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Articles 2041 - 2070 of 3476
Full-Text Articles in Economics
Jackknifing Bond Option Prices, Peter C.B. Phillips, Jun Yu
Jackknifing Bond Option Prices, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
In continuous time specifications, the prices of interest rate derivative securities depend crucially on the mean reversion parameter of the associated interest rate diffusion equation. This parameter is well known to be subject to estimation bias when standard methods like maximum likelihood (ML) are used. The estimation bias can be substantial even in very large samples and it translates into a bias in pricing bond options and other derivative securities that is important in practical work. The present paper proposes a very general method of bias reduction for pricing bond options that is based on Quenouille’s (1956) jackknife. We show …
Vision And Influence In Econometrics: John Denis Sargan, Peter C.B. Phillips
Vision And Influence In Econometrics: John Denis Sargan, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Denis Sargan’s intellectual influence in econometrics is discussed and some of his visions for the future of econometrics are considered in this memorial article. One of Sargan’s favorite topics in econometric theory was finite sample theory, including both exact theory and various types of asymptotic expansions. We provide some summary discussion of asymptotic expansions of the type that Sargan developed in this field and give explicit representations of Sargan’s formula for the Edgeworth expansion in the case of an econometric estimator that can be written as a smooth function of sample moments whose distributions themselves have Edgeworth expansions.
Fractional Brownian Motion As A Differentiable Generalized Gaussian Process, Victoria Zinde-Walsh, Peter C.B. Phillips
Fractional Brownian Motion As A Differentiable Generalized Gaussian Process, Victoria Zinde-Walsh, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Brownian motion can be characterized as a generalized random process and, as such, has a generalized derivative whose covariance functional is the delta function. In a similar fashion, fractional Brownian motion can be interpreted as a generalized random process and shown to possess a generalized derivative. The resulting process is a generalized Gaussian process with mean functional zero and covariance functional that can be interpreted as a fractional integral or fractional derivative of the delta-function.
Tests Of Independence In Separable Econometric Models: Theory And Application, Donald J. Brown, Rahul Deb, Marten H. Wegkamp
Tests Of Independence In Separable Econometric Models: Theory And Application, Donald J. Brown, Rahul Deb, Marten H. Wegkamp
Cowles Foundation Discussion Papers
A common stochastic restriction in econometric models separable in the latent variables is the assumption of stochastic independence between the unobserved and observed exogenous variables. Both simple and composite tests of this assumption are derived from properties of independence empirical processes and the consistency of these tests is established. As an application, we simulate estimation of a random quasilinear utility function, where we apply our tests of independence.
Monetary Equilibrium With Missing Markets, Pradeep Dubey, John Geanakoplos
Monetary Equilibrium With Missing Markets, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We consider a two-period model with missing assets and missing market links, in which money plays a central role and is linked to every instrument in the economy. If there are enough missing market links relative to the ratio of outside to inside money, then monetary equilibrium (ME) exists and money has positive value. The nonexistence of GEI (of the underlying economy) shows up as a liquidity trap in terms of the ME. In sharp contrast to GEI, the ME are generally determinate not only in terms of real, but also financial, variables.
Testing For A New Economy In The 1990s, Ray C. Fair
Testing For A New Economy In The 1990s, Ray C. Fair
Cowles Foundation Discussion Papers
This paper examines how much structural change there was in the U.S. economy in the last half of the 1990s. The results are consistent with the hypothesis that there was only one major structural change, namely the huge increase in stock prices relative to earnings. All other large changes can be explained by this change. There is no obvious reason for the large increase in stock prices relative to earnings. Increased productivity growth does not appear to be an answer since the data show that there was only a modest increase in long run productivity growth in the last half …
Fairness, Reciprocity, And Wage Rigidity, Truman F. Bewley
Fairness, Reciprocity, And Wage Rigidity, Truman F. Bewley
Cowles Foundation Discussion Papers
This paper contains a review of work on wage rigidity. The work includes field studies, and economic experiments, and psychological surveys. Economists have done the field studies and experiments, and management scientists and experimental psychologists have done the surveys.
The Economic Consequences Of A War With Iraq, William D. Nordhaus
The Economic Consequences Of A War With Iraq, William D. Nordhaus
Cowles Foundation Discussion Papers
Much has been written about the national-security aspects of a potential conflict in Iraq, but there are no studies of the cost. A review of several past wars indicates that nations historically have consistently underestimated the cost of military conflicts. This study reviews the potential costs of a conflict including the postwar expenses that might be required for occupation, humanitarian assistance, reconstruction, nation-building, along with the implications for oil markets and macroeconomic activity. It considers two potential scenarios that span the potential outcomes, ranging from a short and relatively conflict-free case to protracted conflict with difficult and expensive postwar reconstruction …
Adaptive Local Polynomial Whittle Estimation Of Long-Range Dependence, Donald W.K. Andrews, Yixiao Sun
Adaptive Local Polynomial Whittle Estimation Of Long-Range Dependence, Donald W.K. Andrews, Yixiao Sun
Cowles Foundation Discussion Papers
The local Whittle (or Gaussian semiparametric) estimator of long range dependence, proposed by Künsch (1987) and analyzed by Robinson (1995a), has a relatively slow rate of convergence and a finite sample bias that can be large. In this paper, we generalize the local Whittle estimator to circumvent these problems. Instead of approximating the short-run component of the spectrum, φ(λ), by a constant in a shrinking neighborhood of frequency zero, we approximate its logarithm by a polynomial. This leads to a “local polynomial Whittle” (LPW) estimator. We specify a data-dependent adaptive procedure that adjusts the degree of the polynomial to the …
From Efficient Market Theory To Behavioral Finance, Robert J. Shiller
From Efficient Market Theory To Behavioral Finance, Robert J. Shiller
Cowles Foundation Discussion Papers
The efficient markets theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on behavioral finance. Some important developments in the 1990s and recently include feedback theories, models of the interaction of smart money with ordinary investors, and evidence on obstacles to smart …
One Simple Test Of Samuelson's Dictum For The Stock Market, Jeeman Jung, Robert J. Shiller
One Simple Test Of Samuelson's Dictum For The Stock Market, Jeeman Jung, Robert J. Shiller
Cowles Foundation Discussion Papers
Samuelson (1998) offered the dictum that the stock market is “micro efficient” but “macro inefficient.” That is, the efficient markets hypothesis works much better for individual stocks than it does for the aggregate stock market. In this paper, we present one simple test, based both on regressions and on a simple scatter diagram that vividly illustrates that there is some truth to Samuelson’s dictum. The data comprise all U.S. firms on the CRSP tape that have survived since 1926.
Risk Aversion And Stock Prices, Ray C. Fair
Risk Aversion And Stock Prices, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses data on companies that have been in the S&P 500 index since 1957 to examine whether risk aversion has decreased since 1995. The evidence suggests that it has not. There is no evidence that more risky companies have had larger increases in their price-earnings ratios since 1995 than less risky companies.
College Football Rankings And Market Efficiency, Ray C. Fair, John F. Oster
College Football Rankings And Market Efficiency, Ray C. Fair, John F. Oster
Cowles Foundation Discussion Papers
The results in this paper show that various college football ranking systems have useful independent information for predicting the outcomes of games. Optimal weights for the systems are estimated, and the use of these weights produces a predictive system that is more accurate than any of the individual systems. The results also provide a fairly precise estimate of the size of the home field advantage. These results may be of interest to the Bowl Championship Series in choosing which teams to play in the national championship game. The results also show, however, that none of the systems, including the optimal …
Demography And The Long-Run Predictability Of The Stock Market, John Geanakoplos, Michael Magill, Martine Quinzii
Demography And The Long-Run Predictability Of The Stock Market, John Geanakoplos, Michael Magill, Martine Quinzii
Cowles Foundation Discussion Papers
Stock market price/earnings ratios should be influenced by demography. Since demography is predictable, stock returns should be as well. We provide a simple stochastic OLG model with a cyclical structure that generates cyclical P/E ratios. We calibrate the model to roughly fit the cyclical features of historical P/E ratios.
Higher-Order Improvements Of The Parametric Bootstrap For Long-Memory Gaussian Processes, Donald W.K. Andrews, Offer Lieberman
Higher-Order Improvements Of The Parametric Bootstrap For Long-Memory Gaussian Processes, Donald W.K. Andrews, Offer Lieberman
Cowles Foundation Discussion Papers
This paper determines coverage probability errors of both delta method and parametric bootstrap confidence intervals (CIs) for the covariance parameters of stationary long-memory Gaussian time series. CIs for the long-memory parameter d 0 are included. The results establish that the bootstrap provides higher-order improvements over the delta method. Analogous results are given for tests. The CIs and tests are based on one or other of two approximate maximum likelihood estimators. The first estimator solves the first-order conditions with respect to the covariance parameters of a “plug-in” log-likelihood function that has the unknown mean replaced by the sample mean. The second …
The Value Of Benchmarking, Dirk Bergemann, Ulrich Hege
The Value Of Benchmarking, Dirk Bergemann, Ulrich Hege
Cowles Foundation Discussion Papers
We consider the provision of venture capital in a dynamic model with multiple research stages, where time and investment needed to meet each benchmark are unknown. The allocation of funds is subject moral hazard. The optimal contract provides for incentive payments linked to attaining the next benchmark, which must be increasing in the funding horizon of each stage. Benchmarking reduces agency costs, directly by shortening the agent’s guaranteed funding horizon, and indirectly via an implicit incentive effect of information rents in future financing rounds. The ex ante need to provide incentives and the venture capitalist’s desire to cut information rents …
Demography And The Long-Run Predictability Of The Stock Market, John Geanakoplos, Michael Magill, Martine Quinzii
Demography And The Long-Run Predictability Of The Stock Market, John Geanakoplos, Michael Magill, Martine Quinzii
Cowles Foundation Discussion Papers
This paper was begun during a visit at the Cowles Foundation in Fall 2000 and revised during a visit in Fall 2002: Michael Magill and Martine Quinzii are grateful for the stimulating environment and the research support provided by the Cowles Foundation. We are also grateful to Bob Shiller for helpful discussions, and to participants at the Cowles Conference on Incomplete Markets at Yale University, the SITE Workshop at Stanford University, the Incomplete Markets Workshop at SUNY Stony Brook during the summer 2001, the Southwest Economic Conference at UCLA, and the Conference for the Advancement of Economic Theory at Rhodes …
Best Response Equivalence, Stephen Morris, Takashi Ui
Best Response Equivalence, Stephen Morris, Takashi Ui
Cowles Foundation Discussion Papers
Two games are best-response equivalent if they have the same best-response correspondence. We provide a characterization of when two games are best-response equivalent. The characterizations exploit a dual relationship between payoff differences and beliefs. Some “potential game” arguments (cf. Monderer and Shapley, 1996, Games. Econ. Behav. 14, 124-143) rely only on the property that potential games are best-response equivalent to identical interest games. Our results show that a large class of games are best-response equivalent to identical interest games, but are not potential games. Thus we show how some existing potential game arguments can be extended.
Econometric Methods For Endogenously Sampled Time Series: The Case Of Commodity Price Speculation In The Steel Market, George J. Hall, John Rust
Econometric Methods For Endogenously Sampled Time Series: The Case Of Commodity Price Speculation In The Steel Market, George J. Hall, John Rust
Cowles Foundation Discussion Papers
This paper studies the econometric problems associated with estimation of a stochastic process that is endogenously sampled . Our interest is to infer the law of motion of a discrete-time stochastic process { p t } that is observed only at a subset of times { t 1 ,…, t n } that depend on the outcome of a probabilistic sampling rule that depends on the history of the process as well as other observed covariates x t . We focus on a particular example where p t denotes the daily wholesale price of a standardized steel product. However there …
Error Bounds And Asymptotic Expansions For Toeplitz Product Functionals Of Unbounded Spectra, Offer Lieberman, Peter C.B. Phillips
Error Bounds And Asymptotic Expansions For Toeplitz Product Functionals Of Unbounded Spectra, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper establishes error orders for integral limit approximations to traces of powers to the p th order) of products of Toeplitz matrices. Such products arise frequently in the analysis of stationary time series and in the development of asymptotic expansions. The elements of the matrices are Fourier transforms of functions which we allow to be bounded, unbounded, or even to vanish on [- π,π ], thereby including important cases such as the spectral functions of fractional processes. Error rates are also given in the case in which the matrix product involves inverse matrices. The rates are sharp up to …
More Efficient Kernel Estimation In Nonparametric Regression With Autocorrelated Errors, Zhijie Xiao, Oliver B. Linton, Raymond J. Carroll, E. Mammen
More Efficient Kernel Estimation In Nonparametric Regression With Autocorrelated Errors, Zhijie Xiao, Oliver B. Linton, Raymond J. Carroll, E. Mammen
Cowles Foundation Discussion Papers
We propose a modification of kernel time series regression estimators that improves efficiency when the innovation process is autocorrelated. The procedure is based on a pre-whitening transformation of the dependent variable that has to be estimated from the data. We establish the asymptotic distribution of our estimator under weak dependence conditions. It is shown that the proposed estimation procedure is more efficient than the conventional kernel method. We also provide simulation evidence to suggest that gains can be achieved in moderate sized samples.
Dynamics Of The Federal Funds Target Rate: A Nonstationary Discrete Choice Approach, Ling Hu, Peter C.B. Phillips
Dynamics Of The Federal Funds Target Rate: A Nonstationary Discrete Choice Approach, Ling Hu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We apply a discrete choice approach to model the empirical behavior of the Federal Reserve in changing the federal funds target rate, the benchmark of short term market interest rates in the US. Our methods allow the explanatory variables to be nonstationary as well as stationary. This feature is particularly useful in the present application as many economic fundamentals that are monitored by the Fed and are believed to affect decisions to adjust interest rate targets display some nonstationarity over time. The empirical model is determined using the PIC criterion (Phillips and Ploberger, 1996; Phillips, 1996) as a model selection …
The Mildest Recession: Output, Profits, And Stock Prices As The U.S. Emerges From The 2001 Recession, William D. Nordhaus
The Mildest Recession: Output, Profits, And Stock Prices As The U.S. Emerges From The 2001 Recession, William D. Nordhaus
Cowles Foundation Discussion Papers
This essay examines the state of the United States economy as it emerges from the 2001 recession. A comparison of several central economic variables indicates that the 2001 recession was the mildest recession in the postwar period. In light of highly differentiated characteristics of recessions, the paper suggests that we differentiate among downturns by a five-category “recession severity scale,” analogous to the Saffir-Simpson Hurricane Scale. According to this approach, the 2001 recession fits in the least severe box, a “category I recession,” along with the 1963 and 1967 non-recessions. The paper next examines the behavior of profits in recent years …
Dynamic Panel Estimation And Homogeneity Testing Under Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul
Dynamic Panel Estimation And Homogeneity Testing Under Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
This paper deals with cross section dependence, homogeneity restrictions and small sample bias issues in dynamic panel regressions. To address the bias problem we develop a panel approach to median unbiased estimation that takes account of cross section dependence. The new estimators given here considerably reduce the effects of bias and gain precision from estimating cross section error correlation. The paper also develops an asymptotic theory for tests of coefficient homogeneity under cross section dependence, and proposes a modified Hausman test to test for the presence of homogeneous unit roots. An orthogonalization procedure is developed to remove cross section dependence …
Efficient Regression In Time Series Partial Linear Models, Peter C.B. Phillips, Binbin Guo, Zhijie Xiao
Efficient Regression In Time Series Partial Linear Models, Peter C.B. Phillips, Binbin Guo, Zhijie Xiao
Cowles Foundation Discussion Papers
This paper studies efficient estimation of partial linear regression in time series models. In particular, it combines two topics that have attracted a good deal of attention in econometrics, viz. spectral regression and partial linear regression, and proposes an efficient frequency domain estimator for partial linear models with serially correlated residuals. A nonparametric treatment of regression errors is permitted so that it is not necessary to be explicit about the dynamic specification of the errors other than to assume stationarity. A new concept of weak dependence is introduced based on regularity conditions on the joint density. Under these and some …
Nonstationary Discrete Choice, Ling Hu, Peter C.B. Phillips
Nonstationary Discrete Choice, Ling Hu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops an asymptotic theory for time series discrete choice models with explanatory variables generated as integrated processes and with multiple choices and threshold parameters determining the choices. The theory extends recent work by Park and Phillips (2000) on binary choice models. As in this earlier work, the maximum likelihood (ML) estimator is consistent and has a limit theory with multiple rates of convergence ( n 3/4 and n 1 /4 ) and mixture normal distributions where the mixing variates depend on Brownian local time as well as Brownian motion. An extended arc sine limit law is given for …
Nonlinear Log-Periodogram Regression For Perturbed Fractional Processes, Yixiao Sun, Peter C.B. Phillips
Nonlinear Log-Periodogram Regression For Perturbed Fractional Processes, Yixiao Sun, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies fractional processes that may be perturbed by weakly dependent time series. The model for a perturbed fractional process has a components framework in which there may be components of both long and short memory. All commonly used estimates of the long memory parameter (such as log periodogram (LP) regression) may be used in a components model where the data are affected by weakly dependent perturbations, but these estimates can suffer from serious downward bias. To circumvent this problem, the present paper proposes a new procedure that allows for the possible presence of additive perturbations in the data. …
End-Of-Sample Instability Tests, Donald W.K. Andrews
End-Of-Sample Instability Tests, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper considers tests for structural instability of short duration, such as at the end of the sample. The key feature of the testing problem is that the number, m , of observations in the period of potential change is relatively small — possibly as small as one. The well-known F test of Chow (1960) for this problem only applies in a linear regression model with normally distributed iid errors and strictly exogenous regressors, even when the total number of observations, n + m , is large. We generalize the F test to cover regression models with much more general …
The Block-Block Bootstrap: Improved Asymptotic Refinements, Donald W.K. Andrews
The Block-Block Bootstrap: Improved Asymptotic Refinements, Donald W.K. Andrews
Cowles Foundation Discussion Papers
The asymptotic refinements attributable to the block bootstrap for time series are not as large as those of the nonparametric iid bootstrap or the parametric bootstrap. One reason is that the independence between the blocks in the block bootstrap sample does not mimic the dependence structure of the original sample. This is the join-point problem. In this paper, we propose a method of solving this problem. The idea is not to alter the block bootstrap. Instead, we alter the original sample statistics to which the block bootstrap is applied. We introduce block statistics that possess join-point features that are similar …
Unmediated Communication In Games With Complete And Incomplete Information, Dino Gerardi
Unmediated Communication In Games With Complete And Incomplete Information, Dino Gerardi
Cowles Foundation Discussion Papers
In this paper we study the effects of adding unmediated communication to static, finite games of complete and incomplete information. We characterize S U ( G ), the set of outcomes of a game G , that are induced by sequential equilibria of cheap talk extensions. A cheap talk extension of G is an extensive-form game in which players communicate before playing G . A reliable mediator is not available and players exchange private or public messages that do not affect directly their payoffs. We first show that if G is a game of complete information with five or more …