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Full-Text Articles in Social and Behavioral Sciences
Statistical Inference In Instrumental Variables Regression With I(1) Processes, Peter C.B. Phillips, Bruce E. Hansen
Statistical Inference In Instrumental Variables Regression With I(1) Processes, Peter C.B. Phillips, Bruce E. Hansen
Cowles Foundation Discussion Papers
This paper studies the asymptotic properties of instrumental variable (IV) estimates of multivariate cointegrating regressions. The framework of study is based on earlier work by Phillips and Durlauf (1986) and Park and Phillips (1988, 1989). In particular, the results in these papers are extended to allow for IV regressions that accommodate deterministic and stochastic regressors as well as quite general deterministic processes in the data generating mechanism. It is found that IV regressions are consistent even when the instruments are stochastically independent of the regressors. This phenomenon, which contrasts with traditional theory for stationary time series, is a beneficial artifact …
Increases In Risk Aversion And Portfolio Choice In A Complete Market, Philip H. Dybvig
Increases In Risk Aversion And Portfolio Choice In A Complete Market, Philip H. Dybvig
Cowles Foundation Discussion Papers
This note examines the effect of changes in risk aversion on the optimal portfolio choice in a complete market. It is shown that an agent who is less risk averse in the Pratt (1964) sense than another will choose a portfolio whose payoff is distributed as the other’s payoff plus a nonnegative random variable plus conditional-mean-zero noise. The proof of the result uses simple first order conditions and basic results from stochastic dominance.
Stock Prices, Earnings And Expected Dividends, John Y. Campbell, Robert J. Shiller
Stock Prices, Earnings And Expected Dividends, John Y. Campbell, Robert J. Shiller
Cowles Foundation Discussion Papers
This paper presents estimates indicating that, for aggregate U.S. stock market data 1871-1986, a long historical average of real earnings is a good predictor of the present value of future real dividends. This is true even when the information contained in stock prices is taken into account. We estimate that for each year the optimal forecast of the present value of future real dividends is roughly a weighted average of moving average earnings and current real price, with between 2/3 and 3/4 of the weight on the earnings measure. This means that simple present value models of stock market prices …
Nonnegative Wealth, Absence Of Arbitrage, And Feasible Consumption Plans, Philip H. Dybvig, Chi-Fu Huang
Nonnegative Wealth, Absence Of Arbitrage, And Feasible Consumption Plans, Philip H. Dybvig, Chi-Fu Huang
Cowles Foundation Discussion Papers
A restriction to nonnegative wealth is sufficient to preclude all arbitrage opportunities in financial models that have risk neutral probabilities that are valid for all simple strategies. Imposing nonnegative wealth does not constrain agents from making the choice they would make under the standard integrability condition. This conclusion does not depend on whether the markets are complete.
A Centered Projective Algorithm For Linear Programming, Michael J. Todd, Yinyu Ye
A Centered Projective Algorithm For Linear Programming, Michael J. Todd, Yinyu Ye
Cowles Foundation Discussion Papers
We describe a projective algorithm for linear programming that shares features with Karmarkar’s projective algorithm and its variants and with the path-following methods of Gonzaga, Kojima-Mizuno-Yoshise, Monteiro-Adler, Renegar, Vaidya and Ye. It operates in a primal-dual setting, stays close to the central trajectories, and converges in O ( /n x L ) iterations like the latter methods. (Here n is the number of variables and L the input size of the problem). However, it is motivated by seeking reductions in a suitable potential function as in projective algorithms, and the approximate centering is an automatic byproduct of our choice of …
Appropriating The Returns From Industrial R&D, Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, Sidney G. Winter
Appropriating The Returns From Industrial R&D, Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, Sidney G. Winter
Cowles Foundation Discussion Papers
In this paper, we describe the results of an inquiry into the nature of appropriability conditions in over one hundred manufacturing industries, and we discuss how this information has been and might be used to cast light on important issues in the economics of innovation and public policy. Our data, derived from a survey of high-level R&D executives, are informed opinions about the nature of an industry’s technological and economic environment rather than quantitative measures of inputs and outputs.
Generic Inefficiency Of Stock Market Equilibrium When Markets Are Incomplete, John Geanakoplos, Michael Magill, Martine Quinzii, Jacques Dréze
Generic Inefficiency Of Stock Market Equilibrium When Markets Are Incomplete, John Geanakoplos, Michael Magill, Martine Quinzii, Jacques Dréze
Cowles Foundation Discussion Papers
A stock market is a mechanism by which the ownership and control of firms is determined through the trading of securities. It is on this market that many of the major risks faced by society are shared through the exchange of securities and the production decisions that influence the present and future supply of resources are determined. If the overall structure of markets is incomplete can the stock market be expected to perform its role of exchanging risks and allocating investment efficiently? It is this question that we seek to answer.
Common Knowledge Of Summary Statistics, Adam Brandenburger, John Geanakoplos
Common Knowledge Of Summary Statistics, Adam Brandenburger, John Geanakoplos
Cowles Foundation Discussion Papers
Consider a group of people who are asked to offer their opinions on some issue. “Business confidence” surveys are an example: groups of businessmen are often asked for their predictions of economic indicators such as growth or inflation rates. Each member of the group makes a prediction based on his or her private information, and the average prediction is then publicly announced. If the members of the group are then allowed to revise their opinions, based on whatever information they glean from the public announcement, is there any tendency for the opinions in the group to converge on a common, …
Distributions, Peter C.B. Phillips
Distributions, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Formulae are derived for the characteristic function of the inverted Dirichlet distribution and hence the multivariate F . The analysis involves a new function with multiple arguments that extends the confluent hypergeometric function of the second kind. This function and its properties are studied in the paper and a simple integral representation is given which is useful for numerical work. A special case connected with the multivariate t distribution is also explored.
Optimal Inference In Cointegrated Systems, Peter C.B. Phillips
Optimal Inference In Cointegrated Systems, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies the properties of maximum likelihood estimates of co-integrated systems. Alternative formulations of such models are considered including a new triangular system error correction mechanism. It is shown that full system maximum likelihood brings the problem of inference within the family that is covered by the locally asymptotically mixed normal asymptotic theory provided that all unit roots in the system have been eliminated by specification and data transformation. This result has far reaching consequences. It means that cointegrating coefficient estimates are symmetrically distributed and median unbiased asymptotically, that an optimal asymptotic theory of inference applies and that hypothesis …
The Informational Content Of Ex Ante Forecasts, Ray C. Fair, Robert J. Shiller
The Informational Content Of Ex Ante Forecasts, Ray C. Fair, Robert J. Shiller
Cowles Foundation Discussion Papers
The informational content of different forecasts can be compared by regressing the actual change in a variable to be forecasted on forecasts of the change. We use the procedure in Fair and Shiller (1987) to examine the informational content of three sets of ex ante forecasts: the American Statistical Association and National Bureau of Economic Research Survey (ASA). Data Resources Incorporated (DRI), and Wharton Economic Forecasting Associates (WEFA). We compare these forecasts to each other and to “quasi ex ante” forecasts generated from a vector autoregressive model, an autoregressive components model and a large-scale structural model (the Fair model).
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 …
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.
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 …
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 …
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.
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.
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 …
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.
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 …
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 …
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 …
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 …
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 …
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.
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.
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 …