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Articles 1 - 30 of 41
Full-Text Articles in Economics
Var Models As Structural Approximations, Ray C. Fair
Var Models As Structural Approximations, Ray C. Fair
Cowles Foundation Discussion Papers
This paper presents a way of estimating how accurate VAR models are likely to be for answering structural questions. Data are generated from a dynamic deterministic solution of a structural model; a VAR model is estimated using a subset of these data; and the properties of the VAR model are compared to the properties of the structural model. This procedure has the advantage of eliminating the effects of error terms, since the data are generated for a deterministic simulation. The results show that the VAR models do not seem to be good structural approximations.
Renegotiation-Proof Equilibria: Collective Rationality And Intertemporal Cooperation, David G. Pearce
Renegotiation-Proof Equilibria: Collective Rationality And Intertemporal Cooperation, David G. Pearce
Cowles Foundation Discussion Papers
Cooperation in repeated games relies on the possibility that equilibrium play following some t -period history depends on more than simply the structure of the game remaining after the first t periods, that structure being always the same. In a nondegenerate theory of renegotiation, what a player expects, and the statements he finds credible at the end of period t must be affected by the history that has transpired, and perhaps by the implicit agreement that was in force. The solution concept proposed in this paper acknowledges both these influences, while imposing a certain stationarity on beliefs regarding what renegotiation …
A Note On An Optimal Garnishing Rule, Martin Shubik, Pradeep Dubey
A Note On An Optimal Garnishing Rule, Martin Shubik, Pradeep Dubey
Cowles Foundation Discussion Papers
A simple optimal garnishing rule to discourage strategic bankruptcy is derived.
Investor Behavior In The October 1987 Stock Market Crash: Survey Evidence, Robert J. Shiller
Investor Behavior In The October 1987 Stock Market Crash: Survey Evidence, Robert J. Shiller
Cowles Foundation Discussion Papers
Questionnaires were sent out at the time of the October 19, 1987 stock market crash to both individual and institutional investors inquiring about their behavior during the crash. Nearly 1000 responses were received. The survey results show that: 1. No news story or rumor appearing on the 19th or over the preceding weekend was responsible for investor behavior, 2. Investors’ importance rating of news appearing over the preceding week showed only a slight relation to decisions to buy or sell, 3. There was a great deal of investor talk and anxiety around October 19, much more than suggested by the …
Multiple Regression With Integrated Time Series, Peter C.B. Phillips
Multiple Regression With Integrated Time Series, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Recent work on the theory of regression with integrated process is reviewed. This work is particularly relevant in economics where many financial series and macroeconomic time series exhibit nonstationary characteristics and are often well modeled individually as simple ARIMA processes. The theory makes extensive use of weak convergence methods and allows for integrated processes that are driven by quite general weakly dependent and possibly heterogeneously distributed innovations. The theory also includes near integrated time series, which have roots near unity, and cointegrated series, which move together over time but are individually nonstationary. A general framework for asymptotic analysis is given …
Prices Of Single Family Homes Since 1970: New Indexes For Four Cities, Karl E. Case, Robert J. Shiller
Prices Of Single Family Homes Since 1970: New Indexes For Four Cities, Karl E. Case, Robert J. Shiller
Cowles Foundation Discussion Papers
This paper uses data on nearly a million homes sold in four metropolitan areas — Atlanta, Chicago, Dallas and San Francisco — to construct quarterly indexes of existing home prices between 1970 and 1986. We propose and apply a new method of constructing such indexes which we call the method of constructing such indexes which we call the weighted repeat sales method (WRS). We believe the results give an accurate picture of the actual rate of appreciation in home prices in the four cities. The paper explains the construction of the index, discusses the results and compares them with the …
Inventories, Investment, Inflation And Taxes, James Tobin
Inventories, Investment, Inflation And Taxes, James Tobin
Cowles Foundation Discussion Papers
Sales today were made possible by inputs of factor services and intermediate goods at various previous dates. Prices change between the input dates and the sale date. Especially in periods of general inflation, these price movements create ambiguities in the reckoning of profits. The accounting definition used in taxing profits can have significant economic effects. Tax accounting is generally not neutral vis-à-vis general inflation. Costing inputs at their historical nominal prices (FIFO) is a real burden and disincentive, greater the higher the inflation rate. It is analogous to depreciating durable capital at historical cost. However, it may be partially, completely, …
The Noncooperative Equilibria Of A Trading Economy With Complete Markets And Consistent Prices, Siddhartha Sahi, Shuntian Yao
The Noncooperative Equilibria Of A Trading Economy With Complete Markets And Consistent Prices, Siddhartha Sahi, Shuntian Yao
Cowles Foundation Discussion Papers
No abstract provided.
Bimodal T-Ratios, Peter C.B. Phillips, Vassilis A. Hajivassiliou
Bimodal T-Ratios, Peter C.B. Phillips, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
This paper studies the sampling distribution of the conventional t -ratio when the sample cromprises independent draws from a standard Cauchy (0,1) population. It is shown that this distribution displays a striking bimodality for all sample sizes and that the bimodality persists asymptotically. An asymptotic theory is developed in terms of bivariate stable variates and the bimodality is explained by the statistical dependence between the numerator and denominator statistics of the t -ratio. This dependence also persists asymptotically. These results are in contrast to the classical t statistic constructed from a normal population, for which the numerator and denominator statistics …
The Term Structure Of Interest Rates (With U.S. Government Term Structure Data), Robert J. Shiller, J. Huston Mcculloch
The Term Structure Of Interest Rates (With U.S. Government Term Structure Data), Robert J. Shiller, J. Huston Mcculloch
Cowles Foundation Discussion Papers
This paper consolidates and interprets the literature on the term structure, as it stands today. Definitions of rates of return, forward rates and holding returns for all time intervals are treated here in a uniform manner and their interrelations, exact or approximate, delineated. The concept of duration is used throughout to simplify mathematical expressions. Continuous compounding is used where possible, to avoid arbitrary distinctions based on compounding assumptions. Both the theoretical and the empirical literature are treated. The attached tables by J. Huston McCulloch give term structure data for U.S. government securities 1946-1987. The tables give discount bond yields, forward …
An Aggregative Disequilibrium Model Of The U.S. Labour Market, Vassilis A. Hajivassiliou
An Aggregative Disequilibrium Model Of The U.S. Labour Market, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
A model is presented in which aggregation over microsectors, each in different extent of disequilibrium, has implications analogous to the standard single aggregate sector switching disequilibrium model. Empirical implementation of the model of this paper is less involved than estimation of the standard model. Hence the approach here may be seen both as providing an underlying micro justification for the switching disequilibrium model, and as a computationally simpler (though statistically less efficient) technique. The model is estimated from post-war labour market quarterly data for the U.S. Manufacturing sector. We find the supply side more satisfactorily determined than in past disequilibrium …
Testing Strictly Concave Rationality, Rosa L. Matzkin, Marcel K. Richter
Testing Strictly Concave Rationality, Rosa L. Matzkin, Marcel K. Richter
Cowles Foundation Discussion Papers
We prove that the Strong Axiom of Revealed Preference tests the existence of a strictly quasiconcave (in fact, continuous, generically C (∞), strictly concave, and strictly monotone) utility function generating finitely many demand observations. This sharpens earlier results of Afriat, Diewert, and Varian that tested (“nonparametrically”) the existence of a piecewise linear utility function that could only weakly generate those demand observations. When observed demand is also invertible, we show that the rationalizing can be done in a C (∞) way, thus extending a result of Chiappori and Rochet from compact sets to all of R ( n ). For …
Partially Identified Econometric Models, Peter C.B. Phillips
Partially Identified Econometric Models, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies a class of models where full identification is not necessarily assumed. We term such models partially identified. It is argued that partially identified systems are of practical importance since empirical investigators frequently proceed under conditions that are best described as apparent identification. One objective of the paper is to explore the properties of conventional statistical procedures in the context of identification failure. Our analysis concentrates on two major types of partially identified model: the classic simultaneous equations model under rank condition failures; and time series spurious regressions. Both types serve to illustrate the extensions that are needed …
Weak Convergence Of Sample Covariance Matrices To Stochastic Integrals Via Martingale Approximations, Peter C.B. Phillips
Weak Convergence Of Sample Covariance Matrices To Stochastic Integrals Via Martingale Approximations, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Under general conditions the sample covariance matrix of a vector martingale and its differences converges weakly to the matrix stochastic integral from zero to one of ∫ 0 1 BdB ’, where B is vector Brownian motion. For strictly stationary and ergodic sequences, rather than martingale differences, a similar result obtains. In this case, the limit is ∫ 0 1 BdB ’ + Λ and involves a constant matrix Λ, of bias terms whose magnitude depends on the serial correlation properties of the sequence. This note gives a simple proof of the result using martingale approximations.
Silver And Gold And Liquidity, Martin Shubik
Silver And Gold And Liquidity, Martin Shubik
Cowles Foundation Discussion Papers
A simple model with trade in gold is explored where the cost of liquidity is measured in terms of utility foregone by using the gold as a money or means of payment rather than for utilitarian purposes. We close with remarks on the use of both silver and gold.
Valuation And Optimality In Exchange Economies With A Countable Number Of Agents, Charalambos D. Aliprantis, Donald J. Brown, Owen Burkinshaw
Valuation And Optimality In Exchange Economies With A Countable Number Of Agents, Charalambos D. Aliprantis, Donald J. Brown, Owen Burkinshaw
Cowles Foundation Discussion Papers
We present versions of the two fundamental welfare theorems of economics for exchange economies with a countable number of agents and an infinite dimensional commodity space. These results are then specialized to the overlapping generations model.
Effects Of The Changing U.S. Age Distribution On Macroeconomic Equations, Ray C. Fair, Kathryn M. Dominguez
Effects Of The Changing U.S. Age Distribution On Macroeconomic Equations, Ray C. Fair, Kathryn M. Dominguez
Cowles Foundation Discussion Papers
The effects of the changing U.S. age distribution on various macroeconomic equations are examined in this paper. The equations include consumption, money demand, housing investment, and labor force participation equations. Seven groups are analyzed: 16-19, 20-24, 30-39, 40-54, 55-64, and 65+. There seems to be enough variance in the age distribution data to allow reasonably precise estimates of the effects of a number of age categories on the macro variables. The results show that, other things being equal, age groups 30-39 and 40-54 consume less than average, invest less in housing than average, and demand more money than average. Age …
Joint Distribution Theory For Some Statistics Based On Liml And Tsls, Grant H. Hillier
Joint Distribution Theory For Some Statistics Based On Liml And Tsls, Grant H. Hillier
Cowles Foundation Discussion Papers
In the context of a single linear structural equation under classical assumptions, we derive the joint conditional density of the LIML endogenous coefficient estimator, and the usual characteristic root arising from the LIML procedure, given the OLS estimates of the reduced form coefficients for the excluded exogenous variables. This provides the joint distributions for various combinations of the statistics commonly used for inference in this model, and is hence an important stepping stone in the analysis of these procedures. The main result also leads to a new derivation of the density of the LIML estimator itself, and provides a result …
Asymptotic Properties Of Residual Based Tests For Cointegration, Peter C.B. Phillips, Sam Ouliaris
Asymptotic Properties Of Residual Based Tests For Cointegration, Peter C.B. Phillips, Sam Ouliaris
Cowles Foundation Discussion Papers
This paper develops an asymptotic theory for residual based tests for cointegration. These tests involve procedures that are designed to detect the presence of a unit root in the residuals of (cointegrating) regressions among the levels of economic time series. Attention is given to the augmented Dickey-Fuller (ADF) test that is recommended by Engle-Granger (1987) and the Z(a) and Z(t) unit root tests recently proposed by Phillips (1987). TWo new tests are also introduced, one of which is invariant to the normalization of the cointegrating regression. All of these tests are shown to be asymptotically similar and simple representations of …
Knightian Decision Theory, Part Ii: Intertemporal Problems, Truman F. Bewley
Knightian Decision Theory, Part Ii: Intertemporal Problems, Truman F. Bewley
Cowles Foundation Discussion Papers
The theory of choice proposed in “Knightian Decision Theory, Part I” is here applied to intertemporal problems. An analogue of dynamic programming called maxmin programming is developed. Also, it is shown that detailed contingent planning may not be needed in order to achieve maximality, a program being maximal if no other program is preferred to it. In certain circumstances, a maximal program can be achieved by making a finite calculation in each period. This calculation ignores distant future states and could also ignore unlikely contingencies. A decision maker making such calculations would behave much like a satisficer.
Implementational Issues And Computational Performance Solving Applied General Equilibrium Models With Slcp, Thomas Rutherford
Implementational Issues And Computational Performance Solving Applied General Equilibrium Models With Slcp, Thomas Rutherford
Cowles Foundation Discussion Papers
This paper reports on an implementation of Mathiesen’s sequential method for solving applied general equilibrium models. In this approach, the underlying nonlinear complementarity problem is solved by successive linearization. The paper discusses model formulation, implementation and performance. Several test problems and empirical models are used to evaluate efficiency and robustness.
Equilibria In Exchange Economies With A Countable Number Of Agents, Charalambos D. Aliprantis, Donald J. Brown, Owen Burkinshaw
Equilibria In Exchange Economies With A Countable Number Of Agents, Charalambos D. Aliprantis, Donald J. Brown, Owen Burkinshaw
Cowles Foundation Discussion Papers
The existence of equilibria is established in an overlapping generations exchange economy, where each generation lives for two periods and the commodity space is the positive cone of an infinite dimensional Riesz space. In particular, we establish the existence of equilibria in the stochastic overlapping generations model, i.e., we establish the existence of equilibria when the commodity space in each period is L ∞ equipped with the Mackey topology τ( L ∞ , L 1 ).
Semiparametric Estimation Of Monotonic And Concave Utility Functions: The Discrete Choice Case, Rosa L. Matzkin
Semiparametric Estimation Of Monotonic And Concave Utility Functions: The Discrete Choice Case, Rosa L. Matzkin
Cowles Foundation Discussion Papers
This paper develops a semiparametric method for estimating the nonrandom part V ( ) of a random utility function U ( v ,ω) – V ( v ) + e (ω) from data on discrete choice behavior. Here v and ω are, respectively, vectors of observable and unobservable attributes of an alternative, and e(ω) is the random part of the utility for that alternative. The method is semiparametric because it assumes that the distribution of the random parts is know up to a finite-dimensional parameter θ, while not requiring specification of a parametric form for V ( ). The nonstochastic …
The Effect Of Economic Events On Votes For President: 1984 Update, Ray C. Fair
The Effect Of Economic Events On Votes For President: 1984 Update, Ray C. Fair
Cowles Foundation Discussion Papers
In previous work I have developed an equation explaining votes for president in the United States that seems to have a remarkable predictive ability. The purpose of this paper is to update this equation through the 1984 election and then use it to predict the 1988 election.
Inference In Econometric Models With Structural Change, Donald W.K. Andrews, Ray C. Fair
Inference In Econometric Models With Structural Change, Donald W.K. Andrews, Ray C. Fair
Cowles Foundation Discussion Papers
This paper extends the classical Chow (1960) test for structural change in linear regression models to a wide variety of nonlinear models, estimated by a variety of different procedures. Wald, Lagrange multiplier-like, and likelihood ratio-like test statistics are introduced. The results allow for heterogeneity and temporal dependence of general unifying results for estimation and testing in nonlinear parametric econometric models.
Econometric Modeling As Information Aggregation, Ray C. Fair, Robert J. Shiller
Econometric Modeling As Information Aggregation, Ray C. Fair, Robert J. Shiller
Cowles Foundation Discussion Papers
The information contained in the forecasts from two econometric models can be compared by regressing the actual change in the variable forecasted on the two forecasts of the change. We do such comparisons in this paper, where the forecasts are based only on information through the period prior to the first period of the forecast. If a model’s forecast is statistically significant in such a regression, we conclude that the model captures information not in the other model whose forecast is also included in the regression. The models studied include the Fair model, vector autoregressive (VAR) models estimated by ordinary …
Distributional Analysis Of Portfolio Choice, Philip H. Dybvig
Distributional Analysis Of Portfolio Choice, Philip H. Dybvig
Cowles Foundation Discussion Papers
We compare trading in a market with receiving some particular consumption bundle, given increasing state-independent preferences and complete markets. The analysis focuses on the distributional price of the particular bundle. The distributional price is the price of the cheapest utility-equivalent bundle sold in the market. The distributional price is determined by the distributional functions of the outside bundle and the state price density. Simple portfolio performance measures illustrate the value of the approach. Unlike CAPM-based measures, these measures are valid even when superior information is the source of superior performance.
Measuring Market Power In U.S. Industry, Matthew D. Shapiro
Measuring Market Power In U.S. Industry, Matthew D. Shapiro
Cowles Foundation Discussion Papers
Non-competitive conduct can be assessed by estimating the size of the markup or Lerner index achieves in a market. The markup implies a price elasticity of demand faced by the representative firm. For a given markup, non-competitive conduct that is insensitive tot he value of the monopoly. To implement this measure, both the firm’s and the market elasticities of demand must be estimated. Hall shows how to estimate the markup, and hence the elasticity faced by the firm, from the cyclical behavior of productivity. To estimate the market elasticity, an instrumental variables procedure exploiting a covariance restriction between productivity shocks …
Game Theory. Models Of Strategic Behavior And Nuclear Deterrence, Martin Shubik
Game Theory. Models Of Strategic Behavior And Nuclear Deterrence, Martin Shubik
Cowles Foundation Discussion Papers
This essay offers an exposition of the potential uses of game theoretic reasoning and mathematical models in the study of the prevention of nuclear war.
Inefficient Dynamic Portfolio Strategies Or How To Throw Away A Million Dollars In The Stock Market, Philip H. Dybvig
Inefficient Dynamic Portfolio Strategies Or How To Throw Away A Million Dollars In The Stock Market, Philip H. Dybvig
Cowles Foundation Discussion Papers
A number of portfolio strategies followed by practitioners are dominated because they are incompletely diversified over time. The Payoff Distribution Pricing Model is used to compute the cost of following undiversified strategies. Simple numerical examples illustrate the technique, and computer-generated examples provide realistic estimates of the cost of some typical policies using reasonable parameter values. The cost can be substantial and should not be ignored by practitioners. A section on generalizations shows how to extend the analysis to term structure models and other general models of returns.