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Articles 1 - 30 of 38
Full-Text Articles in Social and Behavioral Sciences
On The Theory Of Macroeconomic Policy, James Tobin
On The Theory Of Macroeconomic Policy, James Tobin
Cowles Foundation Discussion Papers
Jan Tinbergen was and is of course a scientist, full of curiosity about how the world works. But his motivation has always been more than curiosity. He wants to know how the world works so that he can make it work better. Knowledge is the foundation of policy. It was natural for Tinbergen to set forth a formal theory of policy nearly fifty years ago and it was equally natural from him to relate the theory to practical problems of policy in the Netherlands and else where and to implement it and illustrate it with the help of theoretical and …
Mathematical Programming And Economic Theory, Herbert E. Scarf
Mathematical Programming And Economic Theory, Herbert E. Scarf
Cowles Foundation Discussion Papers
The paper discusses the analogy between economic institutions and algorithms for the solution of mathematical programming problems. The simplex method for solving linear programs can be interpreted as a search for market prices that equilibrate the demand for factors of production with their supply. An interpretation in terms of the internal organization of the large firm is offered for Lenstra’s integer programming algorithm.
Solving Systems Of Simultaneous Equations In Economics, John Geanakoplos, Wayne Shafer
Solving Systems Of Simultaneous Equations In Economics, John Geanakoplos, Wayne Shafer
Cowles Foundation Discussion Papers
We show that there is a broad range of systems of simultaneous equations that arise in economics as descriptions of equilibrium that can be solved in elementary fashion via degree theory. Some of these systems are not susceptible to analysis by standard Brouwer fixed point methods. Two of our applications are to general equilibrium with incomplete markets, and to nonconvex production with noncompetitive pricing rules.
Alternative Approaches To The Political Business Cycle, William D. Nordhaus
Alternative Approaches To The Political Business Cycle, William D. Nordhaus
Cowles Foundation Discussion Papers
This paper reviews the theory and evidence concerning Political Business Cycles (PBC), which are based on the obvious facts of democratic life that voters care about the economy while politicians care about power. The first section provides an overview of different approaches to political cycles, describing five models that have been used in different contexts. The next two sections review major theoretical issues, with attention to the “microfoundations” of politico-economic systems, an exploration of the implications of ideological parties for political equilibria, and a formal analysis of a number of different PBC models. The empirical sections begin with an analysis …
Testing For A Unit Root In The Presence Of Deterministic Trends, Peter C.B. Phillips, Peter Schmidt
Testing For A Unit Root In The Presence Of Deterministic Trends, Peter C.B. Phillips, Peter Schmidt
Cowles Foundation Discussion Papers
This paper provides a new unit root test based on an alternative parameterization which has previously been considered by Bhargava (1986). This parameterization allows for trend under both the null and the alternative, without introducing any parameters that are irrelevant under either. This is not so in the Dickey-Fuller parameterizations. The new test is extracted from the score or LM principle under the assumption that the errors are iid N(0, sigma squared (epsilon)), but our asymptotics hold under more general assumptions about the errors. Two forms of the test (a coefficient test and at t-test) are derived.
Estimating Long Run Economic Equilibria, Peter C.B. Phillips, Mico Loretan
Estimating Long Run Economic Equilibria, Peter C.B. Phillips, Mico Loretan
Cowles Foundation Discussion Papers
Our subject is econometric estimation and inference concerning long-run economic equilibria in models with stochastic trends. Our interest is focused on single equation specifications such as those employed in the Error Correction Model (ECM) methodology of David Hendry (1987, 1989 inter alia) and the semiparametric modified least squares method of Phillips and Hansen (1989). We start by reviewing the prescriptions for empirical time series research that are presently available. We argue that the diversity of choices is confusing to practitioners and obscures the fact that statistical theory is clear about optimal inference procedures. Part of the difficulty arises from the …
Asymptotics For Linear Processes, Peter C.B. Phillips, Victor Solo
Asymptotics For Linear Processes, Peter C.B. Phillips, Victor Solo
Cowles Foundation Discussion Papers
A method of deriving asymptotics for linear processes is introduced which uses an explicit algebraic decomposition of the linear filter. The method leads to substantial simplifications in the asymptotics and offers a unified approach to strong laws and central limit theory for linear processes. Sample means and sample covariances are covered. The results also accommodate both homogeneous and heterogeneous innovations as well as innovations with undefined means and variances.
Observability And Optimality, John Geanakoplos, Heracles M. Polemarchakis
Observability And Optimality, John Geanakoplos, Heracles M. Polemarchakis
Cowles Foundation Discussion Papers
Observability of an individual’s excess demand function for assets and commodities as all prices and revenue vary suffices in order to recover his von Neumann-Morgenstern utility function. This is generically the case, even when the asset market is incomplete and the cardinal utility indices state dependent, as long as there are at least two commodities traded in spot markets at each state of nature. On the contrary, if the response of individuals’ excess demand for assets as prices in spot commodity markets vary is not observable, recoverability fails when the asset market is incomplete. In particular, it is not possible …
Asymptotic And Finite Sample Distribution Theory For Iv Estimators And Tests In Partially Identified Structural Equations, In Choi, Peter C.B. Phillips
Asymptotic And Finite Sample Distribution Theory For Iv Estimators And Tests In Partially Identified Structural Equations, In Choi, Peter C.B. Phillips
Cowles Foundation Discussion Papers
General formula for the finite sample and asymptotic distributions of the instrumental variable estimators and the Wald statistics in a simultaneous equation model are derived. It is assumed that the coefficient vectors of both endogenous and exogenous variables are only partially identified, even though the order condition for identification is satisfied. This work extends previous results in Phillips (1989) where the coefficient vector of the exogenous variables is partially identified and that of the endogenous variables is totally unidentified. The effect of partial identification on the finite sample and asymptotic distributions of the estimators and the Wald statistics is analyzed …
Risk Analysis In Economics: An Application To University Finances, William D. Nordhaus
Risk Analysis In Economics: An Application To University Finances, William D. Nordhaus
Cowles Foundation Discussion Papers
Although the theory of decision making under uncertainty has been extensively studied for a half century, applications to business applications are relatively rare. This study frames a systematic risk analysis and applies the technique to the finances of private colleges and universities. It begins by constructing budgets for colleges and universities and then analyzes the major economic factors affecting those budgets. It estimates the variability (or unpredictability) associated with each major external variable from historical data and from economic forecasts. The study finds that government-spending risks outweigh all other external stock market, interest rates, inflation, and wage trends. The paper …
Additive Interactive Regression Models: Circumvention Of The Curse Of Dimensionality, Donald W.K. Andrews, Yoon-Jae Whang
Additive Interactive Regression Models: Circumvention Of The Curse Of Dimensionality, Donald W.K. Andrews, Yoon-Jae Whang
Cowles Foundation Discussion Papers
This paper considers series estimators of additive interactive regression (AIR) models. AIR models are nonparametric regression models that generalize additive regression models by allowing interactions between different regressor variables. They place more restrictions on the regression function, however, than do fully nonparametric regression models. By doing so, they attempt to circumvent the curse of dimensionality that afflicts the estimation of fully nonparametric regression models. In this paper, we present a finite sample bound and asymptotic rate of convergence results for the mean average squared error of series estimators that show the AIR models do circumvent the curse of dimensionality. The …
Inflationary Expectations And Price Setting Behavior, Ray C. Fair
Inflationary Expectations And Price Setting Behavior, Ray C. Fair
Cowles Foundation Discussion Papers
This paper tests for the existence of expectational effects in very disaggregate price equations. Price equations are estimated using monthly data for each of 40 products. The dynamic specification of the equations is also tested, including whether the equations should be specified in level form or in change form. Two expectational hypotheses are used, one in which expectations of the aggregate price level and one in which expectations are rational. Under the first hypothesis the lag length is estimated along with the other parameters, and under the second hypothesis the lead length is estimated along with the other parameters. The …
Full Information Estimation And Stochastic Simulation Of Models With Rational Expectations, Ray C. Fair, John B. Taylor
Full Information Estimation And Stochastic Simulation Of Models With Rational Expectations, Ray C. Fair, John B. Taylor
Cowles Foundation Discussion Papers
A computationally feasible method for the full information maximum likelihood estimation of models with rational expectations is described in this paper. The stochastic simulation of such models is also described. The methods discussed in this paper should open the way for many more tests of the rational expectations hypothesis within macroeconomic models.
Warranties, Durability, And Maintenance: Two Sided Moral Hazard In A Continuous-Time Model, Philip H. Dybvig, Nancy A. Lutz
Warranties, Durability, And Maintenance: Two Sided Moral Hazard In A Continuous-Time Model, Philip H. Dybvig, Nancy A. Lutz
Cowles Foundation Discussion Papers
We consider the provision of an optimal warranty in a continuous-time model with two-sided moral hazard. The optimal warranty must balance the producer’s durability incentive and the buyer’s maintenance incentive. Too little warranty protection gives the producer too much incentive to produce low durability, while too much warranty protection gives the consumer too much incentive to neglect maintenance. The derived optimal warranty is a “block warranty” that is high for an initial block of time and zero thereafter. The first-best would be available under a very high warranty for a very short time interval, except for the incentive this would …
An Introduction To General Equilibrium With Incomplete Asset Markets, John Geanakoplos
An Introduction To General Equilibrium With Incomplete Asset Markets, John Geanakoplos
Cowles Foundation Discussion Papers
I survey the major results in the theory of general equilibrium with incomplete asset markets. I also introduce the papers in this volume and offer a few suggestions for further work.
Existence Of Walras Equilibrium Without A Price Player Of Generalized Game, John Geanakoplos, Pradeep Dubey
Existence Of Walras Equilibrium Without A Price Player Of Generalized Game, John Geanakoplos, Pradeep Dubey
Cowles Foundation Discussion Papers
We derive the existence of a Walras equilibrium directly from Nash’s theorem on noncooperative games. No price player is involved, nor are generalized games.
The Reconciliation Of Micro And Macro Economics, Martin Shubik
The Reconciliation Of Micro And Macro Economics, Martin Shubik
Cowles Foundation Discussion Papers
It is suggested that the appropriate structure for the reconciliation of micro and macroeconomics is an infinite horizon overlapping generations (OLG) model with many finitely lived natural persons and one infinitely lived strategic player without preferences whose choice rule is determined by the periodic political choice of the finitely lived players who are alive and politically strategically active at the time of choice. This player may be interpreted as government. In the steps from the finite horizon general equilibrium (GE) model to the overlapping generations model (GGOLG) it is suggested that even without exogenous uncertainty, if economic efficiency is to …
Neighbors Of The Origin For Four By Three Matrices, David F. Shallcross
Neighbors Of The Origin For Four By Three Matrices, David F. Shallcross
Cowles Foundation Discussion Papers
Scarf has defined a neighborhood system for families of integer programs where the right-hand side is allowed to vary. This system depends on a matrix A of constraint and objective function coefficients of the integer programs. This paper characterizes the set of neighbors of the origin when A is four by three; showing that it may be described as the set of integer vectors in a union of two-dimensional polyhedra, where the number of polyhedra is quadratic in the bit size of A .
On Integer Points In Polyhedra: A Lower Bound, Imre Bárány, Roger Howe, László Lovász
On Integer Points In Polyhedra: A Lower Bound, Imre Bárány, Roger Howe, László Lovász
Cowles Foundation Discussion Papers
Given a polyhedron P subset R n we write P I for the convex hull of the integral points in P. It is known that P I can have at most O(ϕ n-1 ) vertices if P is a rational polyhedron with size ϕ. Here we give an example showing that P I can have as many as Ω(ϕ n-1 ) vertices. The construction uses the Dirichlet unit theorem.
A Nonparametric Maximum Rank Correlation Estimator, Rosa L. Matzkin
A Nonparametric Maximum Rank Correlation Estimator, Rosa L. Matzkin
Cowles Foundation Discussion Papers
This paper presents a nonparametric and distribution-free estimator for the function h*, of observable exogenous variables, x, in the generalized regression model, y - G(h*(x), mu). The method does not require a parametric specification for either the function h* or for the distribution of the random term mu. The estimation proceeds by maximizing a rank correlation criterion (Han (1987)) over a set of functions that are monotone increasing, concave, and homogeneous degree one; the function h* is assumed to belong to this set of functions. The estimator is shown to be strongly consistent.
Renegotiation And Symmetry In Repeated Games, Dilip Abreu, David G. Pearce, Ennio Stacchetti
Renegotiation And Symmetry In Repeated Games, Dilip Abreu, David G. Pearce, Ennio Stacchetti
Cowles Foundation Discussion Papers
It seems reasonable to suppose that in repeated games in which communications is possible, play is determined through a process of negotiation and renegotiation as events unfold. In the absence of a satisfying theory of players’ bargaining power, it is unclear how to model this process. Symmetric repeated games are an important class in which the problem is less troublesome. Whatever its source, bargaining power is presumably the same for all players in a symmetric game. We take equal bargaining power to mean that a player can mount a credible objection to a continuation equilibrium in which he receives a …
An Empirical Process Central Limit Theorem For Dependent Non-Identically Distributed Random Variables, Donald W.K. Andrews
An Empirical Process Central Limit Theorem For Dependent Non-Identically Distributed Random Variables, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper establishes a central limit theorem (CLT) for empirical processes indexed by smooth functions. The underlying random variables may be temporally dependent and non-identically distributed. In particular, the CLT holds for near epoch dependent (i.e., functions of mixing processes) triangular arrays, which include strong mixing arrays, among others. The results apply to classes of functions that have series expansions. The proof of the CLT is particularly simple; no chaining argument is required. The results can be used to establish the asymptotic normality of semiparametric estimators in time series contexts. An example is provided.
Do The Secondary Markets Believe In Life After Debt?, Vassilis A. Hajivassiliou
Do The Secondary Markets Believe In Life After Debt?, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
This paper employs panel-data econometric techniques to explore the relations between measures of credit worthiness and the debt discounts on the secondary markets. It investigates empirically whether the secondary market discounts reflect a history of past repayments problems or whether they anticipate future debt crises. The answer to this question has implications about the desirability of debt relief. The main finding is that the secondary markets do not seem rapidly to absorb economic information, which suggests that they are still in their evolutionary stage and are not very efficient. The estimated models are also used to analyze issues in the …
Asymptotics For Semiparametric Econometric Models: Iii. Testing And Examples, Donald W.K. Andrews
Asymptotics For Semiparametric Econometric Models: Iii. Testing And Examples, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper considers tests of nonlinear parametric restrictions in semiparametric econometric models. To date, only Wald tests of such restrictions have been considered in the literature. Here, Wald, Lagrange multiplier, and likelihood ratio-like test statistics are considered and are shown to have asymptotic chi-square distributions under the null and local alternatives. The results hold for a wide variety of underlying estimation techniques and in a wide variety of model scenarios. A number of examples are given to illustrate the testing results of this paper and the estimation and stochastic equicontinuity results of the antecedents to this paper, viz. Andrews (1989b, …
Asymptotics For Semiparametric Econometric Models: I. Estimation, Donald W.K. Andrews
Asymptotics For Semiparametric Econometric Models: I. Estimation, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper provides a general framework for proving the square root of T consistency and asymptotic normality of a wide variety of semiparametric estimators. The results apply in time series and cross-sectional modeling contexts. The class of estimators considered consists of estimators that can be defined as the solution to a minimization problem based on a criterion function that may depend on a preliminary infinite dimensional nuisance parameter estimator. The criterion function need not be differentiable. The method of proof exploits results concerning the stochastic equicontinuity or weak convergence of normalized sums of stochastic processes. This paper also considers tests …
The Capital Asset Pricing Model As A General Equilibrium With Incomplete Markets, John Geanakoplos, Martin Shubik
The Capital Asset Pricing Model As A General Equilibrium With Incomplete Markets, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We recast the capital asset pricing model (CAPM) in the broader context of general equilibrium with incomplete markets (GEI). In this setting we give proofs of three properties of CAPM equilibria: they are efficient, asset prices lie on a “security market line,” and all agents hold the same two mutual funds. The first property requires a riskless asset, the latter two do not. We show that across all GEI only one of these three properties of equilibrium is generally valid: asset prices depend on covariances, not variances. We extend CAPM to many consumption goods in such a way that all …
Game Theory Without Partitions, And Applications To Speculation And Consensus, John Geanakoplos
Game Theory Without Partitions, And Applications To Speculation And Consensus, John Geanakoplos
Cowles Foundation Discussion Papers
Decision theory and game theory are extended to allow for information processing errors. This extended theory is then used to reexamine market speculation and consensus, both when all actions (opinions) are common knowledge and when they may not be. Five axioms of information processing are shown to be especially important to speculation and consensus. They are called nondelusion, knowing that you know, nested, balanced, and positively balanced. We show that it is necessary and sufficient that each agent’s information processing errors be nondeluded and (1) balanced so that the agents cannot agree to disagree, (2) positively balanced so that it …
Asymptotic Optimality Of Generalized Cl, Cross-Validation, And Generalized Cross-Validation In Regression With Heteroskedastic Errors, Donald W.K. Andrews
Asymptotic Optimality Of Generalized Cl, Cross-Validation, And Generalized Cross-Validation In Regression With Heteroskedastic Errors, Donald W.K. Andrews
Cowles Foundation Discussion Papers
The problem considered here is that of using a data-driven procedure to select a good estimate from a class of linear estimates indexed by a discrete parameter. In contrast to other papers on this subject, we consider models with heteroskedastic errors. The results apply to model selection problems in linear regression and to nonparametric regression estimation via series estimators, nearest neighbor estimators, and local regression estimators, among others. Generalized C L , cross-validation, and generalized cross-validation procedures are analyzed.
Gold, Liquidity And Secured Loans In A Multi-Stage Economy. Part Ii. Many Durables, Land And Gold, Martin Shubik, Shuntian Yao
Gold, Liquidity And Secured Loans In A Multi-Stage Economy. Part Ii. Many Durables, Land And Gold, Martin Shubik, Shuntian Yao
Cowles Foundation Discussion Papers
In a previous paper (Shubik and Yao, 1988) we examined a multistage exchange economy with m perishable goods and one infinitely durable gold used as money. we considered an economy without credit and one with one hundred percent secured loans. In this paper we consider an economy with m(1) goods which have finite lives and m(2) goods which are of infinite durability. Historically the two durables which have been prominent in economic activity have been gold and land, although one might wish to include platinum and some other items.
Market Innovation And Entrepreneurship: A Knightian View, Truman F. Bewley
Market Innovation And Entrepreneurship: A Knightian View, Truman F. Bewley
Cowles Foundation Discussion Papers
Stimulated by Frank Knight’s work, “Risk, Uncertainty and Profit,” I present a theory of innovation based on what I term Knightian decision theory. This theory includes a concept of uncertainty aversion, a behavioral property that makes people reluctant to undertake new unevaluatable risks. This aversion is compounded when individuals are obliged to cooperate in undertaking risks. The theory leads directly to the conclusion that innovation in business is the natural domain of individual investors with unusually low levels of uncertainty aversion. Also, it should be difficult to innovate new markets for insurance of unevaluatable risks, for the success of a …