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Articles 2251 - 2280 of 3476
Full-Text Articles in Economics
Rissanen's Theorem And Econometric Time Series, Werner Ploberger, Peter C.B. Phillips
Rissanen's Theorem And Econometric Time Series, Werner Ploberger, Peter C.B. Phillips
Cowles Foundation Discussion Papers
In a typical empirical modeling context, the data generating process (DGP) of a time series is assumed to be known up to a finite-dimensional parameter. In such cases, Rissanen’s (1986) theorem provides a lower bound for the empirically achievable distance between all possible data-based models and the true DGP. This distance depends only on the dimension of the parameter space. The present paper examines the empirical relevance of this notion to econometric time series and discusses a new version of the theorem that allows for nonstationary DGP’s. Nonstationarity is relevant in many economic applications and it is shown that the …
New Unit Root Asymptotics In The Presence Of Deterministric Trends, Peter C.B. Phillips
New Unit Root Asymptotics In The Presence Of Deterministric Trends, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Recent work by the author (1998) has shown that stochastic trends can be validly represented in empirical regressions in terms of deterministic functions of time. These representations offer an alternative mechanism for modelling stochastic trends. It is shown here that the alternate representations affect the asymptotics of all commonly used unit root tests in the presence of trends. In particular, the critical values of unit root tests diverge when the number of deterministic regressors K approaches infinity as the sample size n approaches infinity. In such circumstances, use of conventional critical values based on fixed K will lead to rejection …
Jeffreys Prior Analysis Of The Simultaneous Equations Model In The Case With N + 1 Endogenous Variables, John C. Chao, Peter C.B. Phillips
Jeffreys Prior Analysis Of The Simultaneous Equations Model In The Case With N + 1 Endogenous Variables, John C. Chao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper analyzes the behavior of posterior distributions under the Jeffreys prior in a simultaneous equations model. The case under study is that of a general limited information setup with n +1 endogenous variables. The Jeffreys prior is shown to give rise to a marginal posterior density which has Cauchy-like tails similar to that exhibited by the exact finite sample distribution of the corresponding LIML estimator. A stronger correspondence is established in the special case of a just-identified orthonormal canonical model, where the posterior density under the Jeffreys prior is shown to have the same functional form as the density …
Finance Applications Of Game Theory, Franklin Allen, Stephen Morris
Finance Applications Of Game Theory, Franklin Allen, Stephen Morris
Cowles Foundation Discussion Papers
Traditional finance theory based on the assumptions of symmetric information and perfect and competitive markets has provided many important insights. These include the Modigliani and Miller Theorems, the CAPM, the Efficient Markets Hypothesis and continuous time finance. However, many empirical phenomena are difficult to reconcile with this traditional framework. Game theoretic techniques have allowed insights into a number of these. Many puzzles remain. This paper argues that recent advances in game theory concerned with higher order beliefs, informational cascades and heterogeneous prior beliefs have the potential to provide insights into some of these remaining puzzles.
How To Estimate Autoregressive Roots Near Units, Peter C.B. Phillips, Hyungsik Roger Moon, Zhijie Xiao
How To Estimate Autoregressive Roots Near Units, Peter C.B. Phillips, Hyungsik Roger Moon, Zhijie Xiao
Cowles Foundation Discussion Papers
A new model of near integration is formulated in which the local to unity parameter is identifiable and consistently estimable with time series data. The properties of the model are investigated, new functional laws for near integrated time series are obtained, and consistent estimators of the localizing parameter are constructed. The model provides a more complete interface between I(0) and I(1) models than the traditional local to unity model and leads to autoregressive coefficient estimates with rates of convergence that vary continuously between the O(/n) rate of stationary autoregression, the O(n) rate of unit root regression and the power rate …
Higher Order Approximations For Wald Statistics In Cointegrating Regressions, Zhijie Xiao, Peter C.B. Phillips
Higher Order Approximations For Wald Statistics In Cointegrating Regressions, Zhijie Xiao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Asymptotic expansions are developed for Wald test statistics in cointegrating regression models. These expansions provide an opportunity to reduce size distortion in testing by suitable bandwidth selection, and automated rules for doing so are calculated. Band spectral regression methods and tests are also considered. In such cases, it is shown how the effects of nonstationarity that dominate low frequency limit behaviour also carry over to high frequency asymptotics, with consequential effects on bandwidth rules.
Would A Privatized Social Security System Really Pay A Higher Rate Of Return, John Geanakoplos, Olivia S. Mitchell, Stephen P. Zeldes
Would A Privatized Social Security System Really Pay A Higher Rate Of Return, John Geanakoplos, Olivia S. Mitchell, Stephen P. Zeldes
Cowles Foundation Discussion Papers
Many advocates of social security privatization argue that rates of return under a defined contribution individual account system would be much higher for all than they are under the current social security system. This claim is false. The mistake comes from ignoring accrued benefits already promised based on past payroll taxes, and from underestimating the riskiness of stock investments. Confusion arises because three distinct reforms are muddled. By privatization we mean creating individual accounts (which could, for example, be invested exclusively in bonds). By diversification we mean investing in stocks, and perhaps other assets, as well as bonds; diversification might …
A Primer On Unit Root Testing, Peter C.B. Phillips, Zhijie Xiao
A Primer On Unit Root Testing, Peter C.B. Phillips, Zhijie Xiao
Cowles Foundation Discussion Papers
The immense literature and diversity of unit root tests can at times be confusing even to the specialist and presents a truly daunting prospect to the uninitiated. In consequence, much empirical work still makes use of the simplest testing procedures because it is unclear from the literature and from recent reviews which tests if any are superior. This paper presents a survey of unit root theory with an emphasis on testing principles and recent developments. The general framework adopted makes it possible to consider tests of stochastic trends against trend stationarity and trend breaks of a general type. The main …
Nonlinear Regressions With Integrated Time Series, Joon Y. Park, Peter C.B. Phillips
Nonlinear Regressions With Integrated Time Series, Joon Y. Park, Peter C.B. Phillips
Cowles Foundation Discussion Papers
An asymptotic theory is developed for nonlinear regression with integrated processes. The models allow for nonlinear effects from unit root time series and therefore deal with the case of parametric nonlinear cointegration. The theory covers integrable, asymptotically homogeneous and explosive functions. Sufficient conditions for weak consistency are given and a limit distribution theory is provided. In general, the limit theory is mixed normal with mixing variates that depend on the sojourn time of the limiting Brownian motion of the integrated process. The rates of convergence depend on the properties of the nonlinear regression function, and are shown to be as …
Social Security Money's Worth, John Geanakoplos, Olivia S. Mitchell, Stephen P. Zeldes
Social Security Money's Worth, John Geanakoplos, Olivia S. Mitchell, Stephen P. Zeldes
Cowles Foundation Discussion Papers
This paper describes how three money’s worth measures — the benefit-to-tax ratio, the internal rate of return, and the net present value — are calculated and used in analyses of social security reforms, including systems with privately managed individual accounts invested in equities. Declining returns from the U.S. social security system prove to be the inevitable result of having instituted an unfunded (pay-as-you-go) retirement system that delivered $7.9 trillion of net transfers (in 1997 present value dollars) to people born before 1917, and will deliver another $1.8 trillion to people born between 1918 and 1937. But young and future workers …
A Monetary Policy: Recent Theory And Practice, James Tobin
A Monetary Policy: Recent Theory And Practice, James Tobin
Cowles Foundation Discussion Papers
The paper reviews the major developments of the last three decades: the rise and fall of monetarism as theory and as targeting of intermediate monetary aggregates; targeting of nominal GDP in order to escape volatility of velocity of money; the abandonment of intermediate targets as superfluous; the use of money-market interest rates as operating procedure, except in the U.S.; their replacement by reserve aggregates in 1970–82; inflation stability and price level stability as policy objectives, often exclusive of other macroeconomic goals; the U.S. Federal Reserve as aiming successfully at both low inflation and low unemployment, goals mandated by law; the …
Nonparametric Censored Regression, Arthur Lewbel, Oliver B. Linton
Nonparametric Censored Regression, Arthur Lewbel, Oliver B. Linton
Cowles Foundation Discussion Papers
The nonparametric censored regression model is y = max [ c , m ( x ) + e ], where both the regression function m ( x ) and the distribution of the error e are unknown, but the fixed censoring point c is known. This paper provides a simple consistent estimator of the derivative of m ( x ) with respect to each element of x. The convergence rate of this estimator is the same as for the derivatives of an uncensored nonparametric regression. We then estimate the regression function itself by solving the associated partial differential equation system. …
Social Security And Institutions For Intergenerational, Intragenerational And International Risk Sharing, Robert J. Shiller
Social Security And Institutions For Intergenerational, Intragenerational And International Risk Sharing, Robert J. Shiller
Cowles Foundation Discussion Papers
Social security system old age insurance systems are devices for the sharing of income risks of elderly people with others. Risks can be shared intergenerationally (with the young of the same country), intragenerationally (with other elderly of the same country) or internationally (with foreigners). Barriers to individuals themselves sharing their risks intergenerationally, intragenerationally or internationally are described. Optimal design of government-sponsored social security systems is considered in light of these barriers. Alternative benefits and contributions formulas for pay-as-you-go social security systems are defined and compared with existing and proposed formulas in terms of their ability to fulfill the government’s role …
Financial Globalization: Can National Currencies Survive?, James Tobin
Financial Globalization: Can National Currencies Survive?, James Tobin
Cowles Foundation Discussion Papers
Fixed exchange rate, pegs to hard currencies that can be adjusted, are fragile, the more so the more mobile are capital funds across currencies and national markets. Once market participants doubt, for whatever reason, the ability of a developing or emerging economy’s central bank to meet its commitment to redeem it currency in hard currency at the promised rate, they will race to claim the country’s external reserves. Vulnerability to crises becomes greater as financial markets become less regulated and more internationally open. To escape currency crises, a country may lock its money to that of a reserve-currency country, as …
Asymptotics For Nonlinear Transformations Of Integrated Time Series, Joon Y. Park, Peter C.B. Phillips
Asymptotics For Nonlinear Transformations Of Integrated Time Series, Joon Y. Park, Peter C.B. Phillips
Cowles Foundation Discussion Papers
An asymptotic theory for stochastic processes generated from nonlinear transformations of nonstationary integrated time series is developed. Various nonlinear functions of integrated series such as ARIMA time series are studied, and the asymptotic distributions of sample moments of such functions are obtained and analyzed. The transformations considered in the paper include a variety of functions that are used in practical nonlinear statistical analysis. It is shown that their asymptotic theory is quite different from that of integrated processes and stationary time series. When the transformation function is exponentially explosive, for instance, the convergence rate of sample functions is path-dependent. In …
A Strategic Market Game With Active Bankruptcy, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
A Strategic Market Game With Active Bankruptcy, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
We construct stationary Markov equilibria for an economy with fiat money, one non-durable commodity, countably-many time periods, and a continuum of agents. The total production of commodity remains constant, but individual agents’ endowments fluctuate in a random fashion, from period to period. In order to hedge against these random fluctuations, agents find it useful to hold fiat money which they can borrow or deposit at appropriate rates of interest; such activity may take place either at a central bank (which fixes interest rates judiciously) or through a money-market (in which interest rates are determined endogenously). We carry out an equilibrium …
Nonstationary Density Estimation And Kernel Autoregression, Peter C.B. Phillips, Joon Y. Park
Nonstationary Density Estimation And Kernel Autoregression, Peter C.B. Phillips, Joon Y. Park
Cowles Foundation Discussion Papers
An asymptotic theory is developed for the kernel density estimate of a random walk and the kernel regression estimator of a nonstationary first order autoregression. The kernel density estimator provides a consistent estimate of the local time spent by the randon walk in the spatial vicinity of a point that is determined in part by the argument of the density and in part by initial conditions. The kernel regression estimator is shown to be consistent and to have a mixed normal limit theory. The limit distribution has a mixing variate that is given by the reciprocal of the local time …
Econometric Analysis Of Fisher’S Equation, Peter C.B. Phillips
Econometric Analysis Of Fisher’S Equation, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Fisher’s equation for the determination of the real rate of interest is studied from a fresh econometric perspective. Some new methods of data description for nonstationary time series are introduced. The methods provide a nonparametric mechanism for modelling the spatial densities of a time series that displays random wandering characteristics, like interest rates and inflation. Hazard rate functionals are also constructed, an asymptotic theory is given and the techniques are illustrated in some empirical applications to real interest rates for the US. The paper ends by calculating Gaussian semiparametric estimates of long range dependence in US real interest rates, using …
Game Theory, Complexity And Simplicity. Part Iii: Critique And Prospective, Martin Shubik
Game Theory, Complexity And Simplicity. Part Iii: Critique And Prospective, Martin Shubik
Cowles Foundation Discussion Papers
A discussion of some of the problems in the utilization of game theoretic solution concepts is given. It is suggested that a considerable broadening of solution concepts is called for to take into account sufficient context. Mass agent simulations appear to offer promise for some economic and societal problems.
Wald Revisited: The Optimal Level Of Experimentation, Giuseppe Moscarini, Lones Smith
Wald Revisited: The Optimal Level Of Experimentation, Giuseppe Moscarini, Lones Smith
Cowles Foundation Discussion Papers
This paper revisits Wald’s (1947) sequential experimentation paradigm, now assuming that an impatient decision maker can run variable-size experiments each period at some increasing and strictly convex cost before finally choosing an irreversible action. We translate this natural discrete time experimentation story into a tractable control of variance for a continuous time diffusion. Here we robustly characterize the optimal experimentation level: It is rising in the confidence about the project outcome, and for not very convex cost functions, the random process of experimentation levels has a positive drift over time. We also explore several parametric shifts unique to our framework. …
On The Skiadas ‘Conditional Preference Approach’ To Choice Under Uncertainty, Simon Grant, Atsushi Kajii, Ben Polak
On The Skiadas ‘Conditional Preference Approach’ To Choice Under Uncertainty, Simon Grant, Atsushi Kajii, Ben Polak
Cowles Foundation Discussion Papers
We compare the Skiadas approach with the standard Savage framework of choice under uncertainty. At first glance, properties of Skiadas “conditional preferences” such as coherence and disappointment seem analogous to similarly motivated notions of decomposability and disappointment aversion defined on Savage “ex ante preferences.” We show, however, that coherence per se places almost no restriction on the structure of ex ante preferences. Coherence is an `external’ restriction across preferences whereas notions of decomposability in the Savage framework are ‘internal’ to the particular preference relation. Similarly, standard notions of disappointment aversion refer to ‘within act’ disappointments. Skiadas’s notion of disappointment aversion …
Moral Hazard In Home Equity Conversion, Robert J. Shiller, Allan N. Weiss
Moral Hazard In Home Equity Conversion, Robert J. Shiller, Allan N. Weiss
Cowles Foundation Discussion Papers
Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once homeowners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes’ values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity …
Designing Indexed Units Of Account, Robert J. Shiller
Designing Indexed Units Of Account, Robert J. Shiller
Cowles Foundation Discussion Papers
An indexed unit of account is a unit of measurement defined using an index such as a consumer price index so that prices, wages or deferred payments defined in terms of these units will automatically adjust to changing economic conditions. Evidence on money illusion and sticky prices, and evidence from countries (notably Chile) that have created indexed units of account, suggests that creating such indexed units is an important policy option for governments in countries with unstable prices or incomes. Choices for governments designing indexed units of account are discussed. Governments may choose to encourage the use of the units …
Some Simple Games For Teaching And Research. Part 1: Cooperative Games, Martin Shubik
Some Simple Games For Teaching And Research. Part 1: Cooperative Games, Martin Shubik
Cowles Foundation Discussion Papers
Over many years some simple cooperative games have been considered in lectures on game theory. The games were selected in order to provide insight into various normative theories of solution to n-person games. It is suggested that the results indicate that when solutions have outcomes in common, predictability is higher than when they are apart. The core is attractive but less so when it is heavily nonsymmetric.
The Equivalence Of The Dekel-Fudenberg Iterative Procedure And Weakly Perfect Rationalizability, Jean-Jacques Herings, Vincent J. Vannetelbosch
The Equivalence Of The Dekel-Fudenberg Iterative Procedure And Weakly Perfect Rationalizability, Jean-Jacques Herings, Vincent J. Vannetelbosch
Cowles Foundation Discussion Papers
Two approaches have been proposed in the literature to refine the rationalizability solution concept: either assuming that players make small errors when playing their strategies, or assuming that their is a small amount of payoff uncertainty. We show that both approaches lead to the same refinement if errors are made according to the concept of weakly perfect rationalizability, and there is payoff uncertainty as in Dekel and Fudenberg [ Journal of Economic Theory (1990), 52: 243–267]. For both cases, the strategies that survive are obtained by starting with one round of elimination of weakly dominated strategies followed by many rounds …
Estimation Of Nonparametric Functions In Simultaneous Equations Models, With An Application To Consumer Demand, Donald J. Brown, Rosa L. Matzkin
Estimation Of Nonparametric Functions In Simultaneous Equations Models, With An Application To Consumer Demand, Donald J. Brown, Rosa L. Matzkin
Cowles Foundation Discussion Papers
We present a method for consistently estimating nonparametric functions and distributions in simultaneous equations models. This method is used to identify and estimate a random utility model of consumer demand. Our identification conditions for this particular model extend the results of Houthakker (1950), Uzawa (1971) and Mas-Colell (1977), where a deterministic utility function is uniquely recovered from its deterministic demand function.
Indexed Units Of Account: Theory And Assessment Of Historical Experience, Robert J. Shiller
Indexed Units Of Account: Theory And Assessment Of Historical Experience, Robert J. Shiller
Cowles Foundation Discussion Papers
An indexed unit of account is a money analogue, used to express prices; the unit’s purchasing power is defined by an index. Indexed units of account are not true money in that they are not used as a medium of exchange. The first successful indexed unit of account, the Unidad de Fomento (UF) has been used in Chile since 1967, and has been copied in Colombia, Ecuador, Mexico, and Uruguay. The reasons for creating such units are discussed from the standpoint of monetary theory. The experience with such units in Chile is discussed. It is argued that important practical problems …
Human Behavior And The Efficiency Of The Financial System, Robert J. Shiller
Human Behavior And The Efficiency Of The Financial System, Robert J. Shiller
Cowles Foundation Discussion Papers
Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and underreaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture.
Uniqueness, Stability, And Comparative Statics In Rationalizable Walrasian Markets, Donald J. Brown, Chris Shannon
Uniqueness, Stability, And Comparative Statics In Rationalizable Walrasian Markets, Donald J. Brown, Chris Shannon
Cowles Foundation Discussion Papers
This paper studies the extent to which qualitative features of Walrasian equilibria are refutable given a finite data set. In particular, we consider the hypothesis that the observed data are Walrasian equilibria in which each price vector is locally stable under tâtonnement. Our main result shows that a finite set of observations of prices, individual incomes and aggregate consumption vectors is rationalizable in an economy with smooth characteristics if and only if it is rationalizable in an economy in which each observed price vector is locally unique and stable under tâtonnement. Moreover, the equilibrium correspondence is locally monotone in a …
Non-Convex Costs And Capital Utilization: A Study Of Production Scheduling At Automobile Assembly Plants, George J. Hall
Non-Convex Costs And Capital Utilization: A Study Of Production Scheduling At Automobile Assembly Plants, George J. Hall
Cowles Foundation Discussion Papers
This paper studies how managers at automobile assembly plants organize production across time. Detailed data from eleven single-source automobile assembly plants display considerable cross-plant heterogeneity. At plants which make low- and medium-selling vehicles the capital stock often sits idle, production is more variable than sales, and weeklong shutdowns are often used to vary output. In contrast, at plants which make high-selling vehicles, the capital stock rarely sits idle, production is about as variable as sales, and over time — bit weeklong shutdowns — is most frequently used to vary output. To explain this difference in production scheduling, I formulate and …