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Articles 1651 - 1680 of 3476
Full-Text Articles in Economics
Possible Macroeconomic Consequences Of Large Future Federal Government Deficits, Ray C. Fair
Possible Macroeconomic Consequences Of Large Future Federal Government Deficits, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a multicountry macroeconometric model to analyze possible macroeconomic consequences of large future U.S. federal government deficits. The analysis has the advantage of accounting for the endogeneity of the deficit. In the baseline run, which assumes no large tax increases or spending cuts and no bad dollar and stock market shocks, the debt/GDP ratio rises substantially through 2020. The estimates from this run are in line with other estimates. Various experiments off the baseline run are then done. If the dollar depreciates, inflation increases but the effect on the debt/GDP ratio is modest. It does not appear that …
Has Macro Progressed?, Ray C. Fair
Has Macro Progressed?, Ray C. Fair
Cowles Foundation Discussion Papers
There have been a number of recent papers arguing that there has been considerable convergence in macro research and to the good. This paper considers the question whether what has been converged to is good. Has progress been made in understanding how the macro economy works?
The Case For Trills: Giving The People And Their Pension Funds A Stake In The Wealth Of The Nation, Mark Kamstra, Robert J. Shiller
The Case For Trills: Giving The People And Their Pension Funds A Stake In The Wealth Of The Nation, Mark Kamstra, Robert J. Shiller
Cowles Foundation Discussion Papers
We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name “Trill” be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important …
Optimal Comparison Of Misspecified Moment Restriction Models Under A Chosen Measure Of Fit, Vadim Marmer, Taisuke Otsu
Optimal Comparison Of Misspecified Moment Restriction Models Under A Chosen Measure Of Fit, Vadim Marmer, Taisuke Otsu
Cowles Foundation Discussion Papers
Suppose that the econometrician is interested in comparing two misspecified moment restriction models, where the comparison is performed in terms of some chosen measure of fit. This paper is concerned with describing an optimal test of the Vuong (1989) and Rivers and Vuong (2002) type null hypothesis that the two models are equivalent under the given measure of fit (the ranking may vary for different measures). We adopt the generalized Neyman-Pearson optimality criterion, which focuses on the decay rates of the type I and II error probabilities under fixed non-local alternatives, and derive an optimal but practically infeasible test. Then, …
Subjectivity In Inductive Inference, Itzhak Gilboa, Larry Samuelson
Subjectivity In Inductive Inference, Itzhak Gilboa, Larry Samuelson
Cowles Foundation Discussion Papers
This paper examines circumstances under which subjectivity enhances the effectiveness of inductive reasoning. We consider a game in which Fate chooses a data generating process and agents are characterized by inference rules that may be purely objective (or data-based) or may incorporate subjective considerations. The basic intuition is that agents who invoke no subjective considerations are doomed to “overfit” the data and therefore engage in ineffective learning. The analysis places no computational or memory limitations on the agents — the role for subjectivity emerges in the presence of unlimited reasoning powers.
Hyperbolic Discounting Is Rational: Valuing The Far Future With Uncertain Discount Rates, J. Doyne Farmer, John Geanakoplos
Hyperbolic Discounting Is Rational: Valuing The Far Future With Uncertain Discount Rates, J. Doyne Farmer, John Geanakoplos
Cowles Foundation Discussion Papers
Conventional economics supposes that agents value the present vs. the future using an exponential discounting function. In contrast, experiments with animals and humans suggest that agents are better described as hyperbolic discounters, whose discount function decays much more slowly at large times, as a power law. This is generally regarded as being time inconsistent or irrational. We show that when agents cannot be sure of their own future one-period discount rates, then hyperbolic discounting can become rational and exponential discounting irrational. This has important implications for environmental economics, as it implies a much larger weight for the far future.
Robustness, Infinitesimal Neighborhoods, And Moment Restrictions, Yuichi Kitamura, Taisuke Otsu, Kirill Evdokomov
Robustness, Infinitesimal Neighborhoods, And Moment Restrictions, Yuichi Kitamura, Taisuke Otsu, Kirill Evdokomov
Cowles Foundation Discussion Papers
This paper is concerned with robust estimation under moment restrictions. A moment restriction model is semiparametric and distribution-free, therefore it imposes mild assumptions. Yet it is reasonable to expect that the probability law of observations may have some deviations from the ideal distribution being modeled, due to various factors such as measurement errors. It is then sensible to seek an estimation procedure that are robust against slight perturbation in the probability measure that generates observations. This paper considers local deviations within shrinking topological neighborhoods to develop its large sample theory, so that both bias and variance matter asymptotically. The main …
Nonparametric Identification Of Multinomial Choice Demand Models With Heterogeneous Consumers, Steven T. Berry, Philip A. Haile
Nonparametric Identification Of Multinomial Choice Demand Models With Heterogeneous Consumers, Steven T. Berry, Philip A. Haile
Cowles Foundation Discussion Papers
We consider identification of nonparametric random utility models of multinomial choice using “micro data,” i.e., observation of the characteristics and choices of individual consumers. Our model of preferences nests random coefficients discrete choice models widely used in practice with parametric functional form and distributional assumptions. However, the model is nonparametric and distribution free. It allows choice-specific unobservables, endogenous choice characteristics, unknown heteroskedasticity, and high-dimensional correlated taste shocks. Under standard “large support” and instrumental variables assumptions, we show identifiability of the random utility model. We demonstrate robustness of these results to relaxation of the large support condition and show that when …
Nonparametric Estimation In Random Coefficients Binary Choice Models, Eric Gautier, Yuichi Kitamura
Nonparametric Estimation In Random Coefficients Binary Choice Models, Eric Gautier, Yuichi Kitamura
Cowles Foundation Discussion Papers
This paper considers random coefficients binary choice models. The main goal is to estimate the density of the random coefficients nonparametrically. This is an ill-posed inverse problem characterized by an integral transform. A new density estimator for the random coefficients is developed, utilizing Fourier-Laplace series on spheres. This approach offers a clear insight on the identification problem. More importantly, it leads to a closed form estimator formula that yields a simple plug-in procedure requiring no numerical optimization. The new estimator, therefore, is easy to implement in empirical applications, while being flexible about the treatment of unobserved heterogeneity. Extensions including treatments …
On The Asymptotic Optimality Of Empirical Likelihood For Testing Moment Restrictions, Yuichi Kitamura, Andres Santos, Azeem M. Shaikh
On The Asymptotic Optimality Of Empirical Likelihood For Testing Moment Restrictions, Yuichi Kitamura, Andres Santos, Azeem M. Shaikh
Cowles Foundation Discussion Papers
In this paper we make two contributions. First, we show by example that empirical likelihood and other commonly used tests for parametric moment restrictions, including the GMM-based J -test of Hansen (1982), are unable to control the rate at which the probability of a Type I error tends to zero. From this it follows that, for the optimality claim for empirical likelihood in Kitamura (2001) to hold, additional assumptions and qualifications need to be introduced. The example also reveals that empirical and parametric likelihood may have non-negligible differences for the types of properties we consider, even in models in which …
Soft Budgets And Renegotiations In Public-Private Partnerships, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Soft Budgets And Renegotiations In Public-Private Partnerships, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Cowles Foundation Discussion Papers
Public-private partnerships (PPPs) are increasingly used to provide infrastructure services. Even though PPPs have the potential to increase efficiency and improve resource allocation, contract renegotiations have been pervasive. We show that existing accounting standards allow governments to renegotiate PPP contracts and elude spending limits. Our model of renegotiations leads to observable predictions: (i) in a competitive market, firms lowball their offers, expecting to break even through renegotiation, (ii) renegotiations compensate lowballing and pay for additional expenditure, (iii) governments use renegotiation to increase spending and shift the burden of payments to future administrations, and (iv) there are significant renegotiations in the …
Credit Cards And Inflation, John Geanakoplos, Pradeep Dubey
Credit Cards And Inflation, John Geanakoplos, Pradeep Dubey
Cowles Foundation Discussion Papers
The introduction and widespread use of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacrifice the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gains. The monetary authority might then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is …
Alternative Policies And Sea-Level Rise In The Rice-2009 Model, William D. Nordhaus
Alternative Policies And Sea-Level Rise In The Rice-2009 Model, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study extends earlier research by presenting the results of a new and updated version of the RICE model (Regional Integrated model of Climate and the Economy), labeled the RICE-2009 model. The model is a regionalized, dynamic model that incorporates an end-to-end treatment of economic growth, emissions, climate change, damages, and emissions controls. The model allows projections of what will occur with no policies, with efficient policies be, how nations can undertake policies to limit climate change (in the current runs to 2°C), and the impacts of limited participation. These new estimates indicate that coordinated international policies have a …
Selecting A Unique Competitive Equilibrium With Default Penalties, Cheng-Zhong Qin, Martin Shubik
Selecting A Unique Competitive Equilibrium With Default Penalties, Cheng-Zhong Qin, Martin Shubik
Cowles Foundation Discussion Papers
The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to different commodities.
Grading Exams: 100, 99, 98,...Or A, B, C?, Pradeep Dubey, John Geanakoplos
Grading Exams: 100, 99, 98,...Or A, B, C?, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
No abstract provided.
Market Valuation Of Accrued Social Security Benefits, John Geanakoplos, Stephen P. Zeldes
Market Valuation Of Accrued Social Security Benefits, John Geanakoplos, Stephen P. Zeldes
Cowles Foundation Discussion Papers
One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded. In valuing such claims, the key …
An Improved Bootstrap Test Of Stochastic Dominance, Oliver B. Linton, Kyungchul Song, Yoon-Jae Whang
An Improved Bootstrap Test Of Stochastic Dominance, Oliver B. Linton, Kyungchul Song, Yoon-Jae Whang
Cowles Foundation Discussion Papers
We propose a new method of testing stochastic dominance that improves on existing tests based on the standard bootstrap or subsampling. The method admits prospects involving infinite as well as finite dimensional unknown parameters, so that the variables are allowed to be residuals from nonparametric and semiparametric models. The proposed bootstrap tests have asymptotic sizes that are less than or equal to the nominal level uniformly over probabilities in the null hypothesis under regularity conditions. This paper also characterizes the set of probabilities that the asymptotic size is exactly equal to the nominal level uniformly. As our simulation results show, …
Nonparametric Estimation Of A Polarization Measure, Gordon J. Anderson, Oliver B. Linton, Yoon-Jae Whang
Nonparametric Estimation Of A Polarization Measure, Gordon J. Anderson, Oliver B. Linton, Yoon-Jae Whang
Cowles Foundation Discussion Papers
This paper develops methodology for nonparametric estimation of a polarization measure due to Anderson (2004) and Anderson, Ge, and Leo (2006) based on kernel estimation techniques. We give the asymptotic distribution theory of our estimator, which in some cases is nonstandard due to a boundary value problem. We also propose a method for conducting inference based on estimation of unknown quantities in the limiting distribution and show that our method yields consistent inference in all cases we consider. We investigate the finite sample properties of our methods by simulation methods. We give an application to the study of polarization within …
The Leverage Cycle, John Geanakoplos
The Leverage Cycle, John Geanakoplos
Cowles Foundation Discussion Papers
Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
The Leverage Cycle, John Geanakoplos
The Leverage Cycle, John Geanakoplos
Cowles Foundation Discussion Papers
Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
Infinite Density At The Median And The Typical Shape Of Stock Return Distributions, Chirok Han, Jin Seo Cho, Peter C.B. Phillips
Infinite Density At The Median And The Typical Shape Of Stock Return Distributions, Chirok Han, Jin Seo Cho, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Statistics are developed to test for the presence of an asymptotic discontinuity (or infinite density or peakedness) in a probability density at the median. The approach makes use of work by Knight (1998) on L 1 estimation asymptotics in conjunction with non-parametric kernel density estimation methods. The size and power of the tests are assessed, and conditions under which the tests have good performance are explored in simulations. The new methods are applied to stock returns of leading companies across major U.S. industry groups. The results confirm the presence of infinite density at the median as a new significant empirical …
Lad Asymptotics Under Conditional Heteroskedasticity With Possibly Infinite Error Densities, Jin Seo Cho, Chirok Han, Peter C.B. Phillips
Lad Asymptotics Under Conditional Heteroskedasticity With Possibly Infinite Error Densities, Jin Seo Cho, Chirok Han, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Least absolute deviations (LAD) estimation of linear time-series models is considered under conditional heteroskedasticity and serial correlation. The limit theory of the LAD estimator is obtained without assuming the finite density condition for the errors that is required in standard LAD asymptotics. The results are particularly useful in application of LAD estimation to financial time series data.
Measurement Of Income With Time Use With Applications To Hedonic Indicators Of Happiness And Misery, William D. Nordhaus
Measurement Of Income With Time Use With Applications To Hedonic Indicators Of Happiness And Misery, William D. Nordhaus
Cowles Foundation Discussion Papers
The present paper examines several issues involved in expanding national economic accounts and quantitative social indicators to include the “consumption” of time. The first part examines this question in the context of the standard national economic accounts. It derives equilibrium conditions for consumer behavior with market and non-market consumption along with intrinsic values of time in different activities. Using a standard index-number approach, it shows that the growth of real income can be approximated by a weighted average of productivity growth rates in market and non-market productivity and that the valuation of hours drops out of the formula. The second …
Analyzing Macroeconomic Forecastability, Ray C. Fair
Analyzing Macroeconomic Forecastability, Ray C. Fair
Cowles Foundation Discussion Papers
This paper estimates, using stochastic simulation and a multicountry macroeconometric model, the fraction of the forecast-error variance of output changes and the fraction of the forecast-error variance of inflation that are due to unpredictable asset-price changes. The results suggest that between about 25 and 37 percent of the forecast-error variance of output growth over 8 quarters is due to asset-price changes and between about 33 and 60 percent of the forecast-error variance of inflation over 8 quarters is due to asset-price changes. These estimates provide limits to the accuracy that can be expected from macroeconomic forecasting.
Monitoring With Collective Memory: Forgiveness For Optimally Empty Promises, David A. Miller, Kareen Rozen
Monitoring With Collective Memory: Forgiveness For Optimally Empty Promises, David A. Miller, Kareen Rozen
Cowles Foundation Discussion Papers
We study optimal contracting in a team setting with moral hazard, where teammates promise to complete socially efficient but costly tasks. Teammates must monitor each other to provide incentives, but each team member has limited capacity to allocate between monitoring and productive tasks. Players incur contractual punishments for unfulfilled promises that are discovered. We show that optimal contracts are generally “forgiving” and players optimally make “empty promises” that they don’t necessarily intend to fulfill. As uncertainty in task completion increases, players optimally make more empty promises but fewer total promises. A principal who hires a team of agents optimally implements …
Explosive Behavior In The 1990s Nasdaq: When Did Exuberance Escalate Asset Values?, Peter C.B. Phillips, Yangru Wu, Jun Yu
Explosive Behavior In The 1990s Nasdaq: When Did Exuberance Escalate Asset Values?, Peter C.B. Phillips, Yangru Wu, Jun Yu
Cowles Foundation Discussion Papers
A recursive test procedure is suggested that provides a mechanism for testing explosive behavior, date-stamping the origination and collapse of economic exuberance, and providing valid confidence intervals for explosive growth rates. The method involves the recursive implementation of a right-side unit root test and a sup test, both of which are easy to use in practical applications, and some new limit theory for mildly explosive processes. The test procedure is shown to have discriminatory power in detecting periodically collapsing bubbles, thereby overcoming a weakness in earlier applications of unit root tests for economic bubbles. An empirical application to Nasdaq stock …
Dynamic Misspecification In Nonparametric Cointegrating Regression, Ioannis Kasparis, Peter C.B. Phillips
Dynamic Misspecification In Nonparametric Cointegrating Regression, Ioannis Kasparis, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Linear cointegration is known to have the important property of invariance under temporal translation. The same property is shown not to apply for nonlinear cointegration. The requisite limit theory involves sample covariances of integrable transformations of non-stationary sequences and time translated sequences, allowing for the presence of a bandwidth parameter so as to accommodate kernel regression. The theory is an extension of Wang and Phillips (2008) and is useful for the analysis of nonparametric regression models with a misspecified lag structure and in situations where temporal aggregation issues arise. The limit properties of the Nadaraya-Watson (NW) estimator for cointegrating regression …
The Effects Of The Security Environment On Military Expenditures: Pooled Analyses Of 165 Countries, 1950-2000, William D. Nordhaus, John R. Oneal, Bruce Russett
The Effects Of The Security Environment On Military Expenditures: Pooled Analyses Of 165 Countries, 1950-2000, William D. Nordhaus, John R. Oneal, Bruce Russett
Cowles Foundation Discussion Papers
Countries’ military expenditures differ greatly across both space and time. This study examines the determinants of military spending, with particular reference to the importance of the external security environment. Using the liberal-realist model of international relations, we first estimate the probability that two countries will be involved in a fatal militarized interstate dispute. We then aggregate these ex ante estimates of the likelihood of dyadic conflict, calculating the annual joint probability that a country will be involved in a fatal dispute. This is our measure of the external threat. We then estimate the level of military spending by country and …
Inflationary Equilibrium In A Stochastic Economy With Independent Agents, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Inflationary Equilibrium In A Stochastic Economy With Independent Agents, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
We argue that even when macroeconomic variables are constant, underlying microeconomic uncertainty and borrowing constraints generate inflation. We study stochastic economies with fiat money, a central bank, one nondurable commodity, countably many time periods, and a continuum of agents. The aggregate amount of the commodity remains constant, but the endowments of individual agents fluctuate “independently” in a random fashion from period to period. Agents hold money and, prior to bidding in the commodity market each period, can either borrow from or deposit in a central bank at a fixed rate of interest. If the interest rate is strictly positive, then …
A Paradox Of Inconsistent Parametric And Consistent Nonparametric Regression, Peter C.B. Phillips, Liangjun Su
A Paradox Of Inconsistent Parametric And Consistent Nonparametric Regression, Peter C.B. Phillips, Liangjun Su
Cowles Foundation Discussion Papers
This paper explores a paradox discovered in recent work by Phillips and Su (2009). That paper gave an example in which nonparametric regression is consistent whereas parametric regression is inconsistent even when the true regression functional form is known and used in regression. This appears to be a paradox, as knowing the true functional form should not in general be detrimental in regression. In the present case, local regression methods turn out to have a distinct advantage because of endogeneity in the regressor. The paradox arises because additional correct information is not necessarily advantageous when information is incomplete. In the …