This paper considers regression models for cross-section data that exhibit cross-section dependence due to common shocks, such as macroeconomic shocks. The paper analyzes the properties of least squares (LS) estimators in this context. The results of the paper allow for any form of cross-section dependence and heterogeneity across population units. The probability limits of the LS estimators are determined, and necessary and sufficient conditions are given for consistency. The asymptotic distributions of the estimators are found to be mixed normal after recentering and scaling. The t, Wald, and F statistics are found to have asymptotic standard normal, χ2, and scaled χ2 distributions, respectively, under the null hypothesis when the conditions required for consistency of the parameter under test hold. However, the absolute values of t, Wald, and F statistics are found to diverge to infinity under the null hypothesis when these conditions fail. Confidence intervals exhibit similarly dichotomous behavior. Hence, common shocks are found to be innocuous in some circumstances, but quite problematic in others. Models with factor structures for errors and regressors are considered. Using the general results, conditions are determined under which consistency of the LS estimators holds and fails in models with factor structures. The results are extended to cover heterogeneous and functional factor structures in which common factors have different impacts on different population units.

On 1 October 2002, the State of Alaska increased taxes on malt beverages from $0.35 per gallon to $1.07 per gallon, increased taxes on wine from $0.85 per gallon to $2.50 per gallon, and increased taxes on distilled spirits from $5.60 per gallon to $12.80 per gallon. The net effect is that the tax on a standard serving rose from about 3 cents for beer, 2 cents for wine, and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage. This paper uses primary data on alcoholic beverage prices in Alaska to study a very basic question: What was the impact of the tax hikes on prices? An alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol-related problems such as drunk driving. The impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health. Economic theory and previous empirical studies, mainly of taxes on goods other than alcoholic beverages, do not provide very much guidance on what to expect following a tax hike. It is an empirical question. To answer the question, I conducted telephone surveys, just before and a year after the tax hike, of on-premise and off-premise alcohol retail establishments across Alaska.

This paper examines the admissibility of monetary aggregate groupings for the US over 1993–2001, based upon weak separability. We investigate the impact of retail and commercial demand deposit sweep programs on the separability of monetary asset groupings. Weak separability is tested using the Swofford–Whitney and Fleissig–Whitney tests. We use Varian's measurement error adjustment procedure to eliminate violations of the Generalized Axiom of Revealed Preference (GARP). When funds from both retail and commercial demand deposit sweep programs are placed within checkable deposits, all groupings, narrow and broad, pass GARP and weak separability. For groupings based on conventional money measures, tests tend to favor broad aggregates.

Explaining the Short Careers of High-Achieving Teachers in Schools with Low-Performing Students by Donald Boyd, Hamilton Lankford, Susanna Loeb and James Wyckoff. Published in volume 95, issue 2, pages 166-171 of American Economic Review, May 2005