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Articles 1891 - 1920 of 2930
Full-Text Articles in Social and Behavioral Sciences
Posterior Odds Testing For A Unit Root With Data-Based Model Selection, Peter C.B. Phillips, Werner Ploberger
Posterior Odds Testing For A Unit Root With Data-Based Model Selection, Peter C.B. Phillips, Werner Ploberger
Cowles Foundation Discussion Papers
The Kalman filter is sued to derive updating equations for the Bayesian data density in discrete time linear regression models with stochastic regressors. The implied “Bayes model” has time varying parameters and conditionally heterogeneous error variances. A sigma-finite “Bayes model” measure is given and used to produce a new model selection criterion (PIC) and objective posterior odds tests for sharp null hypotheses like the presence of a unit root. Simulation results and an empirical application are reported. The simulations show that the new model selection criterion “PIC” works very well and is generally superior to the Schwarz criterion BIC even …
Optimal Changepoint Tests For Normal Linear Regression, Donald W.K. Andrews, Inpyo Lee, Werner Ploberger
Optimal Changepoint Tests For Normal Linear Regression, Donald W.K. Andrews, Inpyo Lee, Werner Ploberger
Cowles Foundation Discussion Papers
This paper determines a class of finite sample optimal tests for the existence of a changepoint at an unknown time in a normal linear multiple regression model with known variance. Optimal tests for multiple changepoints are also derived. Power comparisons of several tests are provided based on simulations.
Optimal Tests When A Nuisance Parameter Is Present Only Under The Alternative, Donald W.K. Andrews, Werner Ploberger
Optimal Tests When A Nuisance Parameter Is Present Only Under The Alternative, Donald W.K. Andrews, Werner Ploberger
Cowles Foundation Discussion Papers
This paper derives asymptotically optimal tests for testing problems in which a nuisance parameter exists under the alternative hypothesis but not under the null. The results of the paper are of interest, because the testing problem considered in non-standard and the classical asymptotic optimality results for the Wald, Lagrange multiplier (LM), and likelihood ratio (LR) tests do not apply. In the non-standard cases of main interest, new optimal tests are obtained and the LR test is not found to be an optimal test.
Money, James Tobin
Money, James Tobin
Cowles Foundation Discussion Papers
Among the conventions of almost every human society of historical record has been the use of money, i.e., particular commodities or tokens as measures of value and media of exchange in economic transactions. Somehow the members of a society agree on what will be acceptable tender in making payments and settling debts among themselves. General agreement to the convention, not the particular media agreed upon, is the source of money’s immense value to the society. In this respect money is similar to language, standard time, or the convention designating the side of the road for passing. This paper reviews the …
Interpreting The Macroeconomic Time Series Facts: The Effects Of Moentary Policy, Christopher A. Sims
Interpreting The Macroeconomic Time Series Facts: The Effects Of Moentary Policy, Christopher A. Sims
Cowles Foundation Discussion Papers
Existing theory and evidence on the effects of monetary policy are reviewed. Substantial room for disagreement among economists remains. New evidence, based on multivariate time series studies of several countries, is presented. While certain patterns in the data consistent with effective monetary policy are strikingly similar across countries, others, particularly the tendency of interest rate increases to predict high inflation, are harder to reconcile with effective monetary policy.
Expanding The Scope Of Expectations Data Collection: The U.S. And Japanese Stock Markets, Robert J. Shiller, Fumiko Kon-Ya, Yoshiro Tsutsui
Expanding The Scope Of Expectations Data Collection: The U.S. And Japanese Stock Markets, Robert J. Shiller, Fumiko Kon-Ya, Yoshiro Tsutsui
Cowles Foundation Discussion Papers
A pilot effort was undertaken to experiment with a method of collecting parallel time series data for expectations and popular models and theories of institutional stock market participants in the United States and Japan 1989-91, covering the period before and after the dramatic and sudden halving of Japanese stock prices. Substantial variability within countries through time in the responses and dramatic differences across countries in expectations (even expectations for the same country) were found. There are significant research opportunities in expanded data collection along these lines.
The ‘Dice’ Model: Background And Structure Of A Dynamic Integrated Climate-Economy Model Of The Economics Of Global Warming, William D. Nordhaus
The ‘Dice’ Model: Background And Structure Of A Dynamic Integrated Climate-Economy Model Of The Economics Of Global Warming, William D. Nordhaus
Cowles Foundation Discussion Papers
This study is designed to present the methodological and technical assumptions and the results behind the Dynamic Integrated model of Climate and the Economy (the DICE model). It is a model that attempts to use the tools of modern economics to determine an efficient strategy for coping with the threat of global warming. The fundamental premise behind this study is that societies should undertake environmental policies only when their benefits, broadly construed, exceed their costs and that the level of environmental control should be at that point where the incremental benefits of additional controls no longer exceed the incremental costs. …
The Cowles Commission Approach, Real Business Cycle Theories, And New Keynesian Economics, Ray C. Fair
The Cowles Commission Approach, Real Business Cycle Theories, And New Keynesian Economics, Ray C. Fair
Cowles Foundation Discussion Papers
The Cowles Commission approach is reviewed and compared to the approaches of real business cycle (RBC) theorists and new Keynesian economists. It is argued that RBC models are not tested in a serious enough way and that the new Keynesian literature is not empirical enough for testing even to be a serious possibility. Macroeconomics seems to be moving away from its traditional empirical basis, which is sad. This paper argues for returning to the path that was abandoned by most macroeconomists around 1970, namely the specification and testing of structural macroeconometric models.
Estimates Of The Bias Of Lagged Dependent Variable Coefficient Estimates In Macroeconomic Equations, Ray C. Fair
Estimates Of The Bias Of Lagged Dependent Variable Coefficient Estimates In Macroeconomic Equations, Ray C. Fair
Cowles Foundation Discussion Papers
A stochastic-simulation method is proposed in this paper for obtaining median unbiased estimates of lagged dependent variable coefficients in macroeconomic models. Estimated biases for 13 equations of a macroeconomic model are computed. These biases are on average somewhat smaller in absolute bias than would be expected from Andrews’ exact results for an equation with only a constant term, time trend, and lagged dependent variable, although they are larger than would be expected from Hurwicz’s original estimates. In a practical sense the estimated biases are not very large because they have little effect on the overall predictive accuracy of the model …
The Impact Climate On Agriculture: A Ricardian Approach, Robert Mendelsohn, William D. Nordhaus, Daigee Shaw
The Impact Climate On Agriculture: A Ricardian Approach, Robert Mendelsohn, William D. Nordhaus, Daigee Shaw
Cowles Foundation Discussion Papers
Because of the potential for global warming, there are widespread concerns about the impact of changing climate upon the productivity of land in farming and other sectors. This paper develops a new approach for measuring the economic impact of environmental factors such as climate on production by examining the direct impact of the environmental factor on land productivity as measured by land prices. This new method is applied to examine the effect of climate on agriculture using cross-sectional farm data for almost 3000 counties in the United States. It finds substantial impacts of climatic variation on both land values and …
Simulation Estimation Methods For Limited Dependent Variable Models, Vassilis A. Hajivassiliou
Simulation Estimation Methods For Limited Dependent Variable Models, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
This chapter discusses simulation estimation methods that overcome the computational intractability of classical estimation of limited dependent variable models with flexible correlation structures in the unobservable stochastic terms. These difficulties arise because of the need to evaluate accurately very high dimensional integrals. The methods based on simulation do not require the exact evaluation of these integrals and hence are feasible using computers of even moderate power. I first discuss a series of ideas that had been used in efforts to circumvent these computational problems by employing standard numerical analysis approximation methods. I then show how simulation techniques solve the computational …
Empirical Implications Of Arbitrage-Free Asset Markets, S. Maheswaran, Christopher A. Sims
Empirical Implications Of Arbitrage-Free Asset Markets, S. Maheswaran, Christopher A. Sims
Cowles Foundation Discussion Papers
The martingale-equivalence condition delivered by a non-arbitrage assumption in complete asset markets has implications for fine-time-unit asset price behavior that can be rejected with finite spans of data. A class of stochastic processes that could model such deviations from martingale-equivalence is proposed.
Index-Based Futures And Options Markets In Real Estate, Karl E. Case, Robert J. Shiller, Allan N. Weiss
Index-Based Futures And Options Markets In Real Estate, Karl E. Case, Robert J. Shiller, Allan N. Weiss
Cowles Foundation Discussion Papers
Most institutional and individual portfolios are very undiversified in real estate: many hold no real estate at all, many have holdings highly concentrated in certain regions or types of real estate. The risk of these concentrated holdings is not hedged. We propose here that cash-settled futures and options markets be opened on real estate to better allow diversification and hedging, and show that these markets solve problems that have hampered other real estate hedging media in the past. Related institutions, such as home equity insurance, might develop around the futures and options markets. The establishment of these markets is likely …
Transactions Loans, Intertemporal Loans, Variable Velocity, The Rates Of Interest And Commodity Money: Part 1. Transactions Loans, Martin Shubik, Shuntian Yao
Transactions Loans, Intertemporal Loans, Variable Velocity, The Rates Of Interest And Commodity Money: Part 1. Transactions Loans, Martin Shubik, Shuntian Yao
Cowles Foundation Discussion Papers
Several models of exchange are presented here to illustrate various conceptual problems in the microeconomic model of the velocity of money and the meaning of and cost of liquidity in an exchange economy without exogenous uncertainty.
Commentary On Irving Fisher, James Tobin
Commentary On Irving Fisher, James Tobin
Cowles Foundation Discussion Papers
Schumpeter regarded “The Nature of Capital and Income” as one of the three of Fisher’s contributions to general theory generally recognized, at the time Schumpeter was writing, as “of first-class importance and originality.” The other two were Fisher’s “Mathematical Investigations” (1982) and his statistical method for measuring the marginal utility of income (1972). Nature is the bridge, both in sequence and in logic, between the other two great works, the timeless general equilibrium theory of the 1892 dissertation and the extension of that theory to intertemporal choices in production and consumption in the theory of interest.
International Currency Regimes, Capital Mobility, And Macroeconomic Policy, James Tobin
International Currency Regimes, Capital Mobility, And Macroeconomic Policy, James Tobin
Cowles Foundation Discussion Papers
The structure of the international monetary system is once again a topic of great interest and controversy — among economists, business managers, financiers, and government leaders. Many members of all these groups are acutely dissatisfied with the floating exchange rate regime that succeeded the Bretton Woods system two decades ago. Within the European Community, the Exchange Rate Mechanism has re-established a regime of “adjustable pets.” After 1992 financial markets and institutions will cover the entire Community. The further step of issuing a common European currency is under serious consideration, and beyond that the more drastic step of replacing national currencies …
The Tail Behavior Of Maximum Likelihood Estimates Of Cointegrating Coefficients In Error Correction Models, Peter C.B. Phillips
The Tail Behavior Of Maximum Likelihood Estimates Of Cointegrating Coefficients In Error Correction Models, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper derives exact finite sample distributions of maximum likelihood estimators of the cointegrating coefficients in error correction models. The distributions are derived for the leading case where the variables in the system are independent random walks. But important aspects of the theory, in particular the tail behavior of the distributions, continue to apply when the system is cointegrated. The reduced rank regression estimator is shown to have a distribution with Cauchy-like tails and no finite moments of integer order. The maximum likelihood estimator of the coefficients in the triangular system representation has matrix t -distribution tails with finite integer …
Vector Autoregression And Causality: A Theoretical Overview And Simulation Study, Hiro Y. Toda, Peter C.B. Phillips
Vector Autoregression And Causality: A Theoretical Overview And Simulation Study, Hiro Y. Toda, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper provides a theoretical overview of Wald tests for Granger causality in levels vector autoregressions (VAR’s) and Johansen-type error correction models (ECM’s). for VAR models the results for inference are not encouraging. The limit theory typically involves nonstandard distributions and nuisance parameters, and there is no sound statistical basis for testing causality in such a framework. Granger causality tests in ECM’s also suffer from nuisance parameter dependencies asymptotically and nonstandard limit theory. But, in spite of these difficulties Johansen-type ECM’s do offer a sound basis for empirical testing of the rank of the cointegration space and the rank of …
Unidentified Components In Reduced Rank Regression Estimation Of Ecm's, Peter C.B. Phillips
Unidentified Components In Reduced Rank Regression Estimation Of Ecm's, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Reduced rank regression procedures in error correction models (ECM’s) permit consistent estimation of the cointegration space but do not provide consistent estimates of individual structural relations when the dimension of the cointegration space is greater than one. Indeed, individual structural cointegrating equations are unidentified without additional a priori restrictions, just as in the conventional simultaneous equations framework. The effect of this lack of identification is explored by considering the distributions and limit distributions of reduced rank regression estimates of unidentified components of the cointegrating matrix in a typical VAR formulation of the ECM. Some recommendations are made for empirical practice.
On The Internationalization Of Portfolios, William C. Brainard, James Tobin
On The Internationalization Of Portfolios, William C. Brainard, James Tobin
Cowles Foundation Discussion Papers
Portfolio theory has been an important component of open economy macroeconomic models. In those models, it is essential to distinguish among several categories of assets, both foreign and domestic, and to specify the demands and supplies. This framework has become increasingly relevant. Movements of capital across regional and national boundaries, and across currencies, have exploded in volume, thanks to the dismantling of currency and exchange controls and other financial regulations and to revolutionary economies in technologies of communication and transactions. The globalization of financial markets was stimulated by the floating exchange rate regime established in 1973.
English Translation, Yale University Press, James Tobin
English Translation, Yale University Press, James Tobin
Cowles Foundation Discussion Papers
Eduard Marz’s book was first published in German in 1983. I have read only his English translation, which he had completed with preliminary revisions, though not alas with final polishing, before his death in 1987. The book illuminates for us who knew him in America the intellectual and personal background of this fascinating immigrant. And not just for us, of course. World events and intellectual developments over the past two decades have heightened interest in Schumpeter not only among economists, but also among our social scientists and political philosophers. Indeed many people of all ages and all walks of life …
Classification Of Two-Person Ordinal Bimatrix Games, Imre Bárány, Jon Lee, Martin Shubik
Classification Of Two-Person Ordinal Bimatrix Games, Imre Bárány, Jon Lee, Martin Shubik
Cowles Foundation Discussion Papers
The set of possible outcomes of a strongly ordinal bimatrix game is studied by imbedding each pair of possible payoffs as a point on the standard two-dimensional integral lattice. In particular, we count the number of different Pareto optimal sets of each cardinality; we establish asymptotic bounds for the number of different convex hulls of the point sets, for the average shape of the set of points dominated by the Pareto optimal set, and for the average shape of the convex hull of the point set. We also indicate the effect of individual rationality considerations on our results. As most …
A Reexamination Of The Consumption Function Using Frequency Domain Regressors, Dean Corbae, Sam Ouliaris, Peter C.B. Phillips
A Reexamination Of The Consumption Function Using Frequency Domain Regressors, Dean Corbae, Sam Ouliaris, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper reexamines the permanent income hypothesis (PIH) in the frequency domain. Using a simple model, we demonstrate that the PIH implies the marginal propensity to consume (MPC) out of zero frequency income is unity. The PIH also implies that the MPC out of transitory (or high frequency) income is smaller than the long-run MPC. The paper employs a systems spectral regression procedure to test the PIH that accommodates stochastic trends in the consumption and income series as well as the joint dependence in these series. Monte Carlo simulations suggest that single equation techniques can produce inefficient tests of the …
Unit Roots, Peter C.B. Phillips
Unit Roots, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Nonstationarity is certainly one of the most dominant and enduring characteristics of macroeconomic and financial time series. It therefore seems appropriate that this feature of the data be seriously addressed both in econometric methodology and in empirical practice. However, until recently this has not been the case. Before 1980, it was standard empirical practice in econometrics to treat observed trends as simple deterministic functions of time. Nelson-Plosser (1982) challenged this practice and showed that observed trends are better modeled if one allows for stochastic trends. Since their work there has been a continuing reappraisal of trend behavior in economic methods …
Price Flexibility And Output Stability: An Old Keynesian View, James Tobin
Price Flexibility And Output Stability: An Old Keynesian View, James Tobin
Cowles Foundation Discussion Papers
The central macroeconomic issue is the same as ever. How reliable are automatic market adjustments in maintaining full employment equilibrium in the face of aggregate demand shocks? Many modern theorists assume that nominal prices, including wages, jump instantaneously to keep supply and demand equal in all markets. No excess supply, no involuntary unemployment, can ever arise. However, since actual price adjustments take real time, greater flexibility can be destabilizing. “Real balance” effects are overrated, and the demand effects of nominal price changes are perverse. Activist macro policies are necessary, as Keynes argued, even though nominal prices are far from rigid.
A Bayesian Analysis Of Trend Determination In Economic Time Series, Eric Zivot, Peter C.B. Phillips
A Bayesian Analysis Of Trend Determination In Economic Time Series, Eric Zivot, Peter C.B. Phillips
Cowles Foundation Discussion Papers
In this paper we provide a comprehensive Bayesian posterior analysis of trend determination in general autoregressive models. Multiple lag autoregressive models with fitted drifts and time trends as well as models that allow for certain types of structural change in the deterministic components are considered. We utilize a modified information matrix-based prior that accommodates stochastic nonstationarity, takes into account the interactions between long-run and short-run dynamics and controls the degree of stochastic nonstationarity permitted. We derive analytic posterior densities for all of the trend determining parameters via the Laplace approximation to multivariate integrals. We also address the sampling properties of …
The Long-Run Australian Consumption Function Reexamined: An Empirical Exercise In Bayesian Influence, Peter C.B. Phillips
The Long-Run Australian Consumption Function Reexamined: An Empirical Exercise In Bayesian Influence, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper reports an empirical application of new Baynesian methodology to Australian data on consumption, income, liquid assets and inflation. The methods involve the use of objective model based reference priors and objective posterior odds test criteria. The paper provides an overview of this methodology, which is based on recent work by the author (1991) and joint work with Werner Ploberger (1991) and Eric Zivot (1991). The empirical application involves tests of nonstationarity and cointegration in the data and various long-run model specifications are studied in detail. Bayesian empirical results are presented alongside well-known classical tests and are shown to …
An Implementation Of The Generalized Basis Reduction Algorithm For Integer Programming, William Cook, Thomas Rutherford, Herbert E. Scarf, David F. Shallcross
An Implementation Of The Generalized Basis Reduction Algorithm For Integer Programming, William Cook, Thomas Rutherford, Herbert E. Scarf, David F. Shallcross
Cowles Foundation Discussion Papers
In recent years many advances have been made in solution techniques for specially structured 0–1 integer programming problems. In contrast, very little progress has been made on solving general (mixed integer) problems. This, of course, is not true when viewed from the theoretical side: Lenstra (1981) made a major breakthrough, obtaining a polynomial-time algorithm when the number of integer variables is fixed. We discuss a practical implementation of a Lenstra-like algorithm, based on the generalized basis reduction method of Lovasz and Scarf (1988). This method allows us to avoid the ellipsoidal approximations required in Lenstra’s algorithm. We report on the …
Comment On ‘To Criticize The Critics’, By Peter C.B. Phillips, Christopher A. Sims
Comment On ‘To Criticize The Critics’, By Peter C.B. Phillips, Christopher A. Sims
Cowles Foundation Discussion Papers
In his paper “To Criticize the Critics” (1991), Peter Phillips discusses Bayesian methodology for time series models. The main point that Uhlig and I set out to make, however, was that careful consideration of the implications of the likelihood principle suggests that much of the recent work under the “unit root” label in the econometrics literature is being incorrectly interpreted in practice. We pointed out that time series models with possible unit roots are one of the few domains within which the implications of a likelihood principle approach to inference are difference, even in the large samples, from those of …
Transformations Of The Commodity Space, Behavioral Heterogeneity And The Aggregation Problem, Jean-Michel Grandmont
Transformations Of The Commodity Space, Behavioral Heterogeneity And The Aggregation Problem, Jean-Michel Grandmont
Cowles Foundation Discussion Papers
The aggregation problem in demand analysis and exchange equilibrium is studied by putting restrictions on the shape of the distribution of the agents’ characteristics. This is done by exploiting the finite dimensional linear structure induced on demand functions by affine transformations of the commodity space (or household equivalence scales). Increasing the degree of behavioral heterogeneity in the household sector or more specifically, making the conditional distributions in each equivalence class of demand functions fiat enough, has an important regularizing influence on aggregate budget shares: market demand has a negative dominant diagonal Jacobian matrix, aggregate excess demand has the gross substitutability …