Dynamic Analysis of Criminal Behavior: An Application of Empirical Mode Decomposition

Our objective is to measure the permanent and transitory components of criminality in Brazilian states by using the methodology proposed by At and Chappe (2005). The empirical strategy used follows the Empirical Mode Decomposition method (EMD), proposed by Huang et al. (1998). Based on a sample collected using the Mortality Information System (SIM) from DATASUS, the decomposition process was carried out for the 27 Brazilian states from 1996 to 2015. The results of the decomposition for criminality show that the choice for crime occurs, for the largest part, due to permanent elements, which is a predictor of future crimes over time. The decomposition of criminality into these two types of components establishes some evidence regarding criminal behavior that can serve as reference for policy makers, since the implications of the results found raise questions about the policies to confront and reduce crime.

Permanent and transitory effect of public debt on economic growth

PurposeThis study examines the effect of public debt on the economic growth of OECD countries by disentangling the effect into permanent and transitory components. The study covers 37 OECD countries.Design/methodology/approachThe Mundlak decomposition was employed to decompose the effect of public debt into its transitory and permanent effect on economic growth. To account for potential endogeneity problem, the Hausman and Taylor estimator was employed to estimate the decomposed model. Further, the study disaggregated the OECD model into country group models for further analysis of the dynamics of the relationship between the variables.FindingsThe findings of the study reveal that in the full OECD model public debt exerts a significant negative permanent and positive transitory effect on economic growth. This was robust to alternative model specifications. The magnitude of the negative permanent effect of debt was found to be larger than the positive transitory effect. Further, the estimates of the disaggregated models reveal that though public debt has a negative permanent effect across all the country groups, it was not the case for the transitory effect of debt. Also, a net public debt model was estimated, and its effect on public debt was found to be largely insignificant, exhibiting a Ricardian-like behaviour.Originality/valueTo the best of our knowledge, this is the first study, particularly in the OECD context that employed the Mundlak transformation to examine the permanent versus transitory effect of public debt on economic growth.

The Term Structures of Coentropy in International Financial Markets

We propose a new entropy-based correlation measure (coentropy) to evaluate the performance of international asset pricing models. Coentropy captures the codependence of two random variables beyond normality. We document that the coentropy of international stochastic discount factors (SDFs) can be decomposed into a series of entropy-based correlations of permanent and transitory components of the SDFs. We employ the cross section of G-10 countries to obtain model-free estimates of all the components of coentropy at various horizons and we show that the generalization of the long-run risk model featuring two predictable components of consumption growth rates, global disasters, and recursive preferences can account for the composition of codependence at all horizons. This paper was accepted by Tomasz Piskorski, finance.

HOW WELL DOES “CORE” INFLATION CAPTURE PERMANENT PRICE CHANGES?

Does excluding food and energy prices from the Consumer Price Index (CPI) produce a measure that better captures permanent price changes? To examine this question, we decompose CPI inflation and “core” inflation into their permanent and transitory components, using a correlated unobserved-components model. The stationarity of inflation may be time-varying, so we examine the performance of the core measure of inflation separately for periods in which inflation isI(1) andI(0). For a period in which inflation appears to beI(1), we find that core inflation and the permanent component of overall inflation are closely related, but there are some caveats. For a period in which inflation appears to beI(0), we decompose the core and overall price levels and find that the permanent component of the core CPI is much more volatile than the actual core series and that the core excludes volatile permanent shocks to the overall price level.