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Articles 1561 - 1590 of 2930
Full-Text Articles in Social and Behavioral Sciences
Fully Nonparametric Estimation Of Scalar Diffusion Models, Federico M. Bandi, Peter C.B. Phillips
Fully Nonparametric Estimation Of Scalar Diffusion Models, Federico M. Bandi, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We propose a functional estimation procedure for homogeneous stochastic differential equations based on a discrete sample of observations and with minimal requirements on the data generating process. We show how to identify the drift and diffusion function in situations where one or the other function is considered a nuisance parameter. The asymptotic behavior of the estimators is examined as the observation frequency increases and as the time span lengthens (that is, we implement both infill and long span asymptotics). We prove consistency and convergence to mixtures of normal laws, where the mixing variates depend on the chronological local time of …
Egalitarianism Against The Veil Of Ignorance, John E. Roemer
Egalitarianism Against The Veil Of Ignorance, John E. Roemer
Cowles Foundation Discussion Papers
J. Rawls and R. Dworkin have each used veils of ignorance to justify equality (Rawls) or to compute what equality entails (Dworkin). J. Harsanyi has also derived a distributive ethic from a veil of ignorance argument, which, although not egalitarian, is believed by Harsanyi to be not excessively inegalitarian. Harsanyi’s analysis does not determine a unique social choice function, but rather a family of such functions. Here, by appending more information to Harsanyi’s environment, and an Axiom of Neutrality, I uniquely determine a social welfare function by extending Harsanyi’s argument. I show that this function is strongly inegalitarian, in that …
Bootstrapping Spurious Regression, Peter C.B. Phillips
Bootstrapping Spurious Regression, Peter C.B. Phillips
Cowles Foundation Discussion Papers
The bootstrap is shown to be inconsistent in spurious regression. The failure of the bootstrap is spectacular in that the bootstrap effectively turns a spurious regression into a cointegrating regression. In particular, the serial correlation coefficient of the residuals in the bootstrap regression does not converge to unity, so the bootstrap is not even first order consistent. The block bootstrap serial correlation coefficient does converge to unity and is therefore first order consistent, but has a slower rate of convergence and a different limit distribution from that of the sample data serial correlation coefficient. The analysis covers spurious regressions involving …
The Equity Premium Consensus Forecast Revisited, Ivo Welch
The Equity Premium Consensus Forecast Revisited, Ivo Welch
Cowles Foundation Discussion Papers
A seller wishes to sell an object to one of multiple bidders. The valuations of the bidders are privately known. We consider the joint design problem in which the seller can decide the accuracy by which bidders learn their valuation and to whom to sell at what price. We establish that optimal information structures in an optimal auction exhibit a number of properties: (i) information structures can be represented by monotone partitions, (ii) the cardinality of each partition is finite, (iii) the partitions are asymmetric across agents. These properties imply that the optimal selling strategy of a seller can be …
What We Owe Our Children, They Their Children, ..., John E. Roemer, Roberto Veneziani
What We Owe Our Children, They Their Children, ..., John E. Roemer, Roberto Veneziani
Cowles Foundation Discussion Papers
Egalitarian theorists, since Rawls, have in the main advocated equalizing some objective measure of individual well-being, such as primary goods, functioning, or resources, rather than subjective welfare. This discussion, however, has assumed, implicitly, a static environment. By analyzing a society that survives for many generations, we demonstrate that equality of opportunity for some objective condition is incompatible with human development over time. We argue that this incompatibility can be resolved by equalizing opportunities for welfare. Thus, ‘subjectivism’ seems necessary if we are to hope for a society which can both equalize opportunities and support the development of human capacity over …
Value And Politics, John E. Roemer
Value And Politics, John E. Roemer
Cowles Foundation Discussion Papers
A brief, historical review of the study of the interdependency between politics and economic distribution is offered. While the impact of economic interests on politics has been acknowledged for thousands of years, and the impact of politics on distribution for hundreds, it is only in the last thirty years that formal models of the interdependency between economic distribution and politics have been formulated. A general model of political-economic equilibrium is proposed, in which political competition and economic distribution jointly determine each other. Several examples are given. The author proposes that political economy, conceived of as studying this process of joint …
Nonlinear Instrumental Variable Estimation Of Autoregression, Peter C.B. Phillips, Joon Y. Park, Yoosoon Chang
Nonlinear Instrumental Variable Estimation Of Autoregression, Peter C.B. Phillips, Joon Y. Park, Yoosoon Chang
Cowles Foundation Discussion Papers
Instrumental variable (IV) estimation methods that allow for certain nonlinear functions of the data as instruments are studied. The context of the discussion is the simple unit root model where certain advantages to the use of nonlinear instruments are revealed. In particular, certain classes of IV estimators and associated t -tests are shown to have simpler (standard) limit theory in contrast to the least squares estimator, providing an opportunity for the study of optimal estimation in certain IV classes and furnishing tests and confidence intervals that allow for unit root and stationary alternatives. The Cauchy estimator studied in recent work …
The Progress Of Computing, William D. Nordhaus
The Progress Of Computing, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study analyzes computer performance over the last century and a half. Three results stand out. First, there has been a phenomenal increase in computer power over the twentieth century. Performance in constant dollars or in terms of labor units has improved since 1900 by a factor in the order of 1 trillion to 5 trillion, which represent compound growth rates of over 30 percent per year for a century. Second, there were relatively small improvements in efficiency (perhaps a factor of ten) in the century before World War II. Around World War II, however, there was a substantial …
Liquidity, Default And Crashes: Endogenous Contracts In General Equilibrium, John Geanakoplos
Liquidity, Default And Crashes: Endogenous Contracts In General Equilibrium, John Geanakoplos
Cowles Foundation Discussion Papers
The possibility of default limits available liquidity. If the potential default draws nearer, a liquidity crisis may ensue, causing a crash in asset prices, even if the probability of default barely changes, and even if no defaults subsequently materialize. Introducing default and limited collateral into general equilibrium theory (GE) allows for a theory of endogenous contracts, including endogenous margin requirements on loans. This in turn allows GE to explain liquidity and liquidity crises in equilibrium. A formal definition of liquidity is presented. When new information raises the probability and shortens the horizon over which a fixed income asset may default, …
Liquidity, Default And Crashes: Endogenous Contracts In General Equilibrium, John Geanakoplos
Liquidity, Default And Crashes: Endogenous Contracts In General Equilibrium, John Geanakoplos
Cowles Foundation Discussion Papers
Introducing default and limited collateral into general equilibrium theory (GE) allows for a theory of endogenous contracts, including endogenous margin requirements on loans. This in turn allows GE to explain liquidity and liquidity crises in equilibrium. A formal definition of liquidity is presented. When new information raises the probability a fixed income asset may default, its drop in price may be much greater than its objective drop in value because the drop in value reduces the relative wealth of its natural buyers, who disproportiantely own the asset through leveraged purchases. When the information also shortens the horizon over which the …
A Practical Competitive Market Model For Indivisible Commodities, Zaifu Yang
A Practical Competitive Market Model For Indivisible Commodities, Zaifu Yang
Cowles Foundation Discussion Papers
A general and practical competitive market model for trading indivisible goods is introduced. There are a group of buyers and a group of sellers, and several indivisible goods. Each buyer is initially endowed with a sufficient amount of money and each seller is endowed with several units of each indivisible good. Each buyer has reservation values over bundles of indivisible goods above which he will not buy and each seller has reservation values over bundles of his own indivisible goods below which he will not sell. Buyers and sellers’ preferences depend on the bundle of indivisible goods and the quantity …
Perfectly Fair Allocations With Indivisibilities, Ning Sun, Zaifu Yang
Perfectly Fair Allocations With Indivisibilities, Ning Sun, Zaifu Yang
Cowles Foundation Discussion Papers
One set of n objects of type I, another set of n objects of type II, and an amount M of money is to be completely allocated among n agents in such a way that each agent gets one object of each type with some amount of money. We propose a new solution concept to this problem called a perfectly fair allocation. It is a refinement of the concept of fair allocation. An appealing and interesting property of this concept is that every perfectly fair allocation is Pareto optimal. It is also shown that a perfectly fair allocation is envy …
Accessible Pareto-Improvements: Using Market Information To Reform Inefficiencies, Michael Mandler
Accessible Pareto-Improvements: Using Market Information To Reform Inefficiencies, Michael Mandler
Cowles Foundation Discussion Papers
We study Pareto improvements whose implementation requires knowledge of only market prices and traded quantities, not utility and demand functions. Quantity stabilization gives agents the right to repeat the net trades they previously conducted, but requires policymakers to have records of those trades. While reasonable in some partial equilibrium contexts, such an assumption is implausible in general equilibrium. To diminish informational requirements further, we also consider price stabilization, which holds constant the relative prices that consumers face. Although price stabilizations do not achieve first-best efficiency, they lead to Pareto-improvements and production efficiency. Moreover, the production efficiency advantage persists under price …
Insurance Contracts Designed By Competitive Pooling, Pradeep Dubey, John Geanakoplos
Insurance Contracts Designed By Competitive Pooling, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a model of competitive pooling and show how insurance contracts emerge in equilibrium, designed by the invisible hand of perfect competition. When pools are exclusive, we obtain a unique separating equilibrium. When pools are not exclusive but seniority is recognized, we obtain a different unique equilibrium: the pivotal primary-secondary equilibrium. Here reliable and unreliable households take out a common primary insurance up to its maximum limit, and then unreliable households take out further secondary insurance.
Liquidity, Default And Crashes: Endogenous Contracts In General Equilibrium, John Geanakoplos
Liquidity, Default And Crashes: Endogenous Contracts In General Equilibrium, John Geanakoplos
Cowles Foundation Discussion Papers
Introducing default and limited collateral into general equilibrium theory (GE) allows for a theory of endogenous contracts, including endogenous margin requirements on loans. This in turn allows GE to explain liquidity and liquidity crises in equilibrium. A formal definition of liquidity is presented. When new information raises the probability a fixed income asset may default, its drop in price may be much greater than its objective drop in value because the drop in value reduces the relative wealth of its natural buyers, who disproportiantely own the asset through leveraged purchases. When the information also shortens the horizon over which the …
If You're So Smart, Why Aren't You Rich?Belief Selection In Complete And Incomplete Markets, Larry Blume, David Easley
If You're So Smart, Why Aren't You Rich?Belief Selection In Complete And Incomplete Markets, Larry Blume, David Easley
Cowles Foundation Discussion Papers
This paper provides an analysis of the asymptotic properties of consumption allocations in a stochastic general equilibrium model with heterogeneous consumers. In particular we investigate the market selection hypothesis, that markets favor traders with more accurate beliefs. We show that in any Pareto optimal allocation whether each consumer vanishes or survives is determined entirely by discount factors and beliefs. Since equilibrium allocations in economies with complete markets are Pareto optimal, our results characterize the limit behavior of these economies. We show that, all else equal, the market selects for consumers who use Bayesian learning with the truth in the support …
Compromises Between Cardinality And Ordinality In Preference Theory And Social Choice, Michael Mandler
Compromises Between Cardinality And Ordinality In Preference Theory And Social Choice, Michael Mandler
Cowles Foundation Discussion Papers
By taking sets of utility functions as a primitive description of agents, we define an ordering over assumptions on utility functions that gauges their implicit measurement requirements. Cardinal and ordinal assumptions constitute two types of measurement requirements, but several standard assumptions in economics lie between these extremes. We first apply the ordering to different theories for why consumer preferences should be convex and show that diminishing marginal utility, which for complete preferences implies convexity, is an example of a compromise between cardinality and ordinality. In contrast, the Arrow-Koopmans theory of convexity, although proposed as an ordinal theory, relies on utility …
Exchange Rates And Casualties During The First World War, George J. Hall
Exchange Rates And Casualties During The First World War, George J. Hall
Cowles Foundation Discussion Papers
I estimate a single factor model of Swiss exchange rates during World War I for five of the primary belligerents: Britain, France, Italy, Germany, and Austria-Hungary. At the outbreak of the war these nations suspended convertibility of their currencies into gold with the promise that after the war each would restore convertibility at the old par. However, once convertibility was suspended, each currency became a state-contingent claim; after the war it would pay off at (or near) the old par if the country won or pay off significantly less than par (perhaps nothing) if the country lost. The single factor …
Second Order Expansions For The Distribution Of The Maximum Likelihood Estimator Of The Fractional Difference Parameter, Offer Lieberman, Peter C.B. Phillips
Second Order Expansions For The Distribution Of The Maximum Likelihood Estimator Of The Fractional Difference Parameter, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
The maximum likelihood estimator (MLE) of the fractional difference parameter in the Gaussian ARFIMA(0, d ,0) model is well known to be asymptotically N (0, 6/ π 2 ). This paper develops a second order asymptotic expansion to the distribution of this statistic. The correction term for the density is shown to be independent of d , so that the MLE is second order pivotal for d . This feature of the MLE is unusual, at least in time series contexts. Simulations show that the normal approximation is poor and that the expansions make significant improvements in accuracy.
Nonparametric Estimation Of A Multifactor Heath-Jarrow-Morton Model: An Integrated Approach, Andrew Jeffrey, Oliver B. Linton, Thong Nguyen, Peter C.B. Phillips
Nonparametric Estimation Of A Multifactor Heath-Jarrow-Morton Model: An Integrated Approach, Andrew Jeffrey, Oliver B. Linton, Thong Nguyen, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We develop a nonparametric estimator for the volatility structure of the zero coupon yield curve in the Heath, Jarrow-Morton framework. The estimator incorporates cross-sectional restrictions along the maturity dimension, and also allows for measurement errors, which arise from the estimation of the yield curve from noisy data. The estimates are implemented with daily CRSP bond data.
International Finance In General Equilibrium, John Geanakoplos, Dimitrios P. Tsomocos
International Finance In General Equilibrium, John Geanakoplos, Dimitrios P. Tsomocos
Cowles Foundation Discussion Papers
Our purpose in this paper is to unify international trade and finance in a single general equilibrium model. Our model is rich enough to include multiple commodities (including traded and nontraded goods), heterogeneous consumers in each country, multiple time periods, multiple credit markets, and multiple currencies. Yet our model is simple enough to be effectively computable. We explicitly calculate the financial and real effects of changes in tariffs, productivity, and preferences, as well as the effects of monetary and fiscal policy. We maintain agent optimization, rational expectations, and market clearing (i.e., perfect competition with flexible prices) throughout. But because of …
Regression With Slowly Varying Regressors, Peter C.B. Phillips
Regression With Slowly Varying Regressors, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Slowly varying regressors are asymptotically collinear in linear regression. Usual regression formulae for asymptotic standard errors remain valid but rates of convergence are affected and the limit distribution of the regression coefficients is shown to be one dimensional. Some asymptotic representations of partial sums of slowly varying functions and central limit theorems with slowly varying weights are given that assist in the development of a regression theory. Multivariate regression and polynomial regression with slowly varying functions are considered and shown to be equivalent, up to standardization, to regression on a polynomial in a logarithmic trend. The theory involves second, third …
The Cnbc Effect: Welfare Effects Of Public Information, Stephen Morris, Hyun Song Shin
The Cnbc Effect: Welfare Effects Of Public Information, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
What are the welfare effects of enhanced dissemination of public information through the media and disclosures by market participants with high public visibility? For instance, is it always desirable to have frequent and timely publications of economic statistics by government agencies and the central bank? We examine the impact of public information in a setting where agents take actions appropriate to the underlying fundamentals, but they also have a coordination motive arising from a strategic complementarity in their actions. When the agents have no private information, greater provision of public information always increases welfare. However, when agents also have access …
Gaussian Estimation Of Continuous Time Models Of The Short Term Interest Rate, Jun Yu, Peter C.B. Phillips
Gaussian Estimation Of Continuous Time Models Of The Short Term Interest Rate, Jun Yu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper proposes a Gaussian estimator for nonlinear continuous time models of the short term interest rate. The approach is based on a stopping time argument that produces a normalizing transformation facilitating the use of a Gaussian likelihood. A Monte Carlo study shows that the finite sample performance of the proposed procedure offers an improvement over the discrete approximation method proposed by Nowman (1997). An empirical application to U.S. and British interest rates is given.
Social Security Investment In Equities I: Linear Case, Peter A. Diamond, John Geanakoplos
Social Security Investment In Equities I: Linear Case, 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 private accounts. The analysis depends critically on heterogeneities in saving, production, assets, and taxes. Limited diversification weakly increases interest rates, reduces the expected return on short-term investment (and the equity premium), decreases safe investment, increases risky investment and increases a suitably weighted social welfare function. However, the effects on aggregate investment, long-term capital values, and the utility of young savers hinges on assumptions about technology. Aggregate investment and long-term asset values can move in opposite directions.
Social Security Investment In Equities, Peter A. Diamond, John Geanakoplos
Social Security Investment In Equities, 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 private accounts. The analysis depends critically on heterogeneities in saving, production, assets, and taxes. Limited diversification weakly increases interest rates, reduces the expected return on short-term investment (and the equity premium), decreases safe investment, increases risky investment and increases a suitably weighted social welfare function. However, the effects on aggregate investment, long-term capital values, and the utility of young savers hinges on assumptions about technology. Aggregate investment and long-term asset values can move in opposite directions.
An Economic Approach To The Psychology Of Change: Amnesia, Inertia, And Impulsiveness, David Hirshleifer, Ivo Welch
An Economic Approach To The Psychology Of Change: Amnesia, Inertia, And Impulsiveness, David Hirshleifer, Ivo Welch
Cowles Foundation Discussion Papers
This paper models how imperfect memory affects the optimal continuity of policies. We examine the choices of a player (individual or firm) who observes previous actions but cannot remember the rationale for these actions. In a stable environment, the player optimally responds to memory loss with excess inertia, defined as a higher probability of following old policies than would occur under full recall. In a volatile environment, the player can exhibit excess impulsiveness (i.e., be more prone to follow new information signals). The model provides a memory-loss explanation for some documented psychological biases, implies that inertia and organizational routines should …
On The Evolution Of Overconfidence And Entrepreneurs, Antonio E. Bernardo, Ivo Welch
On The Evolution Of Overconfidence And Entrepreneurs, Antonio E. Bernardo, Ivo Welch
Cowles Foundation Discussion Papers
This paper explains why seemingly irrational overconfident behavior can persist. Information aggregation is poor in groups in which most individuals herd. By ignoring the herd, the actions of overconfident individuals (“entrepreneurs”) convey their private information. However, entrepreneurs make mistakes and thus die more frequently. The socially optimal proportion of entrepreneurs trades off the positive information externality against high attrition rates of entrepreneurs, and depends on the size of the group, on the degree of overconfidence, and on the accuracy of individuals’ private information. The stationary distribution trades off the fitness of the group against the fitness of overconfident individuals.
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 …
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection, and signalling phenomena (including the Akerlof lemons model and Rothschild-Stiglitz insurance model) and some moral hazard problems in a general equilibrium framework. Despite earlier claims about the nonexistence of equilibrium with adverse selection, we show that equilibrium always exists. We show that more lenient punishment which encourages default may be Pareto improving because it …