposition to identify the problem; 2) methodology illustrated by examples; 3) discussion about policy implications.

* https://en.wikipedia.org/wiki/The_Hedgehog_and_the_Fox
** http://documents.epo.org/projects/babylon/eponet.nsf/0/419858BEA3CFDD08C12580560035B7B0/$File/ipr_intensive_industries_report_en.pdf
*** https://ec.europa.eu/research/innovation-union/pdf/state-of-the-union/2013/research-and-innovation-as-sources-of-renewed-growth-com-2014-339-final.pdf

12 September 2018: Ivo Bischoff (University of Kassel), "Cooperation on a competitive ground? An empirical investigation of the emergence of inter-local business parks in Germany"

An increasing number of municipalities cooperates in the field of economic development. In this paper we focus on a specific instrument in this field, namely the development of joint business parks. Our focus rests on the role of tax competition. Are inter-local business parks more likely in regions where tax competition is more severe? We address this question using data from West-German municipalities between 2000 and 2015. The answer is affirmative: We find that an environment of low business tax factors positively influences the likelihood of interlocal business park formation.

11 April 2018: Aaro Hazak, "Factors of time-related work stress in creative R&D jobs under fixed and flexible working schedules"

Co-authors: Heili Hein, Marit Rebane

Work stress factors relating to inconvenient schedules, demanding deadlines, work-life balance and other aspects of time use may have considerable adverse effects on both well-being of the employee and their work outcomes. In this paper we investigate the relationship between various time related work stress factors and individual as well as work arrangement characteristics. The study is based on our original repeated survey among 150 creative research and development employees in Estonia. We present probit regression estimates of the probabilities of some time use driven work stress factors. We find that employees with flexible working schedules have a significantly lower probability of experiencing work-life balance disturbances due to unfavourable timing of work. Those with flexible work schedules appear to find less often that they are not able to complete their work within a given timeframe or to provide sufficient quality of work. Creative R&D employees with flexitime opportunity experience less the need to finish work earlier or to slow down with the work due to sleepiness. Moreover, some significant gender, age and family status effects in time related work stress become evident from our study. Employers, employees as well as regulators should recognize the importance of individual characteristics and job specifics in the effects that various work arrangements may bring along to creative knowledge employees in experiencing various time related work stress factors.

28 March 2018: Laivi Laidroo, "Corporate Governance View on CSR Reporting in Listed Banks"

This paper investigates CSR reporting of listed banks from the perspective of corporate governance. Logistic and ordered logistic regressions with bank fixed effects run on a global sample of 285 commercial banks from 2005 to 2015 confirm the importance of corporate governance as a bank CSR disclosure determinant. In line with expectations, the size of the board, board’s gender diversity, and bank’s commitment to CSR are positively associated with their CSR disclosure decisions. This indicates that banks with more diverse boards and more formal CSR structures are more likely to begin disclosing a CSR report or pay more attention to increasing their quality by compiling their report based of GRI (Global Reporting Initiative) guidelines or getting the report externally verified. Executive compensation linked to CSR shows a very strong positive association with a decision to start issuing a CSR report. However, this association disappears when the improvement of the quality of CSR reporting is considered. This seems to indicate that CSR-based compensation is not very efficient in inducing higher quality disclosure.

14 February 2018: Aleksei Netšunajev, "Structural Vector Autoregression with Time Varying Transition Probabilities: Identification via Heteroskedasticity"

Structural vector autoregressive models with regime-switching variances have been used to test structural identification strategies. In these models the transition probabilities are assumed to be constant over time. In reality these probabilities may depend on certain economic fundamentals that help predicting turning points. This paper is the first to introduce time varying probabilities into structural VAR model that is identified via volatility. A generalized Expectation Maximization algorithm is developed for estimation of the model. For empirical illustration the model is applied to test two sets of assumptions used for identification of uncertainty shocks. A formal test rejects the hypothesis that uncertainty shocks do not influence macroeconomics variables on impact but support the alternative of non-negligible contemporaneous effects.

20 December 2017: Ants Aasma, "Limit cycles and the possibility of chaos in Walras-Keynes-Phillips model"

The presentation consists of two parts:
1. A short overview of basic notions of continuous autonomous dynamic systems (a steady state and its stability, periodic cycles, chaos, bifurcations).
2. Walras-Keynes-Phillips model. We  describe the dynamic behavior of the Walras-Keynes-Philips model. It has been shown that the stability of full employment equilibrium of this model depends on the validity of only one condition. It is explained that in the case of an unstable steady state, the economy without government aid in some circumstances can fall into deep depression. Also the existence of the limit cycles has been proved for certain conditions. The diffrent dynamics (including the chaotic behavior) of the model were demonstrated with the help of the computer program MAPLE. In the chaotic case we established a sensitive dependence on the initial conditions in the model.

13 December 2017: Merike Kukk, "Income Underreporting by the Self-employed in Europe: A Cross-Country Comparative Study"

This paper is the first study to provide comparative estimates of the extent of income underreporting by the self-employed in European countries. The estimates are derived by comparing reported income and food consumption of the self-employed and a reference group using the methodology by Pissarides & Weber (1989). Data are from the 2010 wave of the European Household Budget Survey and the paper is thus the first to present evidence of underreporting by the self-employed during the Great Recession. The estimations show that the extent of unreported income by the self-employed is relatively large in some countries in Eastern Europe and Southern Europe, but there is substantial variability across the European countries with no definitive regional patterns. The results are robust to changes in the model specification and the choice of instruments while the sample selection criteria matter for the results.

22 November 2017: Ako Sauga, "New Product Diffusion in Baltic States"

Innovation diffusion theory has been a subject of considerable research among marketing management and consumer behavior for the last four decades. The best-known first-purchase diffusion model is the Bass model where the potential adopters are divided into two groups: innovators and imitators. The purpose of this paper is to estimate the coefficients of innovation and imitation in Baltic States and in such a way to compare the consumer behavior in these countries and also to examine the similarities and differences between the Baltic States and other European countries. To accomplish the purpose the time-series of telecommunication services are used. The estimation results can be used to forecast the diffusion pattern for analogous products and are useful to firms who operate in the Baltic market or who have such plans.

8 November 2017: Kadri Männasoo, "Learning-by-Exporting hypothesis revisited: Evidence from Central and Eastern Europe"

This study seeks to find evidence on learning-by-exporting hypothesis in a simultaneous estimation framework applied to manufacturing firms in a comparative context of eleven new EU member states and Russia. The investigation considers that export and innovation are largely codetermined and explicitly controls for the factors selecting firms into export while estimating the conditional probability for innovation. The study corroborates the effect of learning-by-exporting, showing that exporting firms are about 20% more likely to be engaged in product and/or process innovation. Data retrieves from Business Environment and Enterprise Performance Survey conducted jointly by EBRD and The World Bank waves four and five over the period 2007-2014.

25 October 2017: Boriss Siliverstovs (Bank of Latvia), "Assessing Nowcast Accuracy of US GDP Growth in Real Time: The Role of Booms and Busts"

In this paper we re-assess the forecasting performance of the Bayesian mixed-frequency model suggested in Carriero et al. (2015) in terms of point and density forecasts of the GDP growth rate using the US macroeconomic data. Rather than relying on the comparison of forecast accuracy over the whole forecast sample spanning 1985Q1-2011Q3, we evaluate the forecasting accuracy of the suggested model and the univariate benchmark models separtely for expansions and recessions as defined by the NBER business cycle chronology. We find that most of the evidence favouring the sophisticated model over its simple univariate benchmarks is due to relatively few observations during the recessions, especially in the Great Recession. In contrast, during expansions the gains in forecasting accuracy over the benchmark models are very modest at best. This means that the relative forecasting performance of the models in question varies with business cycle phases. Ignoring this fact results in a distorted picture: the relative performance of a more sophisticated model in comparison with a naive benchmark model during expansions tends to be overstated and, consequently, during recessions – understated.

11 October 2017: Aaro Hazak, "Job satisfaction in creative R&D employees under fixed and flexible work options"

Favourable working conditions for R&D employees may help to improve the use of their creative potential and support their job satisfaction. We present fully observed recursive structural equation estimates as well as ordered probit and ordinary least squares regression estimates of job satisfaction, based on data from our original repeated survey of Estonian creative R&D employees on a sample of 153 individuals from eleven entities. Employees with a distance work option have a significantly higher probability of being satisfied with their work. While the availability of flexibility in working time is a significant driver of job selection, surprisingly, in the post selection context flexible working schedule appears to have a negative impact on job satisfaction among creative R&D employees. Creative intensity of work is strongly and positively related to job satisfaction. Providing a possibility for distance work and avoiding excessive allocation of non-creative tasks may therefore help to improve job satisfaction in creative R&D employees.

27 September 2017: Natalia Levenko, "Total Factor Productivity Growth in Central and Eastern Europe before, during and after the Global Financial Crisis"

Co-authors: Kaspar Oja (Bank of Estonia) and Karsten Staehr

This paper conducts growth accounting for 11 EU countries from Central and Eastern Europe for the years 1996-2016. Its contributions include the estimation of new capital stock series, adjustment for the utilisation of the capital stock and a time-varying elasticity of output to capital. Before the crisis, growth in total factor productivity (TFP) was the main contributor to output growth in Slovenia, Hungary and Slovakia, while capital deepening was more important in the Czech Republic, Croatia and Poland. During the global financial crisis the contributions of TFP and capital growth differed markedly across the countries, reflecting the very diverse dynamics of the crisis. After the crisis the contribution of TFP growth has been negligible in all of the sample countries coinciding with generally weak output growth. The results are generally robust to changes in estimation methods and parametrisations, but some assumptions are critical for the results.

20 September 2017: Simona Ferraro, "Minimum Wages and Employment Probabilities. A Microeconometric Study for Estonia"

Co-authors: Birgit Hänilane and Karsten Staehr

This paper uses data from the Estonian Labour Force Survey to estimate the effect of increases in the minimum wage in 2013-2016 on the probability of low-wage workers to retain employment. The effect on the employment probabilities of the group of employed individuals directly affected by minimum wage increases is not different from the employment probabilities of comparable groups not directly affected. This result holds for men and women separately, for younger and for older workers, and when different time samples are considered. This suggests that increases in the minimum wage in 2013-2016 have not affected the probability of low-wage workers retaining employment.

13 September 2017: Jeffrey Franks (IMF), "Economic Prospects For The Euro Area: Towards a Lasting Recovery?"

The Director of the IMF’s Europe Office, Jeffrey Franks, will present the IMF’s view on the economic outlook and challenges for the euro area, as well as recent research on convergence of euro area member states. The recovery of the euro zone has strengthened and broadened over the past year, but important policy challenges remain to boost growth potential and ensure that the fruits of growth are more widely shared. Differences in growth rates across countries at their lowest level since the launch of the euro in 1999, but there is still a lack of convergence in income levels among countries, the hurdles of high public debt in some states, and the need to reduce imbalances that built up before the crisis. The more favorable political and economic context provides an opportune moment for addressing these challenges and advancing much-needed reforms.

10 May 2017: Jaan Masso (University of Tartu), "Foreign ownership, commitment to work and gender wage gap"

Co-author: Priit Vahter (University of Warwick)

Whereas there is an abundance of studies documenting the significant wage premium of multinationals (MNE) and the effects of FDI on wage inequality, much less is still known on how foreign ownership affects the gender wage gap at firms. This study shows using employer-employee level data from Estonia a persistent regularity: that foreign owned firms have substantially larger gender wage gap than domestic owned firms. This difference results from men capturing higher wage premium from working at MNEs than women, although both gain in terms of wages from their employment at MNEs. We further show that part of this difference in gender wage gap may be explained by MNEs requiring higher commitment and flexibility from their (high-wage) employees compared to other firms. This explanation of the regularity is consistent with recent contributions by Goldin (2014) in labour economics about the substantial role of differences in work commitment and flexibility of jobs in explaining the aggregate gender wage gap.

26 April 2017: Tairi Rõõm, "The financial fragility of Estonian households: Evidence from stress tests on the HFCS microdata"

Co-author: Jaanika Meriküll (University of Tartu, Bank of Estonia)

This paper analyses the financial fragility of the Estonian household sector using microdata from the Household Finance and Consumption Survey (HFCS). We use a stress-testing framework where the probability of default is evaluated on the basis of the financial margin (i.e. the ability to service debt from current income) and the availability of financial buffers. The HFCS data from household interviews are complemented with information from administrative registers. This lets us evaluate and compare measures of financial vulnerability that draw on data from different sources. We derive a set of indicators to identify households that are financially distressed and analyse the sensitivity of financial sector loan losses to adverse shocks. The stress-test elasticities are assessed separately for three standardised negative macroeconomic shocks: a rise in interest rates, an increase in the unemployment rate, and a fall in real estate prices. In addition, we evaluate the impact of a simultaneous shock mimicking the dynamics of these three variables during the Great Recession. It is found that: (1) despite there being a lot of households with financial difficulties, the risks for banks from the household sector are limited; (2) financial fragility is strongly negatively related to income; (3) the loan default rate of households is most sensitive to shocks to the unemployment rate and the interest rate, while the loan losses of banks are affected most by real estate price shocks; and (4) compared with the survey data, the information collected from administrative sources points to higher household default rates and larger bank losses.

12 April 2017: Aaro Hazak, "Work arrangement related drivers of happiness in creative R&D employees"

Co-authors: Marit Rebane and Heili Hein

Do flexible working schedules, distance work, duration of the employment contract and other work arrangements affect employee happiness? Based on our original repeated survey among Estonian creative R&D employees on a sample of 146 individuals from eleven entities, we present ordered probit and ordinary least squares regression estimates of the drivers of happiness, joy and optimism. The availability of distance work options appears to have a substantial positive impact on happiness as well as joy and optimism among creative R&D employees. The positive effect is further amplified by the availability of flexible working time options. The higher the creativity intensity of their work, the happier the R&D employees appear to be. Employees with a permanent contract are happier. Evening type employees appear to feel joy from their daily life less often than their morning type colleagues – potentially due to their time use preferences deviating from the social norms. Our study draws attention to the potential of increasing employee happiness by providing them flexible working time and working place options, as well as considering their individual differences in sleep patterns in work arrangements.

22 March 2017: Karsten Staehr, "Minimum Wages and the Wage Distribution in Estonia"

Co-authors: Simona Ferraro and Jaanika Meriküll (Bank of Estonia, University of Tartu)

This paper analyses how the statutory minimum wage has affected the wage distribution in Estonia, a country with little collective bargaining and relatively large wage inequality. The computations follow Lee (1999) but the effects of the minimum wage are identified by the degree to which the minimum wage binds in different labour markets defined by time, region and sector. The minimum wage affects wages in the lower tail of the distribution, but the effects are most pronounced up to the 20th percentile and then decline markedly as the wage approaches the median wage. The minimum wage is of greater importance for women than for men. Interestingly, the importance of the minimum wage for the lower tail of the wage distribution was smaller during the global financial crisis than before or after the crisis.

8 March 2017: Simona Ferraro, "School-Level Policies and the Efficiency and Equity Trade-off in Education"

Co-author: Kaire Põder (EBS)

This paper identifies the relationship between pupils’ Family Background, their mathematics scores, and school-level policies, using the 2012 Programme of International Student Assessment for Italy and multilevel modelling. School-level policies have played a leading role in recent school reforms in many countries, but there is no straightforward empirical evidence for how they affect pupils’ outcomes and the equality of educational outcomes. Our findings show that that only some school policies intensify the Family Background Effect - (educational equity) and affect student outcomes (educational efficiency) simultaneously. We find that competitive schools are able to screen students by selecting higher socio-economic status parents, which mainly harms equity without having much effect on efficiency. There are some policies which allow some trade-off between aforementioned objectives, mainly policies related to management schools.

22 February 2017: Aaro Hazak, "Morningness-eveningness pay gap"

Co-authors: Kadri Männasoo, Markku Partinen (University of Helsinki, Helsinki Sleep Clinic)

People differ from one another in their daily sleep and wake regimes. Various social norms, regulations and other institutional factors imply on the behaviour and equality of treatment of individuals with different morningness-eveningness patterns. We provide some insight on the existence of morningness-eveningness pay gap. We present fully observed recursive structural equation estimates as well as ordered probit regression estimates of the drivers of salary levels, based on data from our original repeated survey of Estonian creative R&D employees on a sample of 149 individuals from eleven entities. Employees of evening as well as morning type appear to have a lower probability of getting higher levels of salary, compared to employees with no distinct morningness-eveningness profile. The adverse effect is stronger for individuals of the evening type. Simultaneously, we find support to a strong gender pay gap, with female employees having an average 13-15% lower probability of earning the higher levels of salary. Age is another strong determinant of the salary level

8 February 2017: Laivi Laidroo, "Earnings Announcement Lags and Market Responses – Does the Tone of the News and the Market Sentiment Matter?"

Earnings announcement lags capture the time period between the end of the reporting period and the announcement date. This paper investigates earnings announcement lags for the good and the bad quarterly earnings news across different market sentiment periods as well as market reactions thereto. The focus is on companies listed on three Baltic stock exchanges during 2001-2015. In line with expectations, there exist clear signs of strategic timing of earnings announcements. Earnings announcement lags for the bad news tend to be longer than those for the good news. This difference is more pronounced during low market sentiment periods due to significantly shorter earnings announcement lags for the good news. If the release of the bad news is postponed, abnormal return responses remain lower, as expected. This indicates that the timing decisions of managers may influence investors’ responses and some steps should be taken to reduce such possibilities.

7 December 2017: Aaro Hazak, "Drivers of daytime sleepiness in creative R&D employees"

Co-authors: Erve Sõõru (The North Estonia Medical Centre), Markku Partinen (Helsinki Sleep Clinic, University of Helsinki) and Marko Virkebau

Favourable working conditions for R&D employees help to improve the use of their creative potential and support their individual wellbeing. We present fully observed recursive structural equation estimates, based on data from our original repeated survey of Estonian creative R&D employees on a sample of 153 individuals from eleven entities. Employees with a flextime option exhibit average 2.06 points lower scores on the Epworth Sleepiness Scale (ESS) compared to those working under a fixed working time. Creativity intensity of work is strongly negatively related to the employee’s daytime sleepiness. Evening type (rMEQ<11) employees were significantly more sleepy at daytime compared to morning type (rMEQ>18) employees. Men had on an average 0.9 points lower scores of ESS and 58% lower probability of excessive daytime sleepiness (ESS>10) compared to women. Our results indicate that flexible working schedules may reduce considerably the occurrence of daytime sleepiness among R&D employees.

23 November 2016: Tõnn Talpsepp, "Masters of the Stock Market: How Does Intelligence and Education Help to Beat the Market"

Co-authors: Kristjan Liivamägi and Tarvo Vaarmets

The paper assesses how intelligence and education affect investors returns in the stock market. We use an exhaustive NASDAQ OMX Tallinn dataset which covers two bull markets and one bear market. We show that higher intelligence and stronger mathematical abilities are associated with more pro table investments after controlling for trading style, wealth, experience and a variety of educational characteristics. Higher education or specialisation in certain subjects has the same effect. None of these factors help to explain the performance of investors during bear markets or are a substitute for experience.

9 November 2016: Kadri Männasoo, "Investments, Credit and Corporate Financial Distress: Evidence from Central and Eastern Europe"

Co-authors: Peeter Maripuu and Aaro Hazak

While instrumental for competitiveness, productivity enhancing corporate investments may however increase companies’ financial vulnerability, especially under an economic and financial crisis. We employ an instrumental probit model with the aim of finding evidence on the investment and credit patterns that have led companies to financial distress during the eruption of the global financial crisis in 2009. The company level micro-data for our study on three Central and East European countries – Hungary, Bulgaria, Romania and two Baltic countries - Latvia and Lithuania – originates from the Business Environment and Enterprise Performance Survey and the Financial Crisis Survey, both conducted jointly by the EBRD and the World Bank in 2008-2009. Our results emphasize a substantial adverse impact of investment intensity and debt financing on company financial soundness under a crisis environment. We however discover a strong non-linear pattern in the sensitivity of company distress to its investment-financing nexus.

26 October 2016: Karsten Staehr, "Capital Flows and Growth Dynamics in Central and Eastern Europe"

This paper assesses the importance of capital flows as measured by the current account balance for the growth dynamics of the EU countries from Central and Eastern Europe (CEE). Economic growth in these countries has on average been relatively high but also very volatile. Econometric analyses on annual data for 1997-2015 show a sizeable negative effect of the contemporaneous current account balance on annual GDP growth. This result is robust to the inclusion of a large number of control variables, sample changes and various estimation methods. Counterfactual simulations show that growth rates in all CEE countries would have been lower but also more stable in the absence of capital flows, and this applies particularly to the countries with the most disadvantageous starting points.

12 October 2016: Aleksei Netšunajev (Free University of Berlin), "Uncertainty and Employment Dynamics in the Euro Area and the US"

Co-author: Katharina Glass (University of Hamburg)

In this paper we investigate local and foreign effects of uncertainty shocks on unemployment in two large economic regions - the United States (US) and the Euro area (EA). We deploy Bayesian Markov switching structural vector autoregressive model identified via heteroskedasticity. The shocks of interest are labeled as "US uncertainty" and "EA uncertainty" with the interpretation of demand side shocks. The local shocks influence labor market in both regions, while foreign effects are observed only for the EA. The US labor market tends to react and absorb shocks quicker than the labor market in EA. As economic theory predicts, reaction to (demand) uncertainty shocks points to possible market imperfections that are region specific.

28 September 2016: Aaro Hazak, "Effects of working time patterns on creative R&D work outcome"

Co-authors: Kadri Männasoo and Marko Virkebau

Favourable working conditions for R&D employees help to improve the use of their creative potential, supporting knowledge intensification in the economy at large. We present fully observed recursive structural equation estimates, based on data from our original repeated survey of Estonian creative R&D employees on a sample of 153 individuals from eleven entities. Selection into flexible working time is strongly driven by gender. Males opt for jobs with flexible schedules more likely than females. Higher educational level increases selection into creativity intense positions. The share of non-creative work tasks reduces R&D employees’ contentment with their work outcomes, and lowers – at least in their perception – the productiveness of work in terms of providing new knowledge or creating value. The mean and median of daily working hours are as high as 10 in the creative R&D employees in our sample. The high number of working hours is needed to achieve satisfaction with the work results as well as to earn external recognition. We find employees of evening as well as morning type to have a considerably higher satisfaction with their work results, compared to employees with no distinct morningness-eveningness profile. Our findings stress the benefits of flexible work arrangements in creative R&D jobs.

14 September 2016: Merike Kukk, "What are the Triggers for Arrears on Debt? Evidence from Quarterly Panel Data"

The paper investigates the triggers of arrears on debt in Estonia, which is a full recourse country similar to other euro area countries. An extensive individual-level quarterly panel dataset enables quarterly debt repayment problems to be tracked while controlling for individual specific heterogeneity. The estimations show that lower income and higher debt service ratios are associated with a higher probability of arrears, confirming the “ability to pay” hypothesis. Newly taken consumer loans increase the probability of arrears and the effect is stronger during a recession. Housing loans taken when real estate prices are high exhibit a lower probability of arrears, which is as expected for full recourse loans. The results suggest that the most efficient measures for addressing arrears on debt would be those that mitigate income declines and the debt servicing burden.

18 May 2016: Amaresh K. Tiwari (University of Tartu), "Microeconometric Evidence of Financing Frictions and Innovative Activity"

Co-authors: Pierre Mohnen (Maastricht University and UNU-MERIT), Franz C Palm (Maastricht University and CESifo Fellow) and Sybrand Schim van der Loeff (Maastricht University)

Using a unique data, we investigate how financing and innovation choices vary across firms. We find that when firms face financial constraints, debt financing and innovation choices are not independent of firm characteristics, and R&D investment lessens. However, when unconstrained firms raise debt, they become less inclined to innovate and the change in the propensity to innovate no longer varies with firm characteristics. This heterogeneity in innovation, R&D, and financing decisions is not evident when unconditional, not conditioning on financial constraints, relationships between the decisions are drawn. A new “control function” method to tackle endogeneity of variables has been developed.

11 May 2016: Kaire Põder and Andre Veski, "Efficiency and fair access in kindergarten allocation policy design"

We study kindergarten allocations practices in two municipalities of Estonia. We describe their current allocation practices and provide recommendations for improvement. The recommendations are based on child-optimal stable matching, with priorities based on siblings and distance.

We evaluate seven policy designs to understand efficiency and fairness trade-offs, based on 2015 admission data from one of the municipalities. Regrettably the data is limited due to being collected under then applicable decentralised allocation procedure. Based on the available data we estimate a ranking function and use that for a counter-factual policy comparison and sensitivity analysis. We find that different ways of considering the same priorities can have significant aggregate effect on the allocation.

13 April 2016: Kadri Männasoo, "Endowment, commitment and convergence: The unfolding of the sources of productivity growth"

The study investigates the drivers of total factor productivity (TFP) growth, covering 99 European regions from 31 countries over 2000-2013. The key factors under investigation comprise convergence effects, regions own R&D expenditures and their human capital endowment. The study demonstrates a strong positive human capital impact upon TFP growth, however a rather modest positive effect of regions own R&D expenditures. Further, confirming evidence on convergence effects is provided, with stronger TFP growth associated with higher productivity gap regions. Additionally the spatial spillover effects have a positive impact upon TFP growth and more strongly so for the Eastern European Regions.

23 March 2016: Dominika Fijałkowska (Wrocław University of Economics and Business), "Behaviour of Informed and Uninformed Investors: Ex-ante Uncertainty Vs. Signalling Theory"

In this paper, we investigate the stock price behaviour of newly listed companies on the stock exchange market with an extremely high level of information asymmetry. We show a unique mechanism of how informed investors influence the stock prices before entering the market to consume abnormal returns. We point out that weak entry regulation and low disclosure requirements, which are implemented by regulators to meet the needs of small and young companies in gaining capital, together with weak legal enforcement, in reality, encourage market participants to overvalue stock prices in the short-term before debut and squeeze out aftermarket uninformed investors.

9 March 2016: Enn Listra, "(Fifty) Shades of Grey in Competition: The Concept(s) in a Unifying Framework"

The aim of the conceptual literature review is to improve understanding of the concept of competition by distinguishing a small number of factors that determine, explain and describe main varieties of competition and its derivative concepts in unifying framework. The variety of possible subjects of competition and their objectives, the mechanisms and tools that are used in the process, the objects of decision-making, the aims and approaches of analysis, the outcomes considered and differently operationalised measurement methods of performance change the meaning of the concept from case to case. The study is undertaken to improve mutual understanding of the concept by researchers and students with different aims and approaches. Particularly, the attempt is made to reconcile the economics and managerial approaches reminding that the phenomenon described by the concept(s) is fundamentally the same. In addition, the study is undertaken with the aim to find promising research gaps relevant to practice of management, strategy and policymaking.

9 December 2015: Karin Jõeveer, "The Economics of Collateral"

Co-author: Roland Anderson (London School of Economics)

In this paper we study how the use of collateral is evolving under the influence of regulatory reform and changing market structure. We start with a critical review of the recent empirical literature on the supply and demand of collateral which has focussed on the issue of ‘collateral scarcity’. We argue that while limited data availability does not allow a comprehensive view of the market for collateral, it is unlikely that there is an overall shortage of collateral. However, it is quite possible that there may be bottlenecks within the system which mean that available collateral is immobilized in one part of the system and unattainable by credit-worthy borrowers. We then describe how these problems sometimes can be overcome by improved information systems and collateral transformation. We discuss how collateral management techniques differ between banks and derivatives markets infrastructures including, in particular, CCPs. In order to assess the impact of alternative institutional arrangements on collateral demand, we introduce a theoretical model of an OTC derivatives market consisting of investors and banks arrayed in several regions or market segments. We simulate this model under alternative forms meant to capture the implications of moving to mandatory CCP clearing and mandatory initial margin requirements for non-cleared OTC derivatives.

11 November 2015: Aleksei Netšunajev (Free University of Berlin), "Structural Vector Autoregressions with Smooth Transition in Variances: The Interaction Between U.S. Monetary Policy and the Stock Market"

Co-author: Helmut Lütkepohl (DIW Berlin and Free University of Berlin)

In structural vector autoregressive analysis identifying the shocks of interest via heteroskedasticity has become a standard tool. Unfortunately, the approaches currently used for modeling heteroskedasticity all have drawbacks. For instance, assuming known dates for variance changes is often unrealistic while more flexible models based on GARCH or Markov switching residuals are difficult to handle from a statistical and computational point of view. Therefore we propose a model based on a smooth change in variance that is flexible as well as relatively easy to estimate. The model is applied to a five-dimensional system of U.S. variables to explore the interaction between monetary policy and the stock market. It is found that previously used conventional identification schemes in this context are rejected by the data if heteroskedasticity is allowed for. Shocks identified via heteroskedasticity have a different economic interpretation than the shocks identified using conventional methods.

28 October 2015: Marit Rebane, "Shorter Dinner and Other Aspects of Growing Up with a Single-Mother"

Co-author: Fabrizio Bernardi (European University Institute)

The time diaries of 7,137 children aged from 3 to 10 years are analysed in order to investigate the start of social inequalities rising from family structure and mother´s educational background. Data come from 2002-03 and 2008-09 Italian time-use surveys. Children´s use of free time is compared in intact and lone-mother families while taking into account mother´s level of education. The main finding is that in the case of parental divorce, the children of university educated mothers lose most. In some cases, children of lowly educated lone-mothers use their time more effectively than their counterparts in intact families. Results underline the great “time-famine” of university educated single mothers, and the need for government interventions for single-mother families. Previous studies emphasise that the inequalities that start in the beginning of life are especially hard to overcome.

14 October 2015: Ricardo Vicente, "Picking Big Winners and Small Losers: An Evaluation of Estonian Government Grants for Firms"

Co-author: Meelis Kitsing (Ministry of Economic Affairs and Communications, Estonian Business School)

The paper analyzes the impact of grants funded by the structural funds of the European Union and distributed by Enterprise Estonia, a government agency responsible for business support schemes. We demonstrate the impact of grants on the performance of receiving companies in the years 2007-2012 by using propensity score matching. A set of financial, economic, and location variables at the firm level is used to estimate the propensity scores. Data covers all 2,709 receiving companies, and all operative Estonian companies. Fifty two percent of funds were allocated to "investment in technology" grants, which had statistically significant positive effects on performance indicators. Since the number of technology grant recipients was small, the amounts were relatively large, and projects had lower risk in comparison with those funded by other grant types, we argue that the government has picked winners. Funding of riskier projects with higher probability of market failure has been more limited, and grants for research and development as well as for start-up support had statistically significant negative effects on value-added of firms.

9 September 2015: Karsten Staehr, "Uncovered Interest Parity and Expectations. New Results from Central and Eastern Europe"

Co-authors: Juan Carlos Cuestas (Sheffield University) and Fabio Filipozzi (Bank of Estonia)

The presentation will discuss the hypothesis of uncovered interest parity (UIP) and present two papers testing for the presence of UIP in Central and Eastern European countries with a floating exchange rate. The first paper is “Do foreign exchange forecasters believe in uncovered interest parity?”, which was published in Economics Letters in August 2015. The other paper is “Uncovered interest parity in Central and Eastern Europe: expectations and structural breaks” and it is still work-in-progress. One conclusion coming out of both studies is that the formation of expectations is of great importance when the empirical validity of the UIP hypothesis is assessed.

18 May 2015: Michael Funke (Department of Economics, Hamburg University ), "Assessing the CNH-CNY pricing differential: role of fundamentals, contagion and policy"

Co-authors: Chang Shu, (Bank for International Settlements), Xiaoqiang Cheng (Hong Kong Monetary Authority), Sercan Eraslan (Hamburg University)

Renminbi internationalisation has brought about an active offshore market where the exchange rate frequently diverges from the onshore market. Using extended GARCH models, we explore the role of fundamentals, global factors and policies related to renminbi internationalisation in driving the pricing differential between the onshore and offshore exchange rates. Differences in the liquidity of the two markets play an important role in explaining the level of the differential, while rises in global risk aversion tend to increase the differential’s volatility. On the policy front, measures permitting cross-border renminbi outflows have a particularly discernible impact in reducing the volatility of the pricing gap between the two markets.

13 May 2015: Laivi Laidroo, "Reliability of Graphs Disclosed in Annual Reports of Banks"

This paper investigates the level of distortion on graphs disclosed in annual reports of Central and Eastern European commercial banks and identifies its determinants. The results indicate that nearly one third of graphs violate at least one graph construction principle, revealing significant problems with their reliability. Bank managers’ tendency to employ graphs for impressing report readers is confirmed through the presence of favourable measurement distortion bias, higher graph distortion indicators during crisis years and positive association between graph distortion indicators and bank performance. This applies especially for financial indicator graphs, meaning that clearer definition of auditor responsibility and greater regulatory focus on discretionary disclosures could improve the transparency of banks’ disclosures.

8 April 2015: Karin Jõeveer, "Bankers and bank investors: Reconsidering the economies of scale in banking"

Co-author: Roland Anderson (London School of Economics)

We study economies of scale in banking by viewing banks as combinations of financial and human capital that create rents which accrue to investors and bankers. In this way we find larger economies of scale in returns to bankers as compared to investors. Scale economies are particularly strong in the top size decile of banks. Introducing observable proxies for funding efficiency, presence in wholesale banking activities and leverage largely accounts for observed scale economies.

11 March 2015: Svetlana Ridala, "Language Skills in an Ethnically Segmented Labor market: Estonia 1989–2012"

Co-authors: Sven-Kristjan Bormann (University of Tartu) and Ott Toomet (University of Tartu)

We analyze the relation between language skills and labor market outcomes in Estonia, a linguistically divided country where Estonian is the sole official language. We show that for men, fluency in Estonian is related to low unemployment, but does not give a significant income premium. English skills are related to a substantial income premium, but have virtually no effect on unemployment. Russian language skills are related to higher wage for Estonians, but the relationship is slowly fading and is not associated with lower unemployment. For women, the estimates are more uniform. Through the 20 years since independence, the importance of Estonian has remained constant while the effect of Russian and English has declined, probably reflecting the decreasing economic relations with Russia and increasing abundance of English skills. These results can be explained by simultaneous ethnic and gender segregation.

17 February 2015: Joseph Lau (National University of Singapore)

The seminar commences with a short introduction on Singapore’s abrupt independence, after which the country was caught in a precarious situation with no resources, a highly dependent trading economy and no defence force. How did Singapore approach the situation? Monetary functions were performed by government departments and agencies before 1970. The process of consolidation began with the inauguration of an institution that oversees various monetary functions associated with banking and finance. The institution went through a series of metamorphoses, merging with other government agencies while functioning as central bank of Singapore. However, it does not function like other central banks such as the Federal Reserve System or the Bank of England. What mechanism does the Monetary Authority of Singapore regulate? How does this regulatory mechanism contribute to a sustainable competitive advantage of Singapore?

10 February 2015: Paula Kyrö (Aalto University), "Methodological choices in research process"

• How to build consistent research process for thesis
• The relationship between the phenomenon, context, theories and methodology
• How to compile the theoretical frame of reference
• What is methodology – decision of philosophical bases, research method, data gathering and analysing method

10 February 2015: Robert Kitt, "Economic Decision Making: Application of the Theory of Complex Systems"

Complex systems are discussed in the context of economic and business policy and decision making. It will be showed and motivated that social systems are typically chaotic, non-linear and/or non-equilibrium and therefore complex systems. It is discussed that the rapid change in global consumer behaviour is underway, that further increases the complexity in business and management. For policy making under complexity, following principles are offered: openness and international competition, tolerance and variety of ideas, selfreliability and low dependence on external help. The chapter contains four applications that build on the theoretical motivation of complexity in social systems. The first application demonstrates that small economies have good prospects to gain from the global processes underway, if they can demonstrate production flexibility, reliable business ethics and good risk management. The second application elaborates on and discusses the opportunities and challenges in decision making under complexity from macro and micro economic perspective.

3 December 2014: Luigi Bonatti (University of Trento), "Low Growth in Advanced Economies: The Interplay of Wealth Accumulation, Structural Change and Government Policies"

This paper intends to assess the reasons of the current anaemic growth of the advanced economies, with a special focus on the euro area and Italy, and to discuss their implications in terms of policy. The objective is to outline a general conceptual framework whereby to provide a coherent explanation of different but related phenomena, even at the cost of glossing over—at this preliminary stage—data, formal analyses and bibliographical references that support it. The paper does so by discussing the structural causes underlying the slowing down of GDP growth in the rich countries (“secular stagnation”). Furthermore, it interprets some important episodes that occurred in the world economy since the 1980s as the result of the policy makers’ attempt to “force” economic growth beyond what is sustainable, and finally it pays attention to the crisis of the euro area.

12 November 2014: Merike Kukk, "Identification of Income Underreporting by the Self-Employed: Employment Status or Reported Business Income?"

Co-author: Karsten Staehr

This paper is a follow-up of the article “Income Underreporting by Households with Business Income: Evidence from Estonia” which was published in Post-Communist Economies, 2014, Vol. 26, No. 2, pp. 257–276, and which estimates the extent of income underreporting in Estonia. This paper is the first to investigate the importance of the way in which the self-employed are identified. Using household budget data from Estonia, the underreporting by self-employed households is computed using different identification methods. The share of unreported income is estimated to be substantially larger when self-employed households are identified using their share of reported business income than when they are identified using their employment status. Further analysis combines the different identification methods and the results show that the employment status provides no information on underreporting when the share of business income is controlled for. The share of reported business income is clearly the most informative indicator of underreporting.

6 October 2014: David Mayes (University of Auckland), "The changing welfare state and democracy in Europe"

This presentation draws on the results from a three-year research project into the implications of welfare policy for the forms of democratic arrangement that are likely in Europe over coming years. This project was part of a wider study, labelled RECON, run by ARENA at the University of Oslo. It looks at the challenges to welfare policy from a wide number of directions, including: the increasing role of the private sector, including public-private-purchasing initiatives; the challenge of localisation; the pressure of debt; and the rising role of unelected bodies. It also considers how welfare policies are developing across Europe. With the rapid changes in central and eastern Europe that traditional paradigms of Nordic, Continental, Anglo-Saxon and Mediterranean regimes are becoming less clear. Furthermore as the Open Method encourages increasing policy learning among the member states of the EU further convergence might be expected.

The presentation focuses in particular on a special study of the costs of children which formed the main area of empirical research. While many of the individual working papers have been published by RECON and The Europe Institute Journal, two books have also been published by Edward Elgar: David Mayes and Mark Thomson, The Costs of Children; David Mayes and Anna Michalski, The Changing Welfare State in Europe.

10 September 2014: Laivi Laidroo, "Impression management through banks’ annual report graphs"

The objective of this paper is to analyse the graph use in Central and Eastern European (CEE) banks’ annual reports during 2006-2011 and determine the extent of impression management strategies employed. The results revealed distinct differences in CEE banks’ graph use compared to other types of companies covered in previous studies. These included lower levels of graph use, differences in identified key financial variables (KFVs), and more extensive use of activity and macroeconomic indicator graphs. There was quite strong support for impression management in banks’ graph use in the context of selectivity. Weaker support was found for the existence of favourable measurement distortions and employment of attribution strategies. Still, compared to previous research, weaker links existed between KFV graph use and banks’ profit performance, and the proportions of materially distorted graphs remained lower. These results indicate that annual report users should pay more attention to sudden disappearance of certain graphs and cross-check graphed KFVs with numerical data presented in audited financial reports.

3 March 2014: Marco Lopriore (European Institute of Public Administration), "The pillars of EU economic governance"

The presentation examines the economic governance of the European Union with particular emphasis on the changes that have taken place recently. The new governance structures are based on four pillars, i.e. fiscal surveillance, macroeconomic surveillance, socio economic coordination and financial solidarity. The presentation will also discuss the perspectives for the EU’s economic governance in the short, medium and long term, including issues related to competitiveness and convergence instruments, cyclical adjustment fund and debt mutualisation.

11 December 2013: Kaire Põder and Triin Lauri (Tallinn University), "Swedish, Finnish and Estonian schools: Family background effect and the moderating effect of school level choice policy"

We indicate the sizes of family background effects in Sweden, Finland and Estonia, countries that differ both in extensiveness of welfare state and system level school choice policies. By family background effect we mean the dependency of student achievement on family background characteristics such as parents' education, income and social status. We operationalize family background by the number of books at home and measure its effect in points of individual level PISA score. Furthermore, we show how family background effect is moderated by school level choice policy, i.e. how students and schools are matched. We show that zoning policy has negative and statistically significant effect on the size of family background effect independently from country level policies.

27 November 2013: Abel Polese, "The Informal Post-Socialist Economy"

Since the end of socialism scholars have been debating whether post-socialist welfare policies in Eastern Europe and the former USSR could be considered converging into Western European patterns, and possibly fit one of Esping's welfare state classification (1990), or else it should be considered an exception or a self-standing case and therefore studied beyond these categories. This article contends that neither of the above interpretative frameworks might be appropriate because they both miss the role of informal welfare policies and informal renegotiations of welfare policies. Going beyond the transitional-alternative paradigm this article situates itself in the structure-agency debate in defining how welfare policies are renegotiated by domestic and local actors and come to form a partially new system. By doing this, rather than seeing the former socialist region as an exception, it suggests that the very debate about welfare state and welfare policies should be revisited in order to consider also informality as a major element of social policy-making.

13 November 2013: Laivi Laidroo, "Banks’ CSR disclosures – headquarters versus subsidiaries"

Co-author: Urmas Ööbik

This paper investigates how the 2008 financial crisis is reflected in the CSR disclosure quantity and readability of banks’ headquarters and subsidiaries, and how banks’ disclosure patterns differ across these units. An embedded multiple case study approach utilising quantitative content analysis and readability indices is employed on 13 banks: three Nordic banks’ headquarters as well as their three Baltic subsidiaries/branches and one locally owned bank headquarter. As expected, Nordic banks’ headquarters’ disclosure quantity and readability outperforms those of their Baltic subsidiaries/branches. However, no convergence of intra-group CSR disclosure practices is detected. The financial crisis has been most extensively reflected in SEB’s disclosures with inconclusive results reported for other investigated banks. Banks’ response to the legitimacy gap seems to depend on CSR reporting strategy: passive superficial (Baltic subsidiaries/branches, ABLV), passive thorough (Swedbank), intermediate (Danske Bank) and active (SEB). Passive and intermediate strategy pursuers’ CSR disclosure quantity and readability remains stable during the financial crisis period. However, active strategy pursuers increase disclosure quantity and reduce readability indicating possible stakeholder manipulation attempts. Both intermediate and active strategy pursuers disclose in greater detail steps taken to improve CSR behaviour.

16 October 2o13: Tõnn Talpsepp, "A Closer Look at the Disposition Effect: Speculating in Gains, Waiting in Losses"

Investors tend to hold loser stocks too long and sell winner stocks too soon, which is referred to as the disposition effect. Using the laboratory experiments as well as the trading data from Estonian stock market, we find that investment decisions depend on the current performance and the past price movement. In the experiment, the participants appear to stay with their last period allocations if they had losses on investments, whereas they follow more active contrarian strategies if they had made positive profits. The trading behavior of investors in Estonian stock market are mostly consistent with our experimental results, i.e., contrarian strategies in gains and holding stocks in losses. Our experiment suggests that wishful thinking and misperception of the price process, such as gambler's fallacy, may attribute to the observed disposition effect.

10 April 2013: Ricardo Vicente, "Sovereign Default and Government Type"

Strong and empirical evidence has shown that the likelihood of sovereign debt default in parliamentary democracies is smaller when the government is composed by more than one political party. One of the focal points in coalition government theory is the minimal winning coalition; however, the frequency of surplus coalitions, and minority governments in industrialized parliamentary democracies seems to contradict the theory. This paper links sovereign default empirical evidence with type of government theory. It provides a formal theoretical explanation for the coalition effect in the probability of default, and for the formation of surplus coalitions. In a stochastic endowment economy, two parties rotate in power. They have the option to invite a third party, which represents the part of society which is more directly interested in sovereign debt repayment. The presence of the smaller party in the coalition decreases the likelihood of default (coalition buys commitment), and hence, bond prices are higher. When the effect of higher bond price dominates the redistributive effect of one more party in government, bigger political parties have an incentive to form a coalition, even when this is not necessary to guarantee majority support in the legislative.

27 March 2013: Grigori Fainštein, "Steadiness and mobility of trade patterns in the Baltic States"

This paper describes specialisation dynamics in the Baltic States using Reveal Comparative Advantage (RCA) measured. We analyse the development of the distribution of the comparative advantage using descriptive statistics, Galtonian regression, and Gini coefficient. Intersectoral specialisation dynamics is investigated using Marcovian transition probability matrix. Trade patterns dynamics aggregated by factor endowments are also discussed.

Despite some contradictory results obtained using different methodologies the following general conclusions can be formulated.

Diversification is the general trend in the development of the comparative advantage structure in the Baltic States. The most polarized structure of specialization in the considered period is in Latvia, the most diversified is in Estonia. However the degree of mobility varies significantly between countries. The most mobile structure of specialization is in Latvia. In Estonia the mobility is the lowest.

For all the Baltic States trade patterns are highly persistent for the sectors with strong comparative advantage and strong comparative disadvantage. It is shown that the probability of remaining in the same class for analyzed sectors is high. Commodity groups that belong to the intermediate classes exhibit higher mobility.

The share of primary products and the comparative advantage in this group decreased most significantly in Estonia. In Latvia the share of the product groups with a comparative advantage increased. The share of natural-resource intensive products decreased in all three countries, the share of commodity groups with comparative advantage also reduced. Multidirectional dynamics is observed in unskilled labour intensive products. While in Estonia this group has lost comparative advantage, the opposite trend is observed in Latvia and Lithuania. The share of technology-intensive goods rises in all countries. However only in Estonia and Lithuania the comparative advantage in this group increased significantly.

13 February 2013: Kaire Põder and Triin Lauri (Tallinn University), "When Public Acts Like Private: The Failure of Estonia´s School Choice Mechanism"

We show the segregation effect of the market-like matching of students and schools at the basic school level. Our natural experiment case is the capital city of Estonia – Tallinn. The current school choice mechanism applied by our case is based on entrance tests. There are increasingly over-demanded intra-catchment area public schools, where high reputation is reinforced by publicly reported league tables. The current mechanism has created parental strategies of prep-schooling and manipulation with addresses. Logistic regression results, based on survey data, reveals that under competitive entrance the success of admission to high reputation schools is determined by family educational strategies and family background characteristics. Understanding this heterogeneous strategic behaviour is important for the effective design of school choice mechanisms.

12 December 2012: Michiru Nagatsu, "Can one-shot experimental games measure social norms and preferences?"

People do not behave strictly so as to maximize monetary payoffs in experimental games such as Public Goods and Ultimatum games. To explain this ‘anomaly’, behavioural economists have proposed so-called social preference models that try to capture other-regarding preferences (altruism, inequity aversion, reciprocity, etc.) as additional arguments of players’ utility functions. However, none of the proposed model has successfully explained data across different games. I give a proper diagnosis to this situation by examining Woodward’s (2008) methodological critique of the social preference approach. I argue that the problem lies not in external validity as Woodward argues, but internal validity of those experiments. Specifically, I defend the one-shot design as a useful paradigm as long as it is internally valid.

7 November 2012: Alvar Kangur (IMF), "Productivity and (In)Adequacy of Public Capital"

With increasing public debt ratios in advanced countries the policy focus has shifted towards growth-maximizing levels of public spending, most notably public capital. To inform these policy discussions we update the public capital stock data for OECD countries, covering the period of (1950)1960-2011. We document the secular decline in the public investment and capital ratios in most of the OECD countries. Two-step panel VECM estimates show that long-run causality runs both from income to infrastructure and vice versa. Based on the test for the sign and direction of the long-run effects developed by Canning and Pedroni (2008) our results suggest that OECD countries on average have moved from oversupplying to growth-maximizing levels of to nearly under-supplying public capital, though the latter result is not statistically significant. Together with stylized facts these results suggest that investment ratios in an average OECD country have reached a lower-bound. Further, there is some weak evidence that Emerging Asia is undersupplying whereas Latin America oversupplying public capital.
Info: The presentation will be based on Gupta et al. (2011): “Efficiency-Adjusted Public Capital and Growth” (IMF Working Paper WP/11/217) and on a forthcoming paper “Are Advanced Economies Spending Too Little on Public Investment?”. The IMF working paper will be made available at the seminar.

10 October 2012: Laivi Laidroo, "Lending Growth Determinants and Cyclicality in Central and Eastern European Banks"

This paper investigates lending growth determinants and cyclicality in banks of 15 Central and Eastern European countries during the period of 2004-2010. The results support expected cyclicality in lending growth, however, contrary to expectations, the association between GDP growth and lending growth is weaker when economy is below trend compared to when it is above trend. This result refers to the existence of strong supply-side pressures on lending growth initiated/amplified by large foreign-owned banks prior to 2008 financial crisis. The same developments may explain lending growth’s unexpected negative association with bank size and positive association with banking market concentration. Coefficients of other tested macroeconomic and bank-specific variables exhibit expected signs. However, bank’s equity level, credit risk and size have stronger association with lending growth when economy is below trend compared to when it is above trend and foreign-ownership matters only when economy is above trend.

19 September 2012: Aaro Hazak, "Bid Rigging in Simultaneous Procurement Auctions under Oligopoly"

The purpose of the paper is to present a conceptual argumentation on the causes and consequences of potential bid rigging in a specific situation, where simultaneous bids for similar services or goods are asked from oligopolists. Splitting of large procurements into several smaller ones has been propagated as a way of enhancing competition. It appears however that calling for similar bids simultaneously might give extra motivation for collusion among bidders, while arranging several consecutive procurement auctions could be a better alternative. Furthermore, bid rigging remains more complicated to detect under simultaneous procurement auctions due to a larger degree of uncertainty for bidders, which supports relatively high bid prices that may actually be collusive. Moreover, simultaneous procurement auctions may result in a relatively high cost of supply due to the (seemingly) larger risks involved for bidders.

9 May 2012: Kadri Männasoo, "Krediidipiirangud ja T&A: Mikroökonomeetriline analüüs nõudluse tõusu- ja mõõnaperioodil"

Kas sügav kriis aitab kaasa majanduse restruktureerimisele või pigem lämmatab tootlikkust tõstvaid investeeringuid ning teadus- ja arendustegevust? Selle küsimuse uurimiseks kasutatakse Maailmapanga ja Euroopa Arengu ja Rekonstruktsioonipanga küsitlusandmed ettevõtete tegevuskeskkonna ning tulemuslikkuse kohta (Business Environment and Enterprise Performance Survey) aastatest 2002, 2005, 2008/09 ning Maailmapanga korraldatud Finantskriisi küsitluse (Financial Crisis Survey) andmeid ajavahemikust 2009-2010 põhinedes kuue riigi: Bulgaaria, Läti, Leedu, Ungari, Rumeenia ja Türgi ettevõtete hinnangutel. Kahe vastandliku perioodi – jõuline kasv aastatel 2001-2007 ning järsk mõõn ajavahemikus 2009-2010 vaatlemisel ilmneb märkimisväärne erinevus ettevõtete teadus- ja arendustegevuse otsustes. Kriisi-eelsel kasvuperioodil kahandasid krediidipiirangud ning nõudluse kasv ettevõtete tõenäosust teadus-ja arendustegevust läbi viia. 2009-2010 aasta mõõnaperioodil ei mõjutanud ei krediidipiirangud ega nõudluskeskkond ettevõtete otsuseid kasvatada teadus-ja arendustegevuse kulutusi.

11 April 2012: Karsten Staehr, "Price Convergence and the Dynamic Penn Effect in Central and Eastern Europe: Convergence Speed and Cross-Country Heterogeneity"

The dynamic Penn effect entails that income and price levels are closely linked across time. This paper tests whether the effect is present in Central and Eastern Europe for the period 1995-2009. The analysis comprises panel data cointegration and pooled mean group estimation. The results show that the price and the income levels are cointegrated and, indeed, a one-to-one relation exists between the two variables in the long term. There are, however, substantial differences across the countries with respect to the short-term adjustment in case of deviating price and income levels. The adjustment is strongest and statistically most precisely estimated for the countries with the lowest income, while the adjustment is weaker or non-existing and less precisely estimated for the countries with higher income. The ex-change rate regime does not appear to play a role for the adjustment speed in case of deviating price and income levels.

JEL classification: E31, O57, P24

Keywords: Price level, real exchange rate, convergence, dynamic Penn effect, cointegration, pooled mean group estimation, Central and Eastern Europe