Economics

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This is the collection for the University of Waterloo's Department of Economics.

Research outputs are organized by type (eg. Master Thesis, Article, Conference Paper).

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Applications of Machine Learning on Econometrics for Two-stage Regression, Bias-adjusted Inference with Unobserved Confounding, and Test for High Dimensionality
(University of Waterloo, 2024-08-19) Xu, Wenzuo
Nonparametric approaches have been extensively studied and applied when no assumption is made regarding the model specification. More generally, a sieve can be constructed as a collection of subsets of finite-dimensional approximating parameter spaces, over which the target function is estimated by an optimization of fitting without demanding a parametric specification. Although the concept of sieves is devised in such a general way, classic sieve estimation in literature has been mostly focusing on single-layer approximations. When the target functions are of intricate patterns, however, these single-layer estimators show limited capability despite allowance for data-generated sieve bases, whereas characterizing different attributes of the target functions progressively through multiple layers is often more sensible. Deep neural networks (DNNs) offer a multi-layer extension of the traditional sieves by modelling the connections among variables through data transformations from one layer to another. DNNs have a larger freedom than the single-layer ones in increasing the sieve complexity to ensure consistent estimation while maintaining a relatively simple structure in each layer for feasible estimation. This thesis contains three chapters developing methodologies and motivating applications of DNNs on Econometrics for two-stage regression, bias-adjusted inference with unobserved confounding, and test for high dimension.
Essays on Empirical likelihood for Heaviness Estimation, Outlier Detection and Clustering
(University of Waterloo, 2024-04-24) Zhang, Zhuojing
Empirical likelihood (EL) is a non-parametric likelihood method of inference. There are a large number of studies about the extensions and applications of EL. Most studies discuss the EL ratio for constructing confidence regions and testing hypotheses, while this thesis focuses on the EL weight assigned to each observation in the dataset by the EL ratio function. This thesis contains three chapters on studying the behaviour and application of EL weights. Specifically, chapter 1 provides a novel approach based on the EL weights to estimate a threshold that separates the bulk part and tail part of datasets of datasets with a heavy-tailed histogram. Because the transition between the bulk and tail parts can not be fully disjointed in many cases, we allow the threshold to be a random variable instead of a fixed number. In addition, the threshold is relative to a benchmark since heaviness is a relative concept. In Chapter 2, we focus on outlier detection. We develop an unsupervised method based on EL to identify outliers. In particular, we calculate the EL weights through the EL ratio function with the bootstrap mean constraint and show that the EL weights have different behaviours for datasets with and without outliers. Additionally, the EL weights provide a measure of outlierness for all observations, which might reduce the cost of time. In Chapter 3, I consider a clustering algorithm based on the EL weights. Clustering is an unsupervised method that aims to group unlabeled datasets based on their similarities. Numerous clustering methods have been proposed. The performance of these methods is typically related to the characteristics of the dataset in the specific applications. The proposed EL weights based clustering algorithm is available to work on datasets with outliers. Moreover, it might suggest the number of clusters for well-separated clusters.
Monetary Policy Analysis and its Contemporary Challenges
(University of Waterloo, 2024-01-26) Baker, John
This thesis contains three essays on the empirical analysis of monetary policy. While the subjects are diverse, they all share the goal of providing for a thorough, data-driven analysis of critical policy developments related to communications from North American central banks. The first chapter examines the effectiveness of central bank communications as a policy tool. To evaluate this otherwise qualitatively-oriented policy channel, a new dictionary of central banking sentiment is developed using natural language processing. This dictionary aims to capture the relative prevalence of positive (contractionary) versus negative (expansionary) words used in discussions of the monetary policy landscape. It is then applied to a large sample of news articles, where sentiment scores are computed and adopted in two forms of empirical analysis. The first form of analysis utilizes these sentiment scores in a high-frequency event study, which indicate that positive communication surprises lead to increased interest rates across various horizons on the yield curve, along with an appreciation of the Canadian dollar relative to other major currencies. The sentiment measure is also employed in a lower-frequency analysis, where the average score across all articles is computed on a monthly basis. VAR estimates support the findings from the high-frequency event analysis and allow exploration of other outcomes available only at a monthly frequency. The analysis suggests limited direct evidence of links between communication shocks, prices, and real measures of economic activity, except for the real estate market. In the second chapter, we profile an essential case study that emerged during COVID-related monetary stimulus, where central banks sought to dismiss concerns about rising inflation as "transitory." This chapter focuses on the United States and develops a separate tailored dictionary that is used to quantify the degree of belief (or disbelief) in the transitory inflation signal. It analyzes news articles and tracks changes in sentiment-derived signal credibility over time, revealing that overall levels of credibility declined as positive inflation surprises persisted throughout 2021. This measure is then adopted within the framework of a daily VAR model, showing that the signal credibility measure declines significantly to positive inflation surprises and that market-based inflation expectations rise even at extended horizons in response to negative shocks from the credibility measure. The final chapter explores the potential intersection between economic inequality and monetary policy in Canada. In the first exercise, a macro panel exercise reveals a "U-shaped" effect on income sourced from labour, meaning that expansionary policy benefits the bottom and upper ends of the income distribution most significantly in percentage terms. A similar pattern is observed for non-labour income, which tend to favour the wealthiest Canadians, and particularly since the 2008-2009 Financial Crisis. Time series evidence highlights a growing connection between policy surprises and real asset prices, with a more modest impact on unemployment. Altogether, these essays address crucial issues related to monetary policy, emphasizing the importance of evidence-based analysis and objective quantitative research in evaluating the effectiveness and consequences of central bank communications and policies.
Conspicuous Consumption and Inequality
(University of Waterloo, 2023-11-27) Nesterova, Iuliia
My research is centered around understanding consumption behavior and its relationship with inequality. In Chapter 1, I study how consumption inequality in the United States has evolved over time, with a particular focus on distinguishing two major expenditure components: services and goods. I argue that such distinction is important to understand inequality between high and low income groups. I show that increases in consumption inequality over the period 1984-2018 were driven mostly by rising inequality in expenditure on services rather than goods. I further show that most of it was driven by increased inequality in young households expenditure in services, whereas older households have experienced no change in inequality of either good or service expenditures. As modern societies undergo the transformation into service societies, this research contributes to our understanding of the diverse effects of inequality and informs policy decisions to ensure that this transformation benefits all. Chapter 2 proposes a canonical model of intertemporal choice in which both current and future conspicuous consumption can distort household consumption behavior. What makes our model tractable is that we assume that each consumer cares about the expected comparison of relative consumption, which provides a parsimonious characterization of positional concerns. We show that equilibrium consumption behavior is a function of the distribution of conspicuous consumption in an individual’s reference group as well as her own permanent income. In turn, the distribution of conspicuous consumption is a function of the distribution of permanent income. The relevant empirical implication is that an individual’s consumption, by itself, is no longer a valid proxy for the individual’s permanent income if relative consumption matters. In Chapter 3, we document a robust effect of visible inequality on household expenditures in the United States over the period 2010–2018. To that end, we exploit variation in the cross-sectional distribution of visible consumption — expenditures in clothing, personal care, food away from home and vehicles — for younger and older households across regions of the United States and over time. We find that rising inequality in expenditure on visible goods within the different groups is associated with an increase in average spending on those same goods as well as an increase in total expenditures by the average household in the group. Our main findings are not likely to be a symptom of correlated differences in preferences across generations, selection effects across geographical locations, alternative sources of state-level variation over time, or measurement error. Rather, they most likely reflect actual distortions associated with consumption externalities. We conjecture that historically low interest rates and the rise of social media underlie our findings.
Essays on Portfolio Selection, Continuous-time Analysis, and Market Incompleteness
(University of Waterloo, 2023-04-05) Li, Yixuan
This thesis consists of three self-contained essays evaluating topics in portfolio selection, continuous-time analysis, and market incompleteness. The two opposing investment strategies, diversification and concentration, have often been directly compared. Despite the less debate regarding Markowitz's approach as the benchmark for diversification, the precise meaning of concentration in portfolio selection remains unclear. Chapter 1, coauthored with Jiawen Xu, Kai Liu, and Tao Chen, offers a novel definition of concentration, along with an extreme value theory-based estimator for its implementation. When overlaying the performances derived from diversification (in Markowitz's sense) and concentration (in our definition), we find an implied risk threshold, at which the two polar investment strategies reconcile -- diversification has a higher expected return in situations where risk is below the threshold, while concentration becomes the preferred strategy when the risk exceeds the threshold. Different from the conventional concave shape, the estimated frontier resembles the shape of a seagull, which is piecewise concave. Further, taking the equity premium puzzle as an example, we demonstrate how the family of frontiers nested inbetween the estimated curves can provide new perspectives for research involving market portfolios. Parametric continuous-time analysis for stochastic processes often entails the generalization of a predefined discrete formulation to a continuous-time limit. However, unknown convergence rates of the frequency-dependent parameters can destabilize the continuous-time generalization and cause modelling discrepancy, which in turn leads to unreliable estimation and forecast. To circumvent this discrepancy, Chapter 2, coauthored with Tao Chen and Renfang Tian, proposes a simple solution based on functional data analysis and truncated Taylor series expansions. It is demonstrated through a simulation that our proposed method is superior in both fitting and forecasting continuous-time stochastic processes compared with parametric methods that encounter troubles uncovering the true underlying processes. When the markets are incomplete, perfect risk sharing is impossible and the law of one price no longer guarantees the uniqueness of the stochastic discount factor (SDF), resulting in a set of admissible SDFs, which complicates the study of financial market equilibrium, portfolio optimization, and derivative securities. Chapter 3, coauthored with Tao Chen, proposes a discrete-time econometric framework for estimating this set of SDFs, where the market is incomplete in that there are extra states relative to the existing assets. We show that the estimated incomplete market SDF set has a unique boundary point, and shrinks to this point only when the market completes. This property allows us to develop a novel measure for market incompleteness based upon the Wasserstein metric, which estimates the least distance between the probability distributions of the complete and incomplete market SDFs. To facilitate the parametrization of market incompleteness for implementation, we then consider in detail a continuous-time framework, in which the incompleteness specifically arises from stochastic jumps in asset prices, and we demonstrate that the theoretical results developed under the discrete-time setting still hold true. Furthermore, we study the evolution of market incompleteness in four of the world's major stock markets, namely those in China, Japan, the United Kingdom, and the United States. Our findings indicate that an increase in market incompleteness is usually caused by financial crises or policy changes that raise the likelihood of unanticipated risks.
An Analysis of Optimal Agricultural Fertilizer Application Decisions in the Presence of Market and Weather Uncertainties and Nutrient Pollution
(University of Waterloo, 2023-01-12) Yang, Xinyuan
This thesis addresses the questions of how uncertain corn market and weather factors affect optimal fertilizer application decisions of the farmer and the social planner, and what factors drive the divergence between the two. Nutrient runoff from agricultural activities has become a primary source of surface water quality deterioration worldwide. Over-application of fertilizer in agricultural production represents a non-point source pollution which is causing extensive nutrient loading in water bodies and has a severe impact on the global environment. There is evidence that farmers apply more fertilizer than is socially optimal and more than is recommended by government agencies. This thesis first investigates the farmer’s optimal fertilizer application under crop price uncertainty by constructing an inter-temporal farmer’s decision model under two alternative stochastic price processes. Closed form results are derived, which indicate that an increase in price uncertainty implies a reduction in the quantity of fertilizer applied in the farmer’s optimal decision problem. Numerous factors that could impact the optimal fertilization decision are examined as well. The farmer’s decision model is then enhanced by allowing for two possible fertilizer application times in the growing season and the inclusion of additional stochastic state variables such as rainfall and temperature, in the corn yield model. The model is parameterized for average conditions in Iowa corn growing regions. Employing a Monte Carlo approach, numerical results conclude that for a wide range of parameter assumptions the farmer’s optimal strategy is to apply fertilizer at planting rather than later as a side dressing. This thesis analyzes the impacts of price uncertainty, fertilizer cost and other economic parameters on the farmer’s optimal fertilizer application strategy. The thesis also analyzes the optimal decisions of a social planner whose objective function includes an estimate of the damages caused by nitrogen leakage and denitrification. Numerical results show that including the damages from pollution affect both the quantity and timing of fertilizer application. Assumptions about the frequency and quantity of rainfall have an important impact on the optimal decision. This is an important consideration for public policy as climate change affects weather patterns over the next decade and beyond.
Plastic Pollution in the Canadian Great Lakes: Drivers, Barriers and Policy Recommendations
(University of Waterloo, 2022-12-23) Le, Trang
Plastic pollution is detrimental to the economy, the environment and human health. More research have been conducted on marine plastic pollution than on freshwater plastic pollution, even though rivers and lakes are substantial sources and sinks for plastic debris. Through Canada's voluntary international pledges at the G20 and G7, and national legislative development such as the Microbeads in Toiletries (2018) and Single-use Plastic Prohibition Regulations (2022), there are commitments towards full waste recovery and plastic pollution prevention. Plastic pollution in the Great Lakes is a complex problem because of the ubiquity of plastic debris. Moreover, there is a scarcity of studies being done on the incorporation of stakeholders' perceptions in pollution prevention decision-making. Because local stakeholders are agents of change, it is vital to investigate and utilize local perceptions and diverse expertise in decision-making. This study intends to fill this gap by exploring current challenges and interpreting best practices for pollution prevention, through eliciting local experts’ perceptions. To do so, this study adopted a hybrid methodology that combines a desk-based literature analysis and semi-structured interviews (n=21). Semi-structured interviews were performed with key informants from the private sector, public sector, non-profit organizations or NGOs, and academia, who have knowledge of or have participated in plastic pollution prevention in Canada. Content analysis using inductive and deductive coding of qualitative interview data yielded practical information on current challenges and suggestions to address them. Qualitative interview data were supplemented by triangulation of a Canadian national and Ontario provincial policy review and cross-validating concepts proposed by key informants. Results revealed a multifaceted picture of stakeholders' perspectives, including parallels and contrasts in viewpoints. Using the CCME waste hierarchy as a methodological framework, this study revealed stakeholders' preference for preventive instruments above value recovery or clean-ups of plastic waste. First, respondents identified two significant sources of pollution that must be addressed, being (1) multi-source plastic leakage and (2) individual consumer consumption and poor behaviors that led to plastic leakage. Second, important barriers to overcome were highlighted as (1) deficiency in enforceable binational, national, and provincial policies, (2) inaction from the private sector, governments, and the average consumers, and (3) a lack of capacity on several frontiers, particularly in accommodating alternatives to using single-use plastics. Third, taking multiple perspectives into account, the findings of this study identified relevant rights-based, policy-based, and behavior-based voluntary and mandatory instruments that would assist policy development and future action plans in the Canadian Great Lakes. Future inter-disciplinary investigations should include assessing the effectiveness of voluntary and regulatory instruments, building consensus among stakeholders from various sectors, and investigating effective techniques to facilitate behavior changes that can be incorporated into all future preventive efforts.
A theoretical and empirical investigation into the economic relationship between forested watersheds and water treatment costs
(University of Waterloo, 2021-12-13) Pan, Zehua
Forests around the world are believed to perform important chemical and nutrient retention functions. Chemical concentration levels have been found to be lower in surface water bodies located in areas with a higher forest cover. There is increasing interest from both academics and policymakers in understanding the economic value behind these nature-based services provided by forests. Including forest cover as green infrastructure in integrated source water protection and management strategies is believed to enhance their overall economic efficiency by improving water treatability. However, the empirical evidence base linking forest cover and forest management to water treatability and treatment costs is limited, and largely absent in Canada, one of the most resource-abundant regions in the world. In order to justify investments in forest cover as green infrastructure it is vital to understand the economic benefits involved, in particular in relation to drinking water treatment. The main objective of this PhD thesis is to further analyze the relationship between forest land and water treatment, both theoretically and empirically using Canada as a case study area. The first chapter of this PhD thesis aims to provide a theoretical framework for better understanding the costs and benefits of investment decisions in the provision of safe drinking water. More specifically, a cost minimization function is specified to reach a given water quality standard, for example based on World Health Organization guidelines. The costs are based on two possible treatment approaches that can be adopted, denoted as grey and green infrastructure, where grey infrastructure represents the traditional water treatment technologies and green infrastructure consists of forest cover (e.g. forest protection or re-afforestation). Compared to grey infrastructure, green infrastructure has been found to be less costly, but riskier to implement than grey infrastructure to improve water treatability due to the lack of engineering control and environmental uncertainties surrounding causal dose-response relationships between forest cover and water quality. An optimal control model is developed to guide social planners in combining these two complementary types of infrastructure in the most cost-effective way given assumptions about the age structure of forests, risk levels, risk aversion, and the discount rate used to value future water service delivery from green infrastructure. Any optimal allocation between grey and green infrastructure is based on balancing the marginal net benefits of both types of infrastructure. Including wildfires as an additional risk, makes green infrastructure less attractive, among others because of the introduction of additional costs such as forest protection costs and reforestation costs. More forest means a higher risk of forest fires and hence damage costs and increases the uncertainty surrounding the delivery of the water service. Accounting for the co-benefits of forests as a carbon trap increases the likelihood of investing in green infrastructure, because it reduces the risk of forest fire in the long term and hence the forest protection costs, but is highly dependent on the applied discount rate to factor these long-term benefits into present-day decision-making. The second chapter in this PhD makes use of available empirical data for the province of Ontario in Canada, and focuses on the potential role of forest cover in potentially reducing drinking water incidents, reflecting on concerns in the first chapter about the effectiveness of green infrastructure as a means of source water protection. The publicly available Ontario drinking water quality and enforcement data base contains all drinking water incidents over a particular fiscal year that failed existing water quality standards in Ontario. The database lists all incidents, so-called adverse events, related to municipal water sources. By linking this database (n=228) to geographical information retrieved from the Ontario Land Cover (GIS) database, a set of interconnected spatial regression models are estimated, aiming to assess the relationship between forest cover and drinking water rates and between drinking water rates and drinking water safety. In the latter case, the drinking water rates are used as a proxy for the drinking water treatment costs. To this end, a spatial instrumental variable model is estimated to improve our understanding about the aforementioned (reverse) causal relationships, i.e. how drinking water rates influence incidence rates and vice versa incidence rates in turn impact water rates. A key finding is that forest cover significantly reduces the number of adverse events and drinking water rates. In the third and final chapter of this PhD thesis, use is made of another important database, the biennial Drinking Water Plants Survey conducted by Statistics Canada for the country as a whole. The survey aims to gain insight into the financial treatment costs, water treatment characteristics, and water plant customers. The survey data are confidential and can only be accessed on-site in Statistics Canada in Ottawa after requesting permission and going through an extensive (legal) screening procedure of both student and supervisor. The collected data provides detailed insight in different treatment cost categories that can help to assess how specific cost categories are influenced by surrounding land cover across Canada. Using the detailed water treatment costs in similar spatial econometric regression models (n=1,373), accounting for potential spillover effects between neighbouring water service units, a significant negative relationship is found for Canada as a whole between forest cover and total drinking water treatment costs and the material costs incurred in drinking water treatment, whilst accounting for a range of individual water treatment plant characteristics, such as treatment capacity, treatment technology, and population served. In conclusion, in this PhD thesis I demonstrate that surrounding forest cover has a significant negative effect on water rates and incidence rates in Ontario and I show that surrounding forest cover significantly reduces water treatment costs across Canada as a whole. However, the regression models estimated in this PhD thesis are based on various far-reaching assumptions which could not be verified. These include, most importantly, the assumption that there exists a direct relationship between water rates and water treatment costs in Ontario and the assumption that the spatial analysis conducted at the level of census sub-divisions in both Ontario and Canada as a whole is able to capture upstream-downstream relationships between land cover upstream and the quality of the water intake downstream in the watersheds providing water to the drinking water treatment plants. More research is needed to validate these key assumptions.
The time-use of Canadian immigrant families: differences in time inputs on child raising
(University of Waterloo, 2021-09-21) Mascella, Allison
This thesis contains three chapters in cultural effects and integration experienced by parents born abroad and their Canadian-born children empirically measured using daily time diary records. Immigration policy introduced a point system to select immigrants in 1967. In the following decades, source countries for newcomers to Canada changed from predominantly U.S and European countries to the majority of newcomers now sourced from countries in which are more distanced culturally such as Asia, Africa and South America. Immigrant parents incur large initial settlement costs and, in many cases, may have dynastic motives for their children’s future well-being as adults behind moving decisions. Current and future well-being and economic prosperity of children depends in large part on the nuances of decisions made by parents with respect to familial resources. This thesis investigates the time-use of foreign-born parents and their children as measured by their daily time-use records to learn whether their cultural background, as captured by source country region, and their integration into Canadian society affects time-use allocation decisions. The focus of chapter one is on the inclination of immigrant parents to invest more (less) time with their children and on the measurement of the time inputs of their children into school related activities. Time spent by parents with their children is an input into the production function for children’s cognitive and non-cognitive skill development. With increased time spent by parents, children experience boosts in IQ and non-cognitive skills which can impact future labour outcomes. I model this relationship considering both the participation and intensity of time-use decisions. By investigating the difference in daily time spent with children, I find that conditional on participation, Asian parents spend between 37 and 22 more minutes on education related activities with their children on a daily basis than their Canadian-born counterparts. Moreover, Asian fathers are 10% more likely to participate in education related activities with their children than Canadian-born fathers, while Asian mothers are equally likely to participate than Canadian-born mothers. Given participation, South-Central American mothers and European and African fathers are each spending around 20 more minutes on education activities with their children than their Canadian-born counterparts. Both the children of Asian-born and African-born parents spend at least over 46 more minutes on homework activity than students with both Canadian-born parents. Although no difference by area of origin is apparent in the total care-time parents provide for their children, there are significant differences in terms of time specifically devoted to human capital investment activities by immigrant parents, and in the amount of time the children of African and Asian immigrants devote specifically to the completion of homework. The second chapter considers that the time parents spend with their children could be a compensating factor for household income deficits. Household income is a commonly used factor to measure the well-being of children and gage their prospects as adults. However, a broader interpretation of well-being is being adopted in Canada and Europe, which includes non-economic dimensions that center around support for family and relationships as part of strategy for economic growth. Current empirical evidence documents financial hardships experienced by adult newcomers to Canada with respect to otherwise similar Canadian-born adults. This fact suggests that the competing nature of a parent’s time into labour and household activities may be particularly relevant for immigrants. I use a CES utility function to estimate a two-dimensional poverty line that allows for compensation of an abundant resource (time) to become non-poor in a multidimensional sense. We find that immigrants parents are more likely to be poor in income, but not in time spent with children and although they are 2.5-5% more likely to be simultaneously poor in both time and income, only about 4-7% of immigrant parents spend enough time with their children to sufficiently compensate for income deficits. These results redefine poverty status for immigrant groups since they indicate that immigrant parents place a high value on this time (over labour activities). This could be due to lack of sufficiently valuable employment opportunities or a lack of adequate support network that provides quality time spent with children. Chapter three addresses the interdependence of several categories of time allocation, as mediated by the immigration process and gender. Paid work and the decision to trade-off with leisure and other household duties has changed significantly in households over the past 50 years with the incorporation of women into the labour force. Traditionally, economics modelled time-use decisions with dichotomous labour-leisure choices. This resulted in family decisions where the highest wage earner specialized in work outside the household. However, recent research in children’s development highlighted other essential categories of pertinent family time-use, such as care provided to children. The decision to work and, at the same time, raise children, forces changes to the traditional economic plan of time-use with notions of opportunities for women to specialize in both critical aspects of family functioning and the need of fathers to be involved in child rearing. I model four categories of time-use – paid work, household production, leisure and child service – by a Seemingly Unrelated Regression Model (SUR) with particular focus on the immigrant integration process as mediated by gender. Compared to mothers born in Canada, mothers from Africa, Asia, Europe, and South-Central America spend up to 50 minutes less in daily leisure time, but there is not a significant difference in time spent with children. The result vanishes for Asian and South-Central American mothers once I control for years since migration, suggesting that sacrificing leisure may be involved in the process of integration. Parental time-use decisions play a role in the intergenerational mobility of children and as such, I also model four categories of time-use spent by young adults as I do for parents, but with time spent on total education activities – attending classes, finishing assignments - in place of child service with particular focus on time spent by young adults with a mother or father born abroad. I find that second generation young adults with Asian mothers or fathers are spending 41 and 31 less minutes in paid work and 54 and 58 more minutes on education activities and, likewise for young adults with a European mothers or fathers, 41 and 16 less minutes and 27 and 23 more minutes respectively. These results support previous research indicating that aspirations and expectations of parents and their children can vary by culture.
Psychological Prices at Retail Gasoline Stations: The Policies of 0-, 5-, and 9-Ending Prices
(Taylor & Francis, 2021-07-12) Huck, Nicolas; Chenavaz, Regis Y.; Dimitrov, Stanko
Psychological prices are known to impact consumer behaviour and to depend on retailers’ characteristics. Less understood is last digit pricing, especially in the context of retail gasoline stations. We study price endings in the French gasoline market with 11,471 gas stations and 4,775,300 prices for oil companies, supermarkets, and independent retailers during five years. Raw data suggest that 0-ending prices are more expensive. Yet, these last digit effects do not survive careful scrutiny focusing on the individual behaviour/distribution of each gas station. Plus, 9-, 0-, and 5-ending prices are over-represented. Our evidence better informs administrative authorities investigating market irregularities and consumers interested in better deals.
The Relative Performance of International Students and Their Academic Program Choices
(University of Waterloo, 2021-01-18) Chen, Zong Jia
Canada is increasingly looking to international students as a source of postsecondary tuition revenues and new immigrants. In Chapter 1, we examine the relative course grades of international undergraduate students in an Ontario university with a large and growing foreign student presence. We identify grade gaps across fields of study, which appear to primarily reflect admission errors from less predictive secondary school grades. While the gaps appear related to English-language proficiency, they are larger among graduates of Canadian secondary schools and in upper- than in first-year courses. Our estimates also suggest that relative foreign student quality has improved over time, despite increasing foreign enrolment. The academic programs that students choose to pursue have strong implications for their career prospects. In Chapter 2, I shed light on students’ academic program choices by examining how co-ethnic peers influence their decisions to change programs during the course of their undergraduate studies. Examining data from a publicly-funded Ontario university with an ethnically diverse student population, I find that students are highly ethnically concentrated within academic programs at the time of their initial enrolment. Moreover, nearly one-quarter of all students change programs at least once during their studies and these program changes further increase the ethnic concentration of students within academic programs. Assuming a model in which students prioritize their grades over co-ethnic peers, the presence of more co-ethnic peers is found to significantly increase the probability of a program change. This suggests that the ethnic concentration of students across programs at the university, which appears to increase over time, may be academically and socially efficient. International students are considered to be the best source of immigrants. In chapter 3, we compare the labour market performance of former international students (FISs) through the first decade of the 2000s to their Canadian-born-and-educated (CBE) and foreign-born-and-educated (FBE) counterparts. We find FISs outperform FBE immigrants by a substantial margin, but underperform CBE graduates from similar postsecondary programs. We also find evidence of a deterioration in FIS outcomes relative to both comparison groups. We argue that this deterioration is most consistent with a quality tradeoff as the supply of international students has not kept pace with the growth in demand.
On Functional Data Analysis: Methodologies and Applications
(University of Waterloo, 2020-05-04) Tian, Renfang
In economic analyses, the variables of interest are often functions defined on continua such as time or space, though we may only have access to discrete observations -- such type of variables are said to be ``functional'' (Ramsay, 1982). Traditional economic analyses model discrete observations using discrete methods, which can cause misspecification when the data are driven by functional underlying processes and further lead to inconsistent estimation and invalid inference. This thesis contains three chapters on functional data analysis (FDA), which concerns data that are functional in nature. As a nonparametric method accommodating functional data of different levels of smoothness, not only does FDA recover the functional underlying processes from discrete observations without misspecification, it also allows for analyses of derivatives of the functional data. Specifically, Chapter 1 provides an application of FDA in examining the distribution equality of GDP functions across different versions of the Penn World Tables (PWT). Through our bootstrap-based hypothesis test and applying the properties of the derivatives of functional data, we find no support for the distribution equality hypothesis, indicating that GDP functions in different versions do not share a common underlying distribution. This result suggests a need to use caution in drawing conclusions from a particular PWT version, and conduct appropriate sensitivity analyses to check the robustness of results. In Chapter 2, we utilize a FDA approach to generalize dynamic factor models. The newly proposed generalized functional dynamic factor model adopts two-dimensional loading functions to accommodate possible instability of the loadings and lag effects of the factors nonparametrically. Large sample theories and simulation results are provided. We also present an application of our model using a widely used macroeconomic data set. In Chapter 3, I consider a functional linear regression model with a forward-in-time-only causality from functional predictors onto a functional response. In this chapter, (i) a uniform convergence rate of the estimated functional coefficients is derived depending on the degree of cross-sectional dependence; (ii) asymptotic normality of the estimated coefficients can be obtained under proper conditions, with unknown forms of cross-sectional dependence; (iii) a bootstrap method is proposed for approximating the distribution of the estimated functional coefficients. A simulation analysis is provided to illustrate the estimation and bootstrap procedures and to demonstrate the properties of the estimators.
Essays in Wealth Effect, Family Structure, and Female Labour Supply
(University of Waterloo, 2020-04-27) Pan, Yazhuo
This thesis consists of three self-contained essays evaluating topics in family structure, household wealth, and married women's labour decisions using Canadian data. The twentieth century has seen significant changes in family formation and dissolution in Canada. Chapter 1, co-authored with Ana Ferrer, investigates the role of family structure (family disruption or reconstitution) on cognitive outcomes of primary school Canadian children. We focus on reading and math scores of these children and look into differential effects by gender as well as child’s cultural background, which is an important dimension to consider in diverse societies. Using the rich panel data information from the National Longitudinal Survey of Children and Youth (NLSCY), collected biennially since 1994, we find substantial disadvantages in reading, but not math, scores among children in single parent families, relative to children in intact families. However, we find that single parenthood seems to affect boys more than girls in terms of their reading performance, but girls’ math performance suffers more than that of boys when in step families. In addition, when looking into differential effects across cultural/religious affiliations of family structure on cognitive performance, we typically observe differential effects in math, but no reading scores. These results suggest that exploring the heterogeneity of children’s performance responses to family disruption might be an important factor in assessing the benefits of programs aimed at helping children to cope with family disruptions. It is worth noting that changes in marital status of parents not only affect their children's performances but also influence their own welfare. The spouse (typically the wife), who usually has less labour market attachment compared to the other spouse (typically the husband) due to the traditional gender roles, is less likely to accumulate much assets during the marriage. Therefore, this spouse with less assets might have less intra-household bargaining power and could potentially face worse financial conditions in the event of a divorce compared to the other one. Chapter 2, co-authored with Stéphanie Lluis, studies a reform of the marital property law following the amendment of the Civil Code of Quebec to improve economic equality between spouses by imposing an equal division of the family assets when a marriage ends. This change created an unexpected shift in the bargaining power of the spouse with relatively lower investment in the family assets, usually the wife. We explore whether and if so how the changes in this redistributive divorce law impacted female spouses' labour market decisions and individuals’ marital decisions. We use a difference-in-difference approach and exploit detailed information on female labour supply and marital status from the Canadian Labour Force Survey (LFS) data to analyze outcomes before and after the reforms in Quebec, relative to other provinces which did not experience marital property law changes over that time period. We find that the reform of marital property law that improve economic equality between spouses in Quebec reduced married women’s hours of work and the adverse employment effect is relatively stronger for less educated women (the most disadvantaged spouse) and among couples with larger wealth as measured by the ownership of the couples’ property. At the extensive margin, we find that the redistributive law change significantly decreased the labour force participation of the relatively more educated married women but increased the labour force participation of the relatively less educated women (among married women who stayed married). This differential result by education among married women suggests that the labour supply impact of the redistributive law change likely depends on the decision to stay married as marital decisions are also part of the household bargaining outcome. We investigate this question by studying the Quebec amendment impact on divorce rates and the decisions of whom to marry. We find that the redistributive law change had no impact on overall divorce but significantly increased the likelihood of divorce/separations among less educated spouses. In addition, over the sample of young individuals deciding whether or not to marry, the Civil Code amendment contributed to increasing the proportion of marriages in which the wife is more educated than the husband. The intra-household bargaining position is not the only factor that could affect female labour supply as well as people's marital decisions. The wealth of a household is also another important factor that might influence spouses' decisions in the labour and marriage markets. Chapter 3 examines the impact that changes in household wealth due to the house price variations during the 1990s and 2000s had on the labour market behaviour of Canadian married women. House prices in Canada have tripled over the past decades. This dramatic rise has essential effects on households' wealth and the wealth effects might be different on house owners versus renters (potential house buyers). I use time-series average house prices data from the Canadian Real Estate Association's Multiple Listing Service data set (CREA MLS) which covers the entire Canada, 102 real estate boards (REBs), and provides detailed geographical variations in house prices in both urban and rural areas. Then, I link these house prices to each respondent in the confidential longitudinal household files - the Survey of Labour and Income Dynamics (SLID). Estimating the causal effects of housing wealth changes on female labour supply is challenging. For instance, The life-cycle theory of the labour supply emphasizes that unexpected gains in wealth should decrease household labour supply. However, wealth changes due to rising house prices could be anticipated by a household. Thus, there might be no effect if the household was forward looking and incorporated these expected wealth changes into their decisions. In addition, the reverse causality between house prices and female labour supply has been highlighted in literature. Rising housing prices induce more female spouses to participate in the labour market to offset the future housing purchase costs if their families intend to enter homeownership or balance rising rental prices. Nonetheless, it is also plausible that more working women in one area, which contributes to a higher proportion of two-earner households with stronger payment capacities, may bid up the house prices there. Therefore, I apply two strategies to overcome these challenges. My first strategy is to calculate a measure of house-price shocks which is aimed at capturing unexpected variations in local house prices, rather than variations that could be anticipated by people. My second strategy is constructing comprehensive and exogenous topography instruments to address the reverse causality between the house prices and female labour supply. After capturing unexpected changes in local house prices, among house owners, I find that an increase in (positive) house-price shocks causes a reduction in the likelihood of participation of married women. At the intensive margin, I find that an increase in the house price shocks induces a decrease in annual work hours of a woman at the low percentile. Additionally, I find heterogeneous effects of house-price shocks on women's labour supply depending on their education level and residence locations. These results are consistent with the prediction of family labour supply and life-cycle models, which indicates that unexpected gains in wealth should decrease household labour supply. There is no evidence showing that house-price shocks have labour effect on renters in this study, which might suggest that they choose to delay to enter homeownership or find a cheaper residence instead of adjusting their labour supply when an appreciation of house prices occurs. The IV approach which uses the fraction of buildable land and the difference in elevation as the instruments also provides consistent results as the house-price shock approach does.
The Economics of Water Conservation Regulations in Mining: An Application to Alberta's Lower Athabasca River Region
(University of Waterloo, 2020-04-21) Huang, Yichun
Large demands for water by the mining industry are of increasing concern around the world and access to water is seen as a significant constraint on future mine development. Citizens, environmental groups and other non-governmental organizations have called for better regulation of water consumption by the mining industry in many regions across the globe. This thesis analyzes the efficiency of a specific command and control water management policy in the Lower Athabasca River Region in Alberta, Canada applied to oil sands mining operations. This policy imposes different restrictions on water withdrawals from the river according to the severity of threat to the aquatic ecosystem due to low water levels. In developing the policy, the Alberta government focused on the potential environmental impacts of projected water use by the oil sands industry. Economic cost was considered only in terms of the cost to the oil sands industry of constructing water storage facilities. This thesis undertakes a more robust examination of economic cost by developing a stochastic optimal control model for an oil sands firm choosing production and water use rates, as well as the optimal timing to build a water storage facility. A Hamilton Jacobi Bellman equation is specified which incorporates uncertain oil prices as well as uncertain water flow volumes in the Athabasca River and a numerical solution is implemented using a finite difference approach. The price of oil is modelled as a log-mean reverting stochastic process. Uncertainty in river flows is captured by modelling the restrictions on water withdrawals as a regime switching stochastic process. The thesis estimates the economic cost of the restrictions in terms of the difference in value of the oil-producing asset with and without water restrictions. In Chapter 2, the model is used to analyze the Phase 1 water regulations, which were first applied in 2007. The Phase 1 regulations classified river water flows into green, yellow, or red zones with green implying abundant water and red implying reduced water flows. The water restrictions varied depending on river flow zone. In the thesis, the impact of these restrictions is captured by modelling the zones as different regimes with the probability of switching between regimes based on historical river flow data. The analysis also considers a number of cases in which the future river flow conditions are lower than those experienced historically. In Chapter 2, the total cost of the regulations is estimated as well as the marginal cost of increasing the water restrictions. For the Phase 1 restrictions, no information was available regarding the potential environmental benefits of the restrictions. Our conclusions show that the cost of the Phase 1 restrictions was quite small given the current reserve base and capacity of the industry. The chapter demonstrates how the marginal cost of tightening restrictions depends on the state variables, including resource stock and price. It is also shown that marginal cost is nonmonotonic with respect to price volatility. The marginal cost is shown to vary across individual oil sands projects depending on reserve levels and lease length. Chapter 3 undertakes an analysis of the Phase 2 regulations, implemented in 2015 as an update of the Phase 1 regulations. The development of the Phase 2 regulations was supported by a detailed scientific report (Phase 2 Framework Committee (P2FC) Report) outlining the likely environmental benefits of a suite of different water restrictions (rule sets) in terms of wetted area around the river. Wetted area was used as the indicator of ecosystem disturbance. The suite of water restrictions considered encompassed a much finer delineation of different water zones than in the Phase 1 regulations. The P2FC report presented an efficient frontier contrasting the effect on wetted area with the cost of water storage implied by the different restrictions. Based on their analysis the Committee chose one of the rule sets as the preferred option. This chapter uses the model developed in Chapter 2 to create a similar efficient frontier, comparing the change in wetted area with the economic cost to the oil sands. Assumptions regarding future river flows, operating costs, oil prices, future production and storage capacity and remaining established oil reserves are examined to determine their impact on the efficient frontier and the relative cost-effectiveness of the various options. The most important factors in determining the cost of the water restrictions are found to be the assumed storage capacity, cost of storage, projected river flow conditions, productive capacity and reserves. It is also found that given the significant growth of oil sands productive capacity assumed in the P2FC report, the recommended water restriction rule set is robust. However, for a smaller assumed growth in oil sands capacity, the proposed water restrictions impose very little cost on the oil sands industry. In this case, a different rule set would be recommended based on its better expected outcome in terms of maintaining the chosen ecosystem indicator. A key input to the analysis is the assumed model for oil prices. Chapter 4 applies different versions of the Kalman filter to estimate three one-factor stochastic models. The regime switching model turns out to outperform the other two single-regime models. However, the single-regime log mean-reverting model is judged to be adequate for the analysis in Chapters 2 and 3 and is preferred because it greatly reduces the complexity of the numerical computation and the interpretation of results.
Three Essays In Policy Evaluation
(University of Waterloo, 2020-04-20) Arcila, Andres
This thesis consists of three chapters that study the effect of public policy on several economic and environmental outcomes. In the first chapter, we investigate the effect of a change in tax policy affecting cars on car pollutant emissions. We construct a data set on emissions using the COPERT 4 model, which was developed by the European Environmental Agency and is now widely used in environmental engineering to estimate emissions. The new tax impacted high cylinder vehicles with engine sizes larger than 3 liters while taxes on small cylinder cars remained unchanged. The COPERT model uses general information about infrastructure and certain driving conditions to calculate total emissions by engine size. We use a difference in difference methodology and exploit the variation introduced by the policy that differentially affected cars with larger engines. By imposing a tax on larger engines, the share of these in the market should decrease while the other group should increase, therefore decreasing the emissions by the treated group. Our results showed that Particulate Matter and Carbon Monoxide emissions decreased by around 11%, while Volatile Compound and Nitric Oxide decreased by roughly 7%. These results are robust to the inclusion of province fixed effects, economic conditions and specific trends by province, different engine size trends as well as contamination by other possible policies. In the second chapter, I use confidential micro files from the Canadian Labour Force Survey from 1994 to 2015 to assess whether the 2001 Quebec's affordable childcare policy changed the distribution of employment by occupation. In general, I found that the policy tended to reduce the concentration of male dominated occupations and increased the concentration of female dominated and gender balanced occupations. Comparing results at different levels of aggregation suggest that there were many occupational changes within the 3-digit occupation categories. These intra-occupational movements were likely driving the concentration of gender balanced occupations, whereas increased concentration in female dominated occupations was likely driven by inter-occupational movements from male dominated or gender balanced occupations. Further, I report less concentration of high-pay occupations and occupations requiring high levels of cognitive or social skills, but also lesser concentration in occupations requiring high levels of physical skills, after the policy. These effects tend to persist in the long run. This exercise highlights the need to further investigate the distributional effects of the child care policy. The third chapter is closely tied to the second chapter. Here, we use the same change in childcare policy to understand its effect on the overall skill distribution of jobs. We use newly developed methods to test for stochastic and Lorenz dominance and assess whether the distribution of skill requirements in occupations in Quebec is different before and after the policy relative to changes in the distribution of skills in the Rest of Canada. We complement this analysis by calculating Quantile Treatment Effects using a propensity score re-weighting technique to measure these differences across the distributions. Our results suggest that the distribution of the interpersonal, physical, visual and fine motor skills index in Quebec stochastically dominates the distribution of skills in the rest of Canada in 1994, whereas in 2004 the dominance is reversed. On the other side, the distribution of the analytical skill index in Quebec dominates the one for the rest of Canada in both years. The estimation of Quantile Treatment Effects strengthens these results by showing that the largest changes in the analytical skill index happened in occupations at the median ability level.
The Economics of Waste Clean-Up from Resource Extraction Projects: Environmental Bonds versus Strict Liability
(University of Waterloo, 2019-01-08) Aghakazemjourabbaf, Sara
This thesis contains three essays spanning the fields of environmental economics and investment in a non-renewable resource under uncertainty. All essays relate to the analysis of the clean-up of hazardous waste resulting from natural resource extraction. The first essay addresses the problem of inadequate hazardous waste clean-up by resource extraction firms. It compares the impacts of an environmental bond and a strict liability rule on a firm's ongoing waste abatement and eventual site clean-up decisions. The firm's problem is modeled as a stochastic optimal control problem that results in a system of Hamilton Jacobi Bellman equations. The model is applied to a typical copper mine in Canada. The resource price is modelled as a stochastic differential equation, which is calibrated to copper futures prices using a Kalman filtering approach. A numerical solution is implemented to determine the optimal abatement and extraction rates as well as the critical levels of copper prices that would motivate a firm to clean up the accumulated waste under each policy. We have found that the effect of an environmental bond relative to the strict liability rule depends on certain key characteristics of the bond - in particular whether the bond pays interest and whether the firm borrows at a premium above the risk-free rate to fund the bond. If the firm can borrow at the risk-free rate, and if the government pays the risk-free interest rate on the bond, the value of the mine prior to construction, optimal abatement rates, and optimal operating decisions are the same under the bonding policy and strict liability rule. In contrast, if no interest is paid on the bond, the value of the project is reduced compared to the strict liability rule and the firm undertakes a larger amount of waste abatement under the bond. Because the mine is less pro table, it is less likely that the firm will invest in this mine. In the more realistic case that the firm borrows to fund the bond at a premium over the risk-free rate, the value of mine is reduced further and waste abatement levels are increased. The prospect of investment in the mine is even less likely compared to the previous case. The model developed in the first essay allows that the firm temporarily mothballs the project, but eventually clean-up must occur at the end of the project life. However, the possibility of firm bankruptcy was not explicitly included in that model, and thus mothballing is the only option available to the firm to delay waste clean-up. The second essay contributes to our previous study by considering another important option available to the firm, i.e., the possibility of declaring bankruptcy. A firm's decision to declare bankruptcy is specified as a Poisson process that treats bankruptcy as an exogenous, risky event governed by a hazard rate. The hazard rate at a project level depends on waste stock and output prices, while at the company wide level depends on the commodity prices only. For both default scenarios, the paper demonstrates that the firm operating under a bonding policy, that covers the full cost of waste clean-up, is less able to avoid its liability costs, particularly if the bond is financed from retained earnings. If the firm borrows to finance the bond, it is possible that the firm avoids clean-up costs by defaulting on the loan following a bankruptcy. In contrast to the results of the first essay, if the firm finances the bond out of its retained earnings, and if the government pays the risk-free rate of interest on the bond, the bond and the strict liability rule do not give the same outcome when bankruptcy is possible. Such a bond encourages a higher abatement rate and makes site clean-up more likely compared to the strict liability rule. Firms operating under the liability rule have stronger incentives to delay their clean-up costs by sitting idle and they may eventually go bankrupt at the mothballed stage. Therefore, the possibility of bankruptcy makes the firm worse off under the bonding policy, while benefits the firm under the strict liability rule. Modelling uncertain commodity prices is a key component of the analysis of optimal firm behavior in hazardous waste clean-up. The third essay investigates the dynamics of copper prices by comparing and contrasting three different stochastic models, which are a one-factor mean-reverting model, a two-factor model, and a one-factor long-term model. These models are calibrated to copper futures prices using a Kalman filtering approach. The first model assumes spot prices are mean-reverting in drift. The second model defines two correlated stochastic factors that are spot prices and convenience yield. The third model transforms the two-factor price model into a single factor model. We have found that the first model fails to describe the term structure of copper futures prices with long maturities. In contrast, the two-factor and the long-term models are shown to provide a reasonable fit of the term structure of copper futures prices and can be applied to long-term investment projects. The results highlight the importance of stochastic convenience yield in copper price formation.
The housing market impacts of wastewater injection induced seismicity risk
(Elsevier, 2018-11-01) Ferreira, Susana; Liu, Haiyan; Brewer, Brady
Using data from a county severely affected by the increased seismicity associated with injection wells since 2009 in Oklahoma, we recover hedonic estimates of property value impacts from nearby shale oil and gas development that vary with earthquake risk exposure. Results suggest that the seismic activity has enhanced the perceived risks associated with wastewater injection but not shale gas production. This risk perception is limited to injection wells within 2 km of the properties.
Commodity Prices, Stock Prices and Economic Activity in a Small Open Economy
(University of Waterloo, 2018-05-10) McLeod, Shernette
This thesis is comprised of three papers which jointly examine the role of commodity prices as well as other asset prices in influencing the evolution of economic activity in a small-open economy (SOE). Using Canada as the quintessential small-open economy, each chapter adopts a particular approach to investigating this dynamic relationship. It is hoped that the contribution made in this thesis to understanding the relationship will aid policy-makers as they attempt to address the associated policy questions which are often fraught with difficulties and uncertainty. In chapter 1 the use of a recursively identified Vector Auto-Regression (VAR) is employed to study the impact of commodity price shocks on Canada's macro-economy. While similar analysis has been carried out before, this has tended to focus solely on the impact of oil prices. Additionally, the analysis has tended to focus on aggregate output, while neglecting the specific sectoral impact. Given that each sectors' exposure to commodity price movements will be different, one would also expect varying sectoral responses to these shocks. Chapter 1 attempts to focus on this and thus offers a level of insight into the operation of the Canadian macro-economy which has not been extensively addressed in the literature. The results suggest that indeed there is divergent sectoral responses to commodity price shocks, using a broad measure of commodity prices. The commodity producing sectors of the economy respond favourably to an unexpected rise in commodity prices, whilst the manufacturing sector is negatively impacted by such movements. We also found evidence that policy-makers may attempt to contain any inflationary pressures emanating from rising commodity prices by raising interest rates. Chapter 2 delves even further into the dynamics of this relationship by employing a Dynamic Stochastic General Equilibrium (DSGE) model. In this chapter we extend the analysis undertaken in chapter 1, where we are again attempting to ascertain the sectoral responses to a commodity price shock. The use of this modelling framework however allows us to analyse that relationship in a manner which is internally consistent and also in-line with our beliefs about the behaviour of economic agents. Additionally, the DSGE model allows us to conduct counter-factual policy experiments which were not possible using the VAR framework. The results of the model are generally in-line with those found in chapter 1, as the commodity price shock has differing impacts on the various sectors of the economy. The results suggest that just examining the aggregate effects of commodity price shocks could overshadow important sectoral differences which are subsumed in these aggregate figures. Additionally, the counter factual policy exercises indicate that actions taken by the Central Bank during the Global Financial Crisis positively impacted Canada's economic performance during the crisis and the period immediately after. In the final chapter, co-authored with Jean-Paul Lam, we seek to quantify the interdependence between stock prices and monetary policy using an underidentified Structural VAR (SVAR) for Canada and the United States. We find that employing a recursive identification leads to counterfactual responses for the stock market following a monetary policy shock. In the underidentified VAR, the stock market and monetary policy are allowed to simultaneously react to each other's shock through a combination of short-run, long-run and sign restrictions. Unlike many studies in this literature, we impose a minimal number of restrictions on the short-run and long-run matrix, allowing the data to uncover the relationship between the variables in the SVAR. We find that an increase of 25 basis points (b.p.) in the policy rate of the central bank leads to a fall of about 1.75% in stock prices in Canada and to a fall of about 1.25% in stock prices in the U.S. This effect of monetary policy on stock prices is larger in Canada compared to the U.S. mainly because sectors that are interest rate sensitive, such as financials and energy account for a much larger share of the stock index in Canada compared to the U.S. Following a stock market shock, the short-term interest, industrial production, inflation and commodity prices rise both in Canada and in the U.S. A 1% increase in the stock market leads to an increase of about 27 b.p. in the overnight rate in Canada while it leads to an increase of about 10 b.p. in the Federal funds rate.
Empirical Essays in Water and Electricity Use
(University of Waterloo, 2018-04-30) memartoluie, ghazal
This thesis consists of three self-contained essays evaluating the impacts of educational attainment and average income at the community level on water consumption, the effects of different sources of energy on wholesale electricity rates and the effects of eliminating coal-fired electricity generation on air quality. The first chapter looks at the impacts of educational attainment and average income at the community level on water consumption. The focus of this paper is on the three cities of Cambridge, Kitchener and Waterloo. In this chapter, we construct a unique household-level panel dataset that has monthly water consumption data of 22,000 households from 2012-2014. Our study shows that water consumption decreases as income at the Dissemination Area (DA) level increases. Our findings also show that educational attainment affects water use in a different way at different education levels in the following sense: increasing educational attainment at lower levels of education (from no certificate to high school certificate) increases water consumption, but the effect reverses when people receive post-secondary education. In addition, our study suggests that although education at different geographical levels affects household water consumption in different ways, there is a turning point where the explained relationship changes direction. By creating and utilizing a unique panel data from the Independent Electricity System Operator (IESO) and Statistics Canada, over 2009 to 2014, the second chapter intends to analyze the effects of different sources of energy on wholesale electricity rates to see how the considerable shifts in electricity fuel mix since $2009$ have impacted the Hourly Ontario Energy Price (HOEP) and Global Adjustment (GA). The study demonstrates that while less reliance on coal has resulted in an upward pressure on the HOEP, the increase in other sources of energy such as nuclear, hydro and wind power generations outweighed the effects of eliminating coal, which explains why the average HOEP fell from 26.4 $\$/MWh$ in 2012 to $23$ $\$/MWh$ in 2014. On the other hand, the GA in terms of $\$/MWh$, rose by almost $50\%$. Although less coal is significantly associated with higher GA payments, we do not find that more wind and nuclear power generation have resulted in higher GA payments. In addition, our results show that more gas power is correlated with a reduction in GA. Lastly, the third chapter uses the hourly air pollutant data associated with four cities of Toronto, Hamilton, Ottawa and Sarnia in addition to the data on hourly electricity generation from coal, gas, hydro, nuclear, wind and other (solar and biofuel) type of power plants for the period of $2009$ to $2016$. The pollution data are obtained from the Ontario Ministry of the Environment and Climate Change and the data on fuel mix are obtained from the Independent Electricity System Operator (IESO). We estimate the effects of hourly changes in fuel mix on Ozone ($O_{3}$), Nitrogen Oxide ($NO_{x}$), and Particulate Matter ($PM_{2.5}$) over a period in which coal-fired electricity generation was gradually eliminated from the electricity market. The paper also estimates the impacts of fuel mix on the probability of smog days. The results suggest that relative to coal, more nuclear and wind energy is correlated with decreased levels of $NO_{x}$ and $PM_{2.5}$. In addition, an increase in nuclear powered generation is associated with reduced $O_{3}$ levels. On the other hand, the results suggest that in general, the correlation between different types of fuel mix and the elimination of smog days are not statistically significant.
The Labour Market Integration of Immigration and Their Role on Innovation
(University of Waterloo, 2017-12-20) 张, 珏
This thesis contains three chapters evaluating the role of labour market skills in determining immigrants' labour market integration and Canada's innovation rate. In Chapter 1, I estimate how the impact of entry economic conditions on immigrants' labour market outcomes varies by the versatility of their skills. Skill versatility is measured using information on the sectoral concentration of native-born workers with a particular education field and level. Entry economic conditions are measured using city-level unemployment rates among native graduates from a similar education field and level. Since immigrants' location choices can be endogenous to geographic local economic conditions, I address the endogeneity of immigrants' location choices by exploiting the historical settlement patterns of immigrants from the same countries of origin. I find that immigrants suffer a 5 to 8 percent decline in their annual earnings when there is a one percentage-point increase in entry unemployment rates. When I incorporate the skill versatility measure in the estimation, the earnings loss is mitigated by 1 to 3 percentage points, if there is a one standard deviation increase in immigrants' skill versatility level. This effect is less evident for highly educated immigrants and it may be due to their being more likely to have pre-arranged employment before landing. I also find that city-level onward migration is more likely for immigrants who face unfavourable labour market conditions at entry, and movers do fare better than stayers conditional on initial setbacks. Meanwhile, immigrants' geographical mobility is found to be strengthened to some extent by their skill versatility. Chapter 2 examines the effect of changes in skilled-immigrant population shares in 98 Canadian cities between 1981 and 2006 on per capita patents. The Canadian case is of interest because its `points system' for selecting immigrants is viewed as a model of skilled immigration policy. Our estimates suggest unambiguously smaller beneficial impacts of increasing the university-educated immigrant population share than comparable U.S. estimates, whereas our estimates of the contribution of Canadian-born university graduates are virtually identical in magnitude to the U.S. estimates. The modest contribution of Canadian immigrants to innovation is, in large part, explained by the low employment rates of Canadian STEM-educated immigrants in STEM jobs. Our results point to the value of providing employers with a role in the immigrant screening process. Lastly, in Chapter 3, using inventors' names to identify their ethnicity and Canadian Census and NHS data to estimate ethnic populations, we estimate patenting rates for Canada's ethnic populations between 1986 and 2011. The results reveal higher patenting rates for Canada's ethnic minorities, particularly for Canadians with Korean, Japanese, and Chinese ancestry, and suggest that immigrants accounted for one-third of Canadian patents in recent years, despite comprising less than one-quarter of the adult population. Human capital characteristics, in particular the share with a PhD and the shares educated and employed in STEM fields, account for most of the ethnic-minority advantage in patenting. Our results also point to larger patenting contributions by foreign-educated compared to Canadian-educated immigrants, which runs counter to current immigrant selection policies favouring international students.

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