Research

Publications

Revisiting the trade effects of the euro: Data sources and various samples

New evidence in the literature on trade effects of the euro often reports different estimates. In this paper, I investigate the impact of trade data, instead of methodology, on the estimation of the key coefficient. In particular, I apply both the log-linearized least squares (OLS) estimator and the Poisson pseudo-maximum likelihood (PPML) estimator to the structural gravity model and compare these estimates by using trade data from two of the most widely used sources (IMF DOTS and UN Comtrade) and by varying samples. One surprising result is that the OLS estimator yields coefficients of the euro with opposite signs for the two data sources, when a sample covering all countries is applied. It is as expected that the PPML estimator is much less sensitive to sample size than the OLS estimator, taking a data source as given. However, the variation in estimates caused by data sources and sampling is consistent for both estimators. It indicates that both estimators are not free from the measurement error issue. More findings include: (1) the discrepancy in OLS estimates derived for the two datasets persists across samples, but the magnitude varies; (2) the magnitude of the discrepancy in PPML estimates from the two datasets is more stable to sampling; (3) both OLS and PPML estimators are sensitive to sample compositions for a given sample size.

J. Hou. Revisiting the trade effects of the euro: Data sources and various samples. Empirical Economics (forthcoming).

Working Papers

The Effect of Exchange Rate Regimes on Business Cycle Synchronization: A Robust Analysis (with Jakub Knaze)

In contrast to the widely recognized importance of exchange rate regimes, evidence on their effect on business cycle synchronization focuses almost exclusively on the role of currency unions, thus implicitly ignoring potential effect of other exchange rate regimes. In this paper we use a new dataset on bilateral de-facto exchange rate regimes for the period 1973-2016 to study the effect of seven types of regimes on business cycle synchronization. Using the Extreme Bound Analysis (EBA) methodology, we find that the exchange rate regime is a robust determinant of business cycle synchronization. Compared to country pairs with freely floating arrangements, we find that: (i) the correlation coefficient measuring business cycle synchronization is higher by around 0.12 points in countries with no separate legal tenders; (ii) other hard pegs such as currency board arrangements and de-facto pegs have also significantly more synchronised business cycles, but the size of the correlation coefficient is halved compared to countries with no separate legal tenders; (iii) the effect is not always linearly decreasing with the increasing exchange rate regime flexibility, since crawling pegs and crawling bands turn out to be insignificant, whereas the effect of moving bands as a more flexible type of exchange rate regimes is positive and significant; (iv) the effect is stronger for countries with high degree of financial openness and good institutional quality.

Financial Literacy and Socialist Education: Lessons from the German Reunification (with Maddalena Davoli)

A growing body of literature shows the importance of financial literacy in households' financial decisions. However, fewer studies focus on understanding the determinants of financial literacy. Our paper fills this gap by analyzing a specific determinant, the educational system, to explain the heterogeneity in financial literacy scores across Germany. We suggest that the lower financial literacy observed in East Germany is partially caused by a different institutional framework experienced during the Cold War, more specifically, by the socialist educational system of the GDR which affected specific cohorts of individuals. By exploiting the unique set-up of the German reunification, we identify education as a channel through which institutions and financial literacy are related in the German context.

(It won the M. Jess San Segundo Second Prize Award of the Economics of Education Association, at the XVII Meeting of the Association in Barcelona, 2018)

Financial Education for the Disadvantaged? A Review(With Horst Entorf)

In contrast to the popularity of financial education interventions worldwide, studies on the economic effects of those interventions report mixed results. With a focus on the effect on disadvantaged groups, we review both the theoretical and empirical findings in order to understand why this discrepancy exists. The survey first highlights that it is necessary to distinguish between the concepts of, and the relationships between, financial education, financial literacy and financial behavior to identify the true effects of financial education. The review addresses possible biases caused by third factors such as numeracy. Next, we review theories on financial literacy which make clear that the effect of financial education interventions is heterogeneous across the population. Last, we look closely at main empirical studies on financial education targeted at the migrants/immigrants, the low-income earners and the young, and compare their methodologies. There seems to be a positive effect on short-term financial knowledge and awareness of the young, but there is no proven evidence on long-term behavior after being grown up. Studies on financial behavior of migrants and immigrants show almost no effect of financial education.

Publications

Working Papers

Work in Progress