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Articles 2341 - 2370 of 3476
Full-Text Articles in Economics
Learning And Strategic Pricing, Dirk Bergemann, Juuso Välimäki
Learning And Strategic Pricing, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider the situation where a single consumer buys a stream of goods from different sellers over time. The true value of each seller’s product to the buyer is initially unknown. Additional information can be gained only by experimentation. For exogenously given prices the buyer’s problem is a multi-armed bandit problem. The innovation in this paper is to endogenize the cost of experimentation to the consumer by allowing for price competition between the sellers. The role of prices is then to allocate intertemporally the costs and benefits of learning between buyer and sellers. We examine how strategic aspects of the …
Time And Money, Martin Shubik
Time And Money, Martin Shubik
Cowles Foundation Discussion Papers
General equilibrium is timeless, and without outside money, the price system is homogeneous of order zero. Some finite horizon strategic market game models are considered with an initial issue of flat money held as an asset. For any arbitrary finite horizon, the solution is time-dependent. In the infinite horizon, time disappears with the initial issue of flat money present as circulating capital in the fully stationary state and the price level is determined.
A Conditional Kolmogorov Test, Donald W.K. Andrews
A Conditional Kolmogorov Test, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper introduces a conditional Kolmogorov test of model specification for parametric models with covariates (regressors). The test is an extension of the Kolmogorov test of goodness-of-fit for distribution functions. The test is shown to have power against 1/root{n}-local alternatives and all fixed alternatives to the null hypothesis. A parametric bootstrap procedure is used to obtain critical values for the test.
Testable Restrictions On The Equilibrium Manifold, Donald J. Brown, Rosa L. Matzkin
Testable Restrictions On The Equilibrium Manifold, Donald J. Brown, Rosa L. Matzkin
Cowles Foundation Discussion Papers
We present a finite system of polynomial inequalities in unobservable variables and market data that observations on market prices, individual incomes and aggregate endowments must satisfy to be consistent with the equilibrium behavior of some pure trade economy. Quantifier elimination is used to derive testable propositions on finite data sets for the pure trade model.
Labor Income Indices Designed For Use In Contracts Promoting Income Risk Management, Robert J. Shiller, Ryan Schneider
Labor Income Indices Designed For Use In Contracts Promoting Income Risk Management, Robert J. Shiller, Ryan Schneider
Cowles Foundation Discussion Papers
Labor income indices are created for groupings of individuals, using data from the Panel Study of Income Dynamics. People are grouped by a clustering algorithm based on an estimated transition matrix between jobs, by education level, and by skill category. The groups are defined so that relatively few people move between them. For each of the groupings, we generate a labor income index using a hedonic repeated-measures regression methodology. Similarities between pairs of indices and between indices and individual labor incomes are described. It is argued that indices like those presented here might someday be used in settlement formulae in …
Evaluating The Probability Of Failure Of A Banking Firm, Moshe Buchinsky, Oved Yosha
Evaluating The Probability Of Failure Of A Banking Firm, Moshe Buchinsky, Oved Yosha
Cowles Foundation Discussion Papers
We develop a dynamic model in which the probability of failure of an infinitely lived financial intermediary (bank) is determined endogenously as a function of observable state and policy variables. The bank takes into account the effect of the optimal policy (the interest on deposits, dividend payouts, risky investments) on the probability of failure, which in turn affects the bank’s ability to extract deposits. With the aid of simulations we study the effect of variables such as bank size, the riskiness of the bank’s investment opportunities, and reserve requirements on the bank’s optimal policy and on its probability of failure. …
Information Externalities, Share-Price Based Incentives And Managerial Behaviour, Simon Grant, Stephen King, Ben Polak
Information Externalities, Share-Price Based Incentives And Managerial Behaviour, Simon Grant, Stephen King, Ben Polak
Cowles Foundation Discussion Papers
We survey recent theoretical research on the effects of short-term share-price based marginal incentive schemes. Such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts. These problems arise from informational asymmetries: managers take actions to manipulate the information flow rather than to maximize firm value. More generally, imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties’ interests are aligned.
Testing Additivity In Generalized Nonparametric Regression Models, Pedro Gozalo, Oliver B. Linton
Testing Additivity In Generalized Nonparametric Regression Models, Pedro Gozalo, Oliver B. Linton
Cowles Foundation Discussion Papers
We develop kernel-based consistent tests of an hypothesis of additivity in nonparametric regression extending recent work on testing parametric null hypotheses against nonparametric alternatives. The additivity hypothesis is of interest because it delivers interpretability and reasonably fast convergence rates for standard estimators. The asymptotic distributions of the tests under a sequence of local alternatives are found and compared: in fact, we give a ranking of the different tests based on local asymptotic power. The practical performance is investigated via simulations and an application to the German migration data of Linton and Härdle (1996).
Unit Root Tests, Peter C.B. Phillips
Unit Root Tests, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Classical and Bayesian unit root test procedures are reviewed, with an emphasis on testing principles and recent developments. A numerical illustration and annotated references and bibliography are provided.
Impulse Response And Forecast Error Variance Asymptotics In Nonstationary Var's, Peter C.B. Phillips
Impulse Response And Forecast Error Variance Asymptotics In Nonstationary Var's, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Impulse response and forecast error variance matrix asymptotics are developed for VAR models with some roots at or near unity and some cointegration. For such models, it is shown that impulse responses that are estimated from an unrestricted VAR are inconsistent at long horizons and tend to random variables rather than the true impulse responses in the limit. The asymmetric distribution of the limit variates helps to explain the asymmetry of the finite sample distributions of the estimated impulse responses that is often found in simulations. VAR regressions also give inconsistent estimates of the forecast error variance of the optimal …
Automated Forecasts Of Asia-Pacific Economic Activity, Peter C.B. Phillips
Automated Forecasts Of Asia-Pacific Economic Activity, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper reports quarterly ex ante forecasts of macroeconomic activity for the U.S.A., Japan and Australia for the period 1995-1997. The forecasts are based on automated time series models of vector autoregressions (VAR’s), reduced rank regressions (RRR’s), error correction models (ECM’s) and Bayesian vector autoregressions (BVAR’s). The models are automated by using an asymptotic predictive form of the model selection criterion PIC to determine autoregressive lag order, cointegrating rank and trend degree in the VAR’s, RRR’s, and ECM’s. The same criterion is used to find optimal values of the hyperparameters in the BVAR’s. The forecasts are graphed and tabulated. In …
Adaptive Testing In Arch Models, Oliver B. Linton, Douglas G. Steigerwald
Adaptive Testing In Arch Models, Oliver B. Linton, Douglas G. Steigerwald
Cowles Foundation Discussion Papers
Existing specification tests for conditional heteroskedasticity are derived under the assumption that the density of the innovation, or standardized error, is Gaussian, despite the fact that many recent empirical studies provide evidence that this density is not Gaussian. We obtain specification tests for conditional heteroskedasticity under the assumption that the innovation density is a member of a general family of densities. Our test statistics maximize asymptotic local power and weighted average power criteria for the general family of densities. We establish both first order and second order theory for our procedures. Monte Carlo simulations indicate that asymptotic power gains are …
How Should We Measure Sustainable Income?, William D. Nordhaus
How Should We Measure Sustainable Income?, William D. Nordhaus
Cowles Foundation Discussion Papers
Growing concerns about long-run economic growth have led to calls for measures of “sustainable income.” Traditional analyses rely on Hicksian income, which is consumption plus net investment. The present paper shows that Hicksian income corresponds to sustainable income only under implausibly limited circumstances. We define sustainable income and estimate its magnitude for the United States. The analysis and empirical estimates indicate, first, that consumption has historically been far below sustainable income; second, that conventional Hicksian measures of national income are poor proxies for sustainable income; and, third, that the true savings rate has declined significantly in the last two decades.
Mortgage Default Risk And Real Estate Prices: The Use Of Index-Based Futures And Options In Real Estate, Robert J. Shiller, Karl E. Case, Allan N. Weiss
Mortgage Default Risk And Real Estate Prices: The Use Of Index-Based Futures And Options In Real Estate, Robert J. Shiller, Karl E. Case, Allan N. Weiss
Cowles Foundation Discussion Papers
Evidence is shown, using US foreclosure data by state 1975-93, that periods of high default rates on home mortgages strongly tend to follow real estate price declines or interruptions in real estate price increase. The relation between price decline and foreclosure rates is modelled using a distributed lag. Using this model, holders of residential mortgage portfolios could hedge some of the risk of default by taking positions in futures or options markets for residential real estate prices, were such markets to be established.
Banks Versus Bonds: A Simple Theory Of Comparative Financial Institutions, Sandeep Baliga, Ben Polak
Banks Versus Bonds: A Simple Theory Of Comparative Financial Institutions, Sandeep Baliga, Ben Polak
Cowles Foundation Discussion Papers
We use a simple, graphical moral hazard model to compare monitored bank lending versus non-monitored bond issues as sources of external funds for industry. We contrast the conditions that theoretically favor each system, such as the size and number of firms, with conditions prevailing when these financial systems were developed during the British and German Industrial Revolutions. Then, to address the question why different systems have persisted, we embed the model in an entry game in which firm size and number are endogenous. We show that multiple equilibria can exist if financiers take the industrial structure as given and vice …
World Income Components: Measuring And Exploiting International Risk Sharing Opportunities, Robert J. Shiller, Stefano G. Athanasoulis
World Income Components: Measuring And Exploiting International Risk Sharing Opportunities, Robert J. Shiller, Stefano G. Athanasoulis
Cowles Foundation Discussion Papers
We provide a method for decomposing the variance of world national income (present values) into components in such a way as to indicate the most important risk-sharing opportunities among nations of the world. We identify risk-sharing opportunities in terms of eigenvectors of a variance matrix of deviations of the present value of country incomes from their respective shares (adjusted for population and risk aversion) of world income. The method is applied to data on national incomes of six large countries 1870-1992 (Maddison [1995]): Canada, France, Germany, Italy, United Kingdom and United States. The method reveals that, assuming symmetric risk aversions, …
A Strategic Market Game With Secured Lending, Ioannis Karatzas, Martin Shubik, William D. Sudderth
A Strategic Market Game With Secured Lending, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
We study stationary Markov equilibria for strategic, competitive games, in a market-economy model with one non-durable commodity, fiat money, borrowing/lending through a central bank or a money market, and a continuum of agents. These use fiat money in order to offset random fluctuations in their endowments of the commodity, are not allowed to borrow more than they can pay back (secured lending), and maximize expected discounted utility from consumption of the commodity. Their aggregate optimal actions determine dynamically prices and/or interest rates for borrowing and lending, in each period of play. In equilibrium, random fluctuations in endowment- and wealth-levels offset …
Quantile Regression Model With Unknown Censoring Point, Moshe Buchinsky, Jinyong Hahn
Quantile Regression Model With Unknown Censoring Point, Moshe Buchinsky, Jinyong Hahn
Cowles Foundation Discussion Papers
The paper introduces an estimator for the linear censored quantile regression model when the censoring point is an unknown function of a set of regressors. The objective function minimized is convex and the minimization problem is a linear programming problem, for which there is a global minimum. The suggested procedure applies also to the special case of a fixed known censoring point. Under fairly weak conditions the estimator is shown to have n -convergence rate and is asymptotically normal. In the special case of a fixed censoring point it is asymptotically equivalent to the estimator suggested by Powell (1984, 1986a). …
An Overview Of The General Theory, James Tobin
An Overview Of The General Theory, James Tobin
Cowles Foundation Discussion Papers
This paper is intended to be a chapter in a forthcoming “Second Edition” of John Maynard Keynes, The General Theory of Employment, Interest and Money , published in one single edition in 1936. The Second Edition is being edited by Geoffrey Harcourt and Peter Riach and will contain contributions by 30 or 40 authors. It is to be published by Routledge, it is hoped in 1996, the 60th birthday of the great book. Most of the contributions correspond to the chapters of the original book, and others are essays about the book or natural extensions of it. The chapter of …
Evaluating Alternative Monetary Policy Rules, Ray C. Fair, E. Philip Howrey
Evaluating Alternative Monetary Policy Rules, Ray C. Fair, E. Philip Howrey
Cowles Foundation Discussion Papers
This paper examines monetary policy from an optimal control perspective. Three loss functions are minimized for each of three models, and the results are compared. The three loss functions target nominal growth, real growth, and inflation, respectively. The three models are a small structural model, a VAR model, and a large structural model. A numerical procedure is presented that can handle a variety of loss functions and models.
Dumb Bugs And Bright Noncooperative Players: Games, Context And Behavior, Thomas Quint, Martin Shubik, Dickey Yan
Dumb Bugs And Bright Noncooperative Players: Games, Context And Behavior, Thomas Quint, Martin Shubik, Dickey Yan
Cowles Foundation Discussion Papers
Consider a repeated bimatrix game. We define “bugs” as players whose “strategy” is to react myopically to whatever the opponent did on the previous iteration. We believe that in some contexts this is a more realistic model of behavior than the standard “supremely rational” noncooperative game player. We consider possible outcome paths that can occur as the result of bugs playing a game. We also compare how bugs fare over a suitable “universe of games,” as compared with standard “Nash” players and “maximin” players.
A Bound On The Number Of Nash Equilibria In A Coordination Game, Thomas Quint, Martin Shubik
A Bound On The Number Of Nash Equilibria In A Coordination Game, Thomas Quint, Martin Shubik
Cowles Foundation Discussion Papers
We prove that a “nondegenerate” m × m coordination game can have at most 2 M - 1 Nash equilibria, where M = min( m,n ).
Conversation, Information, And Herd Behavior, Robert J. Shiller
Conversation, Information, And Herd Behavior, Robert J. Shiller
Cowles Foundation Discussion Papers
Experimental evidence shows that an important reason why people tend to imitate others, to exhibit “herd behavior” is that they assume that the others have information that justifies their actions. The information cascade models of Banerjee [1992] and Bikhchandani et al . [1992] are significant developments in showing some general equilibrium and welfare effects of such rational imitative behavior. But these models as specified may be of limited applicability since they assert that differences across groups in herd behavior can be attributed to the random decisions of first movers. Differences across groups in herd behavior might be explained more often …
Unemployment And Liquidity Constraints, Vassilis A. Hajivassiliou, Yannis M. Ioannides
Unemployment And Liquidity Constraints, Vassilis A. Hajivassiliou, Yannis M. Ioannides
Cowles Foundation Discussion Papers
In this paper we propose a modelling approach for labor supply and consumption decisions that is firmly grounded within a utility maximizing framework and allows for a role of such institutional constraints as limited access to borrowing and involuntary unemployment. We report estimations for a system of dynamic probit models with data from the Panel Study of Income Dynamics. These estimations test broad predictions of the theoretical model. One of our models describes a household’s propensity to be liquidity constrained in a given period. The second is a dynamic ordered probit model for a labor constraint indicator describing qualitative aspects …
The Topological Structure Of Maximal Lattice Free Convex Bodies: The General Case, Imre Bárány, Herbert E. Scarf, David F. Shallcross
The Topological Structure Of Maximal Lattice Free Convex Bodies: The General Case, Imre Bárány, Herbert E. Scarf, David F. Shallcross
Cowles Foundation Discussion Papers
Given a generic m x n matrix A , the simplicial complex K ( A ) is defined to be the collection of simplices representing maximal lattice point free convex bodies of the form { x : Ax < b }. The main result of this paper is that the topological space associated with K ( A ) is homeomorphic with R m -1.
A Model Of Migration, Thomas Quint, Martin Shubik
A Model Of Migration, Thomas Quint, Martin Shubik
Cowles Foundation Discussion Papers
A simple game-theoretic model of migration is proposed, in which the players are animals, the strategies are territories in a landscape to which they may migrate, and the payoffs for each animal are determined by its ultimate location and the number of other animals there. If the payoff to an animal is a decreasing function of the number of other animals sharing its territory, we show the resultant game has a pure strategy Nash equilibrium (PSNE). Furthermore, this PSNE is generated via “natural” myopic behavior on the part of the animals. Finally, we compare this type of game with congestion …
On The Number Of Nash Equilibria In A Bimatrix Game, Thomas Quint, Martin Shubik
On The Number Of Nash Equilibria In A Bimatrix Game, Thomas Quint, Martin Shubik
Cowles Foundation Discussion Papers
We show that if y is an odd integer between 1 and 2 n - 1, there is an n × n bimatrix game with exactly y Nash equilibria (NE). We conjecture that this 2 n - 1 is a tight upper for n < 3, and provide bounds on the number of NEs in m × n nondegenerate games when min( m,n ) < 4.
Error Bands For Impulse Responses, Christopher A. Sims, Tao Zha
Error Bands For Impulse Responses, Christopher A. Sims, Tao Zha
Cowles Foundation Discussion Papers
We examine the theory and behavior in practice of Bayesian and bootstrap methods for generating error bands on impulse responses in dynamic linear models. The Bayesian intervals have a firmer theoretical foundation in small samples, are easier to compute, and are about as good in small samples by classical criteria as are the best bootstrap intervals. Bootstrap intervals based directly on the simulated small-sample distribution of an estimator, without bias correction, perform very badly. We show that a method that has been used to extend to the overidentified case standard algorithms for Bayesian intervals in reduced form models is incorrect, …
Edgeworth Approximation For Minpin Estimators In Semiparametric Regression Models, Oliver B. Linton
Edgeworth Approximation For Minpin Estimators In Semiparametric Regression Models, Oliver B. Linton
Cowles Foundation Discussion Papers
We examine the higher order asymptotic properties of semiparametric regression estimators that were obtained by the general MINPIN method described in Andrews (1989). We derive an order n –1 stochastic expansion and give a theorem justifying order n – 1 distributional approximation of the Edgeworth type.
The Effect Of Economic Events On Votes For President: 1992 Update, Ray C. Fair
The Effect Of Economic Events On Votes For President: 1992 Update, Ray C. Fair
Cowles Foundation Discussion Papers
This paper updates through the 1992 election the equation originally presented in Fair (1978) explaining votes for president. Conditional predictions of the 1996 election are also made.