A New Asymmetric Interaction Ridge (AIR) Regression Method

Despite that interaction terms are standard tools of regression analysis, the side effects of the inclusion of these terms in models estimated by ordinary least squares (OLS) are yet not fully penetrated. The inclusion of interaction effects induces multicollinearity problems since all non zero values are equal between the interaction term and the regressor. In this article, we propose a procedure to remedy this problem by the use of new ridge regression (RR) shrinkage parameters—which we call the asymmetric interaction ridge (AIR) regression method. By means of Monte Carlo simulations we evaluate both OLS and AIR using the mean square error (MSE) performance criterion. The result from the simulation study confirms our hypothesis that AIR always should be preferred to OLS since it has a lower estimated MSE. Moreover, the advantages of our new method are demonstrated in an empirical application where positive asymmetric price transmission effects are exposed for the mortgage interest rates of Handelsbanken Stadshypotek. It is observed that the mortgage interest rates increase more fully and rapidly to an increase in the bank's borrowing costs than to a decrease. This asymmetry is defined as positive asymmetric price transmission (APT).     

Some ridge regression estimators for the zero-inflated Poisson model

The zero-inflated Poisson regression model is commonly used when analyzing economic data that come in the form of non-negative integers since it accounts for excess zeros and overdispersion of the dependent variable. However, a problem often encountered when analyzing economic data that has not been addressed for this model is multicollinearity. This paper proposes ridge regression (RR) estimators and some methods for estimating the ridge parameter k for a non-negative model. A simulation study has been conducted to compare the performance of the estimators. Both mean squared error and mean absolute error are considered as the performance criteria. The simulation study shows that some estimators are better than the commonly used maximum-likelihood estimator and some other RR estimators. Based on the simulation study and an empirical application, some useful estimators are recommended for practitioners.     

Multivariate-based causality tests of twin deficits in the US

This paper provides an alternative methodology for testing the causality direction between twin deficits in the US. Rao's multivariate F-test combined with the bootstrap simulation technique has appealing properties, especially when the data-generating process is characterized by unit roots. In addition the results show that the effect of structural breaks are of paramount importance when the causality tests are conducted. In much contemporary applied econometrics there is all-too-little attention given to the possibility of changes in the economic process.     

Use of the intra-uterine contraceptive device in rural West Pakistan

This paper presents selected aspects of experience with the intra-uterine contraceptive device (IUD) in rural West Pakistan. There were 1,162 IUD cases analyzed with respect to retention or non-retention. Retention rates were estimated, using life table methods, to be between 55 and 75 percent at one year; the smaller figure was obtained when theIUD was considered to be in situ only until the last examination, when it was observed to be in place. The latter or larger figure was obtained when the IUD was considered to be in situ unless known to be out.The extent of follow-up greatly affects estimates of the length of time the IUD remains in situ. Retention also varies with the type of I UD employed; exclusive use of Loop 3, which has the best retention record of those used,may be expected to yield higher retention rates by as much as 5 to 10 percent for one year. A number of other factors were examined that might explain non-retention. The objective variables that were examined in this experience, such as age, previous contraception, and husband's illiteracy, were on the whole rather poor predictors of IUD retention. Expulsion and other medical complications appear to account for most discontinuance of use of the IUD.