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Articles 1 - 30 of 43
Full-Text Articles in Economics
Productivity Growth And The New Economy, William D. Nordhaus
Productivity Growth And The New Economy, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study is the third in a series of three papers devoted to issues in the measurement of productivity and productivity growth. The major findings are as follows. First, this study shows that the new data set used here, which develops data on total output, business sector output, and “well-measured” output, and relying on income-side data, provides a useful supplement to existing data sets. Second, there has clearly been a rebound in labor-productivity growth in recent years. All three sectoral definitions show a major acceleration in labor productivity in the last three years of the period (1996-98) relative to …
New Data And Output Concepts For Understanding Productivity Trends, William D. Nordhaus
New Data And Output Concepts For Understanding Productivity Trends, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study is the second is a series of three papers devoted to issues in the measurement of productivity and productivity growth. The contributions of the present paper are three. First, it introduces a new approach to measuring industrial productivity based on income-side data that are published by the Bureau of Economic Analysis (BEA). The data are internally consistent in that both inputs and outputs are income-side measures of value added, whereas the usual productivity measures combine expenditure-side output measures with income-side input measures. Second, because of interest in the “new economy,” we have also constructed a set of …
Alternative Methods For Measuring Productivity Growth, William D. Nordhaus
Alternative Methods For Measuring Productivity Growth, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study is a contribution to the theory of the measurement of productivity growth. First, it examines the welfare-theoretic basis for measuring productivity growth and shows that the ideal welfare-theoretic measure is a chain index of productivity growth rates of different sectors which uses current output weights. Second, it lays out a technique for decomposing productivity growth which separates aggregate productivity growth into three factors — the pure productivity effect, the effect of changing shares, and the effect of different productivity levels. Finally, it shows how to apply the theoretically correct measure of productivity growth and indicates which of …
Structural Change In Tail Behavior And The Asian Financial Crisis, Carmela E. Quintos, Zhenhong Fan, Peter C.B. Phillips
Structural Change In Tail Behavior And The Asian Financial Crisis, Carmela E. Quintos, Zhenhong Fan, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill’s conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The recursive test is shown to be inconsistent in one direction, and only a one-sided test is recommended. Specifically, the test can be used when the alternative hypothesis is that the tail index decreases over time. A rolling and sequential version of the test is consistent in both directions. The methods are illustrated on recent stock …
Unilateral Deviations With Perfect Information, Pradeep Dubey, Ori Haimanko
Unilateral Deviations With Perfect Information, Pradeep Dubey, Ori Haimanko
Cowles Foundation Discussion Papers
For extensive form games with perfect information, consider a learning process in which, at any iteration, each player unilaterally deviates to a best response to his current conjectures of others’ strategies; and then updates his conjectures in accordance with the induced play of the game. We show that, for generic payoffs, the outcome of the game becomes stationary in finite time, and is consistent with Nash equilibrium. In general, if payoffs have ties or if players observe more of each others’ strategies than is revealed by plays of the game, the same result holds provided a rationality constraint is imposed …
Does Democracy Engender Equality?, John E. Roemer
Does Democracy Engender Equality?, John E. Roemer
Cowles Foundation Discussion Papers
Many suppose that democracy is an ethos which includes, inter alia, a degree of economic equality among citizens. In contrast, we conceive of democracy as ruthless political competition between groups of citizens, organized into parties. We inquire whether such competition, which we assume to be concerned with distributive matters, will engender economic equality in the long run. The society consists of an infinite sequence of generations, each comprised of adults and their children. Adults care about household consumption, and the future wages of their children, which are determined by educational policy. A given generation is characterized by the distribution of …
A Graphical Analysis Of Some Basic Results In Social Choice, Estelle Cantillon, Antonio Rangel
A Graphical Analysis Of Some Basic Results In Social Choice, Estelle Cantillon, Antonio Rangel
Cowles Foundation Discussion Papers
We use a simple graphical approach to represent Social Welfare Functions that satisfy Independence of Irrelevant Alternatives and Anonymity. This approach allows us to provide simple and illustrative proofs of May’s Theorem, of variants of classic impossibility results, and of a recent result on the robustness of Majority Rule due to Maskin (1995). In each case, geometry provides new insights on the working and interplay of the axioms, and suggests new results including a new characterization of the entire class of Majority Rule SWFs, a strengthening of May’s Theorem, and a new version of Maskin’s Theorem.
Entry And Vertical Differentiation, Dirk Bergemann, Juuso Välimäki
Entry And Vertical Differentiation, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
This paper analyzes the entry of new products into vertically differentiated markets where an entrant and an incumbent compete in quantities. The value of the new product is initially uncertain and new information is generated through purchases in the market. We derive the (unique) Markov perfect equilibrium of the infinite horizon game under the strong long run average payoff criterion. The qualitative features of the optimal entry strategy are shown to depend exclusively on the relative ranking of established and new products based on current beliefs. Superior products are launched relatively slowly and at high initial prices whereas substitutes for …
Forecasting New Zealand's Real Gdp, Aaron F. Schiff, Peter C.B. Phillips
Forecasting New Zealand's Real Gdp, Aaron F. Schiff, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Recent time series methods are applied to the problem of forecasting New Zealand’s real GDP. Model selection is conducted within autoregressive (AR) and vector autoregressive (VAR) classes, allowing for evolution in the form of the models over time. The selections are performed using the Schwarz (1978) BIC and the Phillips-Ploberger (1996) PIC criteria. The forecasts generated by the data-determined AR models and an international VAR model are found to be competitive with forecasts from fixed format models and forecasts produced by the NZIER. Two illustrations of the methodology in conditional forecasting settings are performed with the VAR models. The first …
The Effect Of Bidders’ Asymmetries On Expected Revenue In Auctions, Estelle Cantillon
The Effect Of Bidders’ Asymmetries On Expected Revenue In Auctions, Estelle Cantillon
Cowles Foundation Discussion Papers
Bidders’ asymmetries are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. In this paper, I define a natural benchmark auction environment to which to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction. These results formalize and make transparent the idea that competition is reduced by bidders’ asymmetries. The paper also contributes to a better understanding of competition and the nature …
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in …
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in …
Investment Incentives In Procurement Auctions, Leandro Arozamena, Estelle Cantillon
Investment Incentives In Procurement Auctions, Leandro Arozamena, Estelle Cantillon
Cowles Foundation Discussion Papers
We investigate firms’ incentives for cost reduction in the first price sealed bid auction, a format largely used for procurement. A central feature of the model is that we allow firms to be heterogeneous. Though private value first price auctions are not games with monotonic best responses, we find that for comparative statics purposes they behave like these games. In particular, firms will tend to underinvest in cost reduction because they anticipate fiercer head-on competition. Using the second price auction as a benchmark, we also find that the first price auction will elicit less investment from market participants. Moreover, both …
Faulty Communication, Stephen Morris
Faulty Communication, Stephen Morris
Cowles Foundation Discussion Papers
The electronic mail game of Rubinstein (1989) showed that a lack of common knowledge generated by faulty communication can make coordinated action impossible. This paper shows how this conclusion is robust to having a more realistic timing structure of messages, more than two players who meet publicly but not as a plenary group, and strategic decisions about whether to communicate.
Optimal Inventory Policies When Sales Are Discretionary, Herbert E. Scarf
Optimal Inventory Policies When Sales Are Discretionary, Herbert E. Scarf
Cowles Foundation Discussion Papers
Inventory models customarily assume that demand is fully satisfied if sufficient stock is available. We analyze the form of the optimal inventory policy if the inventory manager can choose to meet a fraction of the demand. Under classical conditions we show that the optimal policy is again of the ( S,s ) form. The analysis makes use of a novel property of K-concave functions.
Faulty Communication, Stephen Morris
Faulty Communication, Stephen Morris
Cowles Foundation Discussion Papers
The electronic mail game of Rubinstein (1989) showed that a lack of common knowledge generated by faulty communication can make coordinated action impossible. This paper shows how this conclusion is robust to having a more realistic timing structure of messages, more than two players who meet publicly but not as a plenary group, and strategic decisions about whether to communicate.
How To Compute Equilibrium Prices In 1891, William C. Brainard, Herbert E. Scarf
How To Compute Equilibrium Prices In 1891, William C. Brainard, Herbert E. Scarf
Cowles Foundation Discussion Papers
Irving Fisher’s Ph.D. thesis, submitted to Yale University in 1891, contains a fully articulated general equilibrium model presented with the broad scope and formal mathematical clarity associated with Walras and his successors. In addition, Fisher presents a remarkable hydraulic apparatus for calculating equilibrium prices and the resulting distribution of society’s endowments among the agents in the economy. In this paper we provide an analytical description of Fisher’s apparatus, and report the results of simulating the mechanical/hydraulic “machine,” illustrating the ability of the apparatus to “compute” equilibrium prices and also to find multiple equilibria.
Does One Soros Make A Difference? A Theory Of Currency Crises With Large And Small Traders, Giancarlo Corsetti, Partha Dasgupta, Stephen Morris, Hyun Song Shin
Does One Soros Make A Difference? A Theory Of Currency Crises With Large And Small Traders, Giancarlo Corsetti, Partha Dasgupta, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signalling, the presence of the large investor does make all other traders more aggressive in their selling. Relative to the case in which there is no large investors, small investors attack the currency when fundamentals are stronger. Yet, the difference can be small, or …
Gmm Estimation Of Autoregressive Roots Near Unity With Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Gmm Estimation Of Autoregressive Roots Near Unity With Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper investigates a generalized method of moments (GMM) approach to the estimation of autoregressive roots near unity with panel data. The two moment conditions studied are obtained by constructing bias corrections to the score functions under OLS and GLS detrending, respectively. It is shown that the moment condition under GLS detrending corresponds to taking the projected score on the Bhattacharya basis, linking the approach to recent work on projected score methods for models with infinite numbers of nuisance parameters (Waterman and Lindsay, 1998). Assuming that the localizing parameter makes a nonpositive value, we establish consistency of the GMM estimator …
Trending Time Series And Macroeconomic Activity: Some Present And Future Challenges, Peter C.B. Phillips
Trending Time Series And Macroeconomic Activity: Some Present And Future Challenges, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Some challenges for econometric research on trending time series are discussed in relation to some perceived needs of macroeconomics and macroeconomic policy making.
Equivalence Of The Higher-Order Asymptotic Efficiency Of K-Step And Extremum Statistics, Donald W.K. Andrews
Equivalence Of The Higher-Order Asymptotic Efficiency Of K-Step And Extremum Statistics, Donald W.K. Andrews
Cowles Foundation Discussion Papers
It is well known that a one-step scoring estimator that starts from any N 1 /2 -consistent estimator has the same first-order asymptotic efficiency as the maximum likelihood estimator. This paper extends this result to k -step estimators and test statistics for k > 1, higher-order asymptotic efficiency, and general extremum estimators and test statistics. The paper shows that a k -step estimator has the same higher-order asymptotic efficiency, to any given order, as the extremum estimator towards which it is stepping, provided (i) k is sufficiently large, (ii) some smoothness and moment conditions hold, and (iii) a condition on the …
Modified Local Whittle Estimation Of The Memory Parameter In The Nonstationary Case, Katsumi Shimotsu, Peter C.B. Phillips
Modified Local Whittle Estimation Of The Memory Parameter In The Nonstationary Case, Katsumi Shimotsu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Semiparametric estimation of the memory parameter is studied in models of fractional integration in the nonstationary case, and some new representation theory for the discrete Fourier transform of a fractional process is used to assist in the analysis. A limit theory is developed for an estimator of the memory parameter that covers a range of values of d commonly encountered in applied work with economic data. The new estimator is called the modified local Whittle estimator and employs a version of the Whittle likelihood based on frequencies adjacent to the origin and modified to take into account the form of …
Local Whittle Estimation In Nonstationary And Unit Root Cases, Katsumi Shimotsu, Peter C.B. Phillips
Local Whittle Estimation In Nonstationary And Unit Root Cases, Katsumi Shimotsu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Asymptotic properties of the local Whittle estimator in the nonstationary case (d > 1/2) are explored. For 1/2 < d < 1, the estimator is shown to be consistent, and its limit distribution and the rate of convergence depend on the value of d . For d = 1, the limit distribution is mixed normal. For d > 1 and when the process has a linear trend, the estimator is shown to be inconsistent and to converge in probability to unity.
Pooled Log Periodogram Regression, Katsumi Shimotsu, Peter C.B. Phillips
Pooled Log Periodogram Regression, Katsumi Shimotsu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Estimation of the memory parameter in time series with long range dependence is considered. A pooled log periodogram regression estimator is proposed that utilizes a set of mL periodogram ordinates with L approaching infinity rather than m ordinates used in the conventional log periodogram estimator. Consistency and asymptotic normality of the pooled regression estimator are established. The pooled estimator is shown to have smaller variance but larger bias than the conventional log periodogram estimator. Finite sample performance is assessed in simulations, and the methods are illustrated in an empirical application with inflation and stock returns.
Savings And Portfolio Choice In A Two-Period Two-Asset Model, Saku Aura, Peter A. Diamond, John Geanakoplos
Savings And Portfolio Choice In A Two-Period Two-Asset Model, Saku Aura, Peter A. Diamond, John Geanakoplos
Cowles Foundation Discussion Papers
We extend Arrow’s analysis of portfolio choice in a one-period model to savings and portfolio choice in a two-period model.
A Stochastic Overlapping Generations Economy With Inheritance, Ioannis Karatzas, Martin Shubik, William D. Sudderth
A Stochastic Overlapping Generations Economy With Inheritance, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
An overlapping generations model of an exchange economy is considered, with individuals having a finite expected life-span. Conditions concerning birth, death, inheritance and bequests are fully specified. Under such conditions, the existence of stationary Markov equilibrium is established in some generality, and several explicitly solvable examples are treated in detail.
Information And The Existence Of Stationary Markovian Equilibrium, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Information And The Existence Of Stationary Markovian Equilibrium, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
We describe conditions for the existence of a stationary Markovian equilibrium when total production or total endowment is a random variable. Apart from regularity assumptions, there are two crucial conditions: (i) low information — agents are ignorant of both total endowment and their own endowments when they make decisions in a given period, and (ii) proportional endowments — the endowment of each agent is in proportion, possibly a random proportion, to the total endowment. When these conditions hold, there is a stationary equilibrium. When they do not hold, such equilibrium need not exist.
Rethinking Multiple Equilibria In Macroeconomic Modelling, Stephen Morris, Hyun Song Shin
Rethinking Multiple Equilibria In Macroeconomic Modelling, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Are beliefs as indeterminate as auggested by models with multiple equilibria? Multiplicity of equilibria arise largely as the unintended consequence of two modelling assumptions — the fundamentals are assumed to be common knowledge, and economic agents know others’ actions in equilibrium. Both are questionable. When others’ actions are not known with certainty, such as when actions rely on noisy signals, self-fulfilling beliefs lead to a unique outcome determined by the fundamentals and the knowledges that others are rational. This paper illustrates this approach in the context of a model of bank runs and other similar applications. Such an approach places …
Social Security Investment In Equities In An Economy With Short-Term Production And Land, Peter A. Diamond, John Geanakoplos
Social Security Investment In Equities In An Economy With Short-Term Production And Land, Peter A. Diamond, John Geanakoplos
Cowles Foundation Discussion Papers
This paper explores the general equilibrium impact of social security portfolio diversification into private securities, either through the trust fund or via private accounts. The analysis depends critically on heterogeneity in saving, in production, in assets, and in taxes. Under fairly general assumptions we show that limited diversification increases a neutral social welfare function, increases interest rates, reduces the expected return on short-term equity (and thus the equity premium), decreases safe investment and increases risky investment. However, the effect on aggregate investment, long-term capital values, and the utility of young savers hinges on delicate assumptions about technology. Aggregate investment and …
A Bias-Reduced Log-Periodogram Regression Estimator For The Long-Memory Parameter, Donald W.K. Andrews, Patrik Guggenberger
A Bias-Reduced Log-Periodogram Regression Estimator For The Long-Memory Parameter, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
The widely used log-periodogram regression estimator of the long-memory parameter d proposed by Geweke and Porter-Hudak (1983) (GPH) has been criticized because of its finite-sample bias, see Agiakloglou, Newbold, and Wohar (1993). In this paper, we propose a simple bias-reduced log-periodogram regression estimator, ^d r , that eliminates the first- and higher-order biases of the GPH estimator. The bias-reduced estimator is the same as the GPH estimator except that one includes frequencies to the power 2 k for k = 1,…, r , for some positive integer r, as additional regressors in the pseudo-regression model that yields the GPH estimator. …