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Articles 31 - 45 of 45
Full-Text Articles in Social and Behavioral Sciences
The Numeraire, Money And The Missing Degree Of Freedom, Martin Shubik
The Numeraire, Money And The Missing Degree Of Freedom, Martin Shubik
Cowles Foundation Discussion Papers
The prime purpose of this article is to illustrate some basic problems in the modelling of strategic market games with a single means of exchange or with complete markets. A simple example involving three types of traders trading in three commodities serves to make the points clear.
The Balance Of Payments Adjustment Mechanism In A Rational Expectations Equilibrium, Richard H. Clarida
The Balance Of Payments Adjustment Mechanism In A Rational Expectations Equilibrium, Richard H. Clarida
Cowles Foundation Discussion Papers
This paper provides a choice theoretic, general equilibrium account of the balance of payments adjustment process and the determination of national price levels in a world comprised of countries populated by rational households. Balance of payments adjustment dynamics arise in the equilibrium of this model from the precautionary saving behavior of risk-averse households who self-insure against random productivity fluctuations by accumulating, via balance of payments surpluses in productive periods, buffer stocks of domestic money which can be drawn down to finance payments deficits, and thus a less variable profile of consumption relative to output, when productivity is unexpectedly low. Precautionary …
The Distribution Of Fiml In The Leading Case, Peter C.B. Phillips
The Distribution Of Fiml In The Leading Case, Peter C.B. Phillips
Cowles Foundation Discussion Papers
In a recent article (1984a) Phillips showed that the distribution of the limited information maximum likelihood (LIML) estimator of the coefficients of the endogenous variables in a single structural equation is multivariate Cauchy in the leading (totally unidentified) case. The purpose of the present note is to show that the same result holds for the full information maximum likelihood (FIML) estimator. Our proof relies on the theory of invariant measures on a Stiefel manifold. This approach provides a major simplification of the derivation of the LIML result given in the earlier article and extends to the FIML case without difficulty. …
Aggregation And Linearity In The Provision Of Intertemporal Incentives, Bengt Holmstrom, Paul R. Milgrom
Aggregation And Linearity In The Provision Of Intertemporal Incentives, Bengt Holmstrom, Paul R. Milgrom
Cowles Foundation Discussion Papers
One of the main findings of the principal-agent literature has been that incentive schemes should be sensitive to all information that bears on the agent’s actions. As a manifestation of this principle, incentive schemes tend to take quite complex (non-linear) forms. In contrast, real world schemes are often based on aggregate information with a rather simple structure. This paper considers the optimality of linear schemes that use only aggregated information. The hypothesis is that linear schemes are to be expected in situations where the agent has a rich set of actions to choose from, because richness in action choice allows …
Do We Reject Too Often? Small Sample Bias In Tests Of Rational Expectations, N. Gregory Mankiw, Matthew D. Shapiro
Do We Reject Too Often? Small Sample Bias In Tests Of Rational Expectations, N. Gregory Mankiw, Matthew D. Shapiro
Cowles Foundation Discussion Papers
We examine the small sample properties of tests of rational expectations models. We show using Monte Carlo experiments that these tests can be extremely biased toward rejection for sample sizes typical in applied research. These biases are important when the time series examined are highly autoregressive. We also show that these tests are even more biased with detrended data. We present correct small sample critical values for our canonical problem.
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, John Andrew
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, John Andrew
Cowles Foundation Discussion Papers
This paper focuses on the importance of strategic complementarity in agents’ payoff functions as a basis for macroeconomic coordination failures. We first analyze an abstract game and find that inefficient equilibria and a multiplier process may arise in the presence of strategic complementarities (essentially positively sloped reaction curves). We then place additional economic content on complementarities arising from production functions, matching technologies and commodity demand functions in a multi-sector economy.
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, Andrew John
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, Andrew John
Cowles Foundation Discussion Papers
This paper focuses on the importance of strategic complementarity in agents’ payoff functions as a basis for macroeconomic coordination failures. We first analyze an abstract game and find that inefficient equilibria and a multiplier process may arise in the presence of strategic complementarities (essentially positively sloped reaction curves). We then place additional economic content on complementarities arising from production functions, matching technologies and commodity demand functions in a multi-sector economy.
An Axiomatization Of Utility And Subjective Probability Based On Objective Probability, Mamoru Kaneko
An Axiomatization Of Utility And Subjective Probability Based On Objective Probability, Mamoru Kaneko
Cowles Foundation Discussion Papers
This paper provides an axiomatic model based on an extraneous random device generating objective probabilities for the derivation of expected utilities and subjective probabilities. Four basic axioms fully determine a real-valued utility function and a finitely additive subjective probability measure. The restrictions of these axioms to lotteries depending only upon events of the random device yield the von Neumann-Morgenstern axioms.
Time Series Regression With A Unit Root, Peter C.B. Phillips
Time Series Regression With A Unit Root, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies the random walk in a general time series setting that allows for weakly dependent and heterogeneously distributed innovations of the type recently considered in [39] and [40]. It is shown that simple least squares regression consistently estimates a unit root under very general conditions in spite of the presence of autocorrelated errors. The limiting distribution of the standardized estimator and the associated regression t -statistic are found using functional central limit theory. New tests of the random walk hypothesis are developed which permit a wide class of dependent and heterogeneous innovation sequences. A new limiting distribution theory …
Time Series Regression With A Unit Root, Peter C.B. Phillips
Time Series Regression With A Unit Root, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies the random walk in a general time series setting that allows for weakly dependent and heterogeneously distributed innovations. It is shown that simple least squares regression consistently estimates a unit root under very general conditions in spite of the presence of autocorrelated errors. The limiting distribution of the standardized estimator and the associated regression t-statistic are found using functional central limit theory. New tests of the random walk hypothesis are developed which permit a wide class of dependent and heterogeneous innovation sequences. A new limiting distribution theory is constructed based on the concept of continuous data recording. …
Two Stage And Related Estimators And Their Applications, Adrian Pagan
Two Stage And Related Estimators And Their Applications, Adrian Pagan
Cowles Foundation Discussion Papers
Applied econometric research frequently encounters the difficulty that estimation of the parameters of interest is complex owing to the presence of incidental parameters. It is tempting therefore to try to circumvent the difficulties by proceeding in two stages. In the first, some estimates are made of the incidental parameters. In the second, these estimates are treated as though they were population values, leading to a large reduction in the dimension of the unknown parameter space, possibly even down to that of the parameters of interest only. The properties of such a staged process (particularly as they relate to issues arising …
Asymptotic Results For Generalized Wald Tests, Donald W.K. Andrews
Asymptotic Results For Generalized Wald Tests, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This note presents (i) necessary and sufficient conditions for the consistency of estimators of Moore-Penrose inverted matrices, and (ii) sufficient conditions for convergence to a chi-square distribution of quadratic forms based on g-inverted weighting matrices. The latter results are needed to establish asymptotic significance levels and local power properties of generalized Wald tests (i.e., Wald tests with singular covariance matrices). Included in this class of tests are Hausman specification tests and various goodness of fit tests, among others. The results are relevant to procedures currently in the literature, since they illustrate that some results stated in the literature hold only …
An Unbiased Reexamination Of Stock Market Volatility, N. Gregory Mankiw, David Romer, Matthew D. Shapiro
An Unbiased Reexamination Of Stock Market Volatility, N. Gregory Mankiw, David Romer, Matthew D. Shapiro
Cowles Foundation Discussion Papers
No abstract provided.
Capital Utilization And Capital Accumulation: Theory And Evidence, Matthew D. Shapiro
Capital Utilization And Capital Accumulation: Theory And Evidence, Matthew D. Shapiro
Cowles Foundation Discussion Papers
A firm may acquire additional capital input by purchasing new capital or by increasing the utilization of its current capital. The margin between capita accumulation and capital utilization is studied in a model of dynamic factor demand where the firm chooses capital, labor, and their rates of utilization. A direct measure of capital utilization — the work week of capital — is incorporated into the theory and estimates. The methodology advocated by Hansen and Singleton (1982) is used to obtain estimates of the model’s parameters. This methodology allows the firm’s decision problem to depend on expected values of future endogenous …
Risk And Return: Consumption Beta Versus Market Beta, N. Gregory Mankiw, Matthew D. Shapiro
Risk And Return: Consumption Beta Versus Market Beta, N. Gregory Mankiw, Matthew D. Shapiro
Cowles Foundation Discussion Papers
Much recent work emphasizes the joint nature of the consumption decision and the portfolio allocation decision. In this paper, we compare two formulations of the Capital Asset Pricing Model. The traditional CAPM suggests that the appropriate measure of an asset’s risk is the covariance of the asset’s return with the market return. The consumption CAPM, on the other hand, implies that a better measure of risk is the covariance with aggregate consumption growth. We examine a cross-section of 464 stocks and find that the beta measured with respect to a stock market index outperforms the beta measured with respect to …