To: tenreyro@fas.harvard.edu

Subject: Issues with MA data

Cc: arose@haas.berkeley.edu

 

For various reasons, I decided today to pursue the issue of data-averaging.  In particular, I want to figure out whether and why averaging trade over time seems to give you lower estimates of the currency union effect on trade (your Table 3).  You may recall that when I read your paper for the first time yesterday I couldn't really understand why averaging the data corrected any bias (what's the bias?), and now I'm even more skeptical.

 

The first step is obviously to replicate your finding.  It seems like it should be easy to do, since my data set with Glick covers all IFS codes from '48 through '97.  I've simply inserted zero values where the trade data was missing, and proceeded (you can see this in the descriptive statistics on "trade" which are mostly zero).  I've created (logs of) 3-, 5-, and 7-year moving averages of trade alone (and then estimate the equation on data sampled every 3/5/7 years as appropriate).  Nothing else is changed.

 

Unfortunately, I've been unable to get anything close to your results.  My estimate for the effect of currency union on trade (in pst1.log which I attach), shows an estimate of 1.19 (se .11) when I use annual data without any correction.  When I use 5-year moving averages and sample the data every 5 years, I get 1.18 (.11).  Results are comparable for 3- and 7-yr MAs.  Also, FYI, when I use unadjusted annual data every 5 years, I get 1.27 (.11), though obviously on a smaller sample size.  Results rise somewhat if I use only the last 20 years of data.

 

I'll try to make my data set available on the internet soon, so that you can play with it if you like.  In the meantime, I'll just post the output.

 

Over to you.

 

PS: I know this is going to be a pain for you (and maybe me too).  But since you only sent me your paper yesterday, there's literally no way I could have been much faster.

 

********

Andrew K. Rose, Rocca Professor Tel: (510) 642-6609

Haas School of Business         Fax: (510) 642-4700

University of California                        E-mail: arose@haas.berkeley.edu

Berkeley, CA 94720-1900         URL: http://faculty.haas.berkeley.edu/arose

 

C:\Program Files\Qualcomm\Eudora\attach\pst1.logpst1.log