Blog as a precursor of academic articles

Joshua Gans on Digitopoly extends the discussion of open science and academic publications. He shows an example when his quick reaction in blog  has resulted in a formal academic paper. This is a good illustration that ideas play superior role in academic research and data retrieving and processing becomes a routine. 

There are couple more examples one can find in this blog (and its predecessor – Inflation in the USA). The first case is related to labor force dependence on real GDP. I have a series of post during several months which reported the evolution of this idea from zero to a complete academic paper published in the Journal of Applied Economic  Sciences (ranked in Scopus and RePEc). Briefly, we have shown that the rate of participation in labor force depends (Rsq ~0.8 to 0.9) only on real GDP per capita, G, in developed countries. Standard econometric tools demonstrated the presence of cointegration between these two variables. As a benefit, we found that labor force productivity is also a unique function of G. Since 2006, all models were validated by new data. Each turn to the final model  and its validation was carefully documented.  All new results have been firstly posted in the blog.

Lately (inspired by Paul Krugman), we found a new way to represent famous Okun’s law (unemployment  rate vs. real GDP) and its counterpart – the link between the rate of employment and real GDP per capita. We meticulously reported all quantitative results before published them in two working papers [1,2].  The latter is ready for submission to a peer-reviewed journal but some new findings need to be includes. Specifically, we found and reported in this blog that the GDP deflator in developed countries has been spoiled by definitional revisions. Quantitatively, this means that  one has an artificial break in the relevant time series for real GDP. Not surprisingly, the estimated Okun’s law versions for developed countries have artificial “structural” breaks in the very same years.  Instructively, these breaks in the estimated Okun’s laws and in the links between real GDP and the rate of employment for developed economies had been obtained before (June 2011)we found the breaks in the GDP time series (October 2011). This may serve as a strong justification of our models for unemployment and employment. This part was reported in this blog and needs to be carefully described in the already prepared papers. Funny, but Lane Kenworthy did not dig into this artificial break problem when represented his graph of increasing income inequality. One should be very carefull with data and blogosphere can help much. One needs just to formulate a proper request.

All in all, this blog was launched in order to report on important phases of our scientific research. After several years, I am sure that it fulfills its purpose and demonstrates the importance of  quick reaction to new ideas caught in the blogosphere.

Will BofA shares fall to $1?

Two months ago we presented a share price model for Bank of America (BAC) and predicted the share falling below zero (a step to bankruptcy). The model has a history of three years and is based on the decomposition of the price into a weighted sum of two consumer price components, a linear time trend and a constant. All coefficients, time lags and CPIs were estimated by the least squares as applied to the model error.   Here we revisit the model using new data through December 2011. The newly estimated model differs from the preliminary one due to strict constraints on time lags and new data. The best-fit two component model for BAC(t) is as follows:  

BAC(t)= -2.30OHF(t) + 1.12H(t) + 2.17(t-1990) + 167.83   

where OHF is the consumer price index of other food at home and H(t) is the index of housing, both having notime lag behind the price (see Figure 1 for the evolution of the CPIs). Both CPIs are available only for November 2011, and thus we actually have a one month lead of the CPIs, if they would have been already available for December 2011 (will be available on January 19, 2012). One has to reestimate the model when the CPIs for September are published by the BLS . The standard deviation of the modeling error is $2.90 for the period between July 2003 and December 2011. Figure 2 depicts the observed and predicted prices and indicates that the market overestimates the share above the predicted level. The overestimation is also clear from Figure 3 where the model residual is displayed.

Despite a small increase in the predicted price in December, we still suggest that Bank of America might have  problems, which could bring its share price down to $1 in the near future. Similar problems had Lehman Brothers and other banks several months before bankruptcy. 

Figure 1. The evolution of the defining consumer price indices.

Figure 2. Observed and predicted BAC share prices.

Figure 3. The model residual.

Krugman on increasing inequality

Paul Krugman posted on increasing economic inequality borrowing  a graph from Lane Kenworthy. The graph shows a rapid deviation between the median family income (as published by the Census Bureau) and real GDP per capita (supposedly reported by the BEA) since 1977/1978.

There are two problems with this graph and post. Firstly, one should not ignore the fact that the GDP deflator and CPI started to rapidly (20% per year) deviate since 1977/1978, i.e. exactly the time of the deviation between median family  income and real GDP per capita in the presented graph.  Lately, we have reported the descrepancy between the CPI and GDP deflator and the problem with real GDP calculations: http://mechonomic.blogspot.com/2011/10/real-real-gdp.html

Secondly, one should not also ignore that fact that the portion of people with income, i.e. those who counted in the statistics of personal and family income, jumped from ~0.82 to ~0.95 after the 1977 revision to the procedure of personal (and thus family) income surveys (CPS ASEC). We have described and assessed this fact in our paper on the evolution of average and median income  (http://ideas.repec.org/p/inq/inqwps/ecineq2005-11.html) . This step in the income time series severely disturbed all income statistics.

This is not to say that there is no reason for the deviation between median family income and GDP per capita, but there are at least two artificialities (breaks) in the corresponing time series. One should not interprete this deviation as a meaningful one before considering the influence of artificial breaks.It might happen that the deviation just manifests the change in measurements.  

Krugman on open science and economics

Paul Krugman posted an excellent piece revealing major tendencies in data/idea exchange via the Internet.  With a smart request, one can retrieve what s/he needs right now (appropriately formatted) skipping all unnecessary information. This option makes almost all research processes much faster except the one related to the creation of new ideas. Thus, this is the time for ideas to compete.
With all (free) math and statistical tools it takes couple days now to process huge amounts of data and get result in publishable formats, i.e. nicely drawn figures and tables. Why wait years for a journal publication? However, all references in any publication still have to be “good”, i.e. top ten journals in the field are required independent on the quality and priority of ideas in the referenced publications. This is important for career and general prosperity.  This is like wisdom of old days. Elder generations always had life wisdom advantage to control youngsters. It’s not working any more with technology revolutions every 10 years and signers/football players/computer geeks earning millions. 
Can we expect the end of influence of major journals in the economic profession?  And what is the difference between physics and economics? The latter question is easier to answer. Physics is chiefly based on experiments which can be formally validated. The scientific community follow up common rules of testing hypothesis, procedures and results and thus represents one big expert. In that sense the influence of top journals as subsets of the unified expert will never fade away. In economics, there is no harmonized understanding of underlying economic processes and there is no formal methodology to reject or accept any hypotheses and/or results. It makes journals to be “political” and follow only one “school of thought” (For example, no American macroeconomic journals like the European school of econometrics demanding statistical justification of macromodels.) . In that sense, the influence of top economic journals will fade away when one formulates a scientific methodology to reject or accept any hypotheses and/or results”.  Currently, these journals are strongholds of thinking tanks.
The "Internet economics”  is the platform for revolutionary findings   in economics since it is not limited by artificial rules of top journals. It’ll take some time to understand that there is a new paradigm. But this is inevitable if the new paradigm describes reality better than any of the existing economic theories.  The scientific community easily abandon any theory which is proved to be wrong.

Bourgeois revolution in Russia

All current  problems and issues will be solved gradually, or revolutionary, as a standard bourgeois revolution begins. As always,  there is the question of property  protection. Much of the current private property, which has been obtained and is still distributed by clearly illegitimate means, is under "krysha" (semi-criminal protection) of the whole system of government from presidential power to the courts. This practically illegal (albeit large) pieces of property (mostly related to various forms of corruption) needs the state for illegal protection, which naturally includes the elected parliament. Words about the defense of the motherland and the unity of Russia can be understood as a signal "not surrender its"

But there are more and more people with the legally acquired property from good education and an expensive apartment to honest business. Their rights are not protected effectively by the current executive power, legislature and judiciary. There is only one legitimate way to change the system for the honest owners - to become the chosen representative, as the executive and judicial parts just co-opt people on the basis of the commitment to the illegal property. The 2011 electoral fraud has specifically affected these legal owners and instilled in them the deepest anxiety for the future and anger at almost all the authorities. I think the actual number of people supporting demonstrations is counted in millions. (A good education is also a valuable property when the job market does not work properly.) It should be noted that the opposition is of no interests for the owners  as well as the power itself.

All we want to achieve is the essence of the transition to the right protection of property. The 2011 Duma elections have shown that the power does not accept and will actively oppose any change.  I do not think that the massive protest was just an emotional reaction to the fraud. It was the actual understanding that the current power neglects our basic rights as citizens and property owners (in the broadest sense).  Hence the protest will be a long-term one. The most fundamental problem is not resolved. The protest is expressed with the introduction of elements of revolution. We have to solve the main issue, constituting the essence of everyone’s interests - the protection of all kind of legal property, including the intellectual one. Therefore, the opposition will only grow in number and get more and more implacable as the price of the property grows. The protesters are mainly young people who owe nothing to the state as such. All they have is the result of their own efforts. In contrast to the older generation they do not understand why they have to endure oppression of power. It gave them nothing.

Thus, we have standard problems resolved by bourgeois revolutions.

Perspectives of cross correlation in seismic monitoring at the International Data Centre

This is a preprint of our paper submitted to the Pure and Applied Geophysics:

Abstract

We demonstrate that several techniques based on cross correlation are able to significantly reduce the detection threshold of seismic sources worldwide and to improve the reliability of IDC arrivals by a more accurate estimation of their defining parameters. More than ninety per cent of smaller REB events can be built in automatic processing while completely fitting the REB event definition criteria. The rate of false alarms, as compared to the events rejected from the SEL3 in the current interactive processing, has also been dramatically reduced by several powerful filters. The principal filter is the difference of arrival times between the master events and newly built events at three or more primary stations, which should lie in a narrow range of a few seconds. Two effective pre-filters are f-k analysis and Fprob based on correlation traces instead of original waveforms. As a result, cross correlation may reduce the overall workload related to IDC interactive analysis and provide a precise tool for quality check for both arrivals and events. Some major improvements in automatic and interactive processing achieved by cross correlation are illustrated by an aftershock sequence of a large continental earthquake. Exploring this sequence, we describe schematically the next steps for the development of a processing pipeline parallel to the existing IDC one in order to improve the quality of the REB together with the reduction of the magnitude threshold. The current IDC processing pipeline should be focused on the events in areas without historical seismicity which are not properly covered by REB events.

How can we validate the statistics of the Russian elections?

Statistically, there is a relatively simple way to validate (or demonstrate falsification) the overall distribution.  It is commonly used by census bureaus and statistical agencies. One takes a random and small subset from a studied distribution (statistics) and repeat survey (voting) under full control. If the re-estimated statistics is quite different from the previously obtained result one may express a doubt in the accuracy of the original survey (voting). The size of the re-estimated set should be defined by the originally observed statistics and specifically from the polling stations with most suspicious results.

 Therefore, one does not need to repeat the full election process everywhere. We need only a relatively small number of polling stations which can be determined by lottery from the set with distributions of votes in favour of United Russia far from the expected Gaussian distribution.  United Russia would be happy  to prove that these results are not falsified to calm down the protests and indignation.