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Articles 1321 - 1350 of 2768
Full-Text Articles in Social and Behavioral Sciences
Catalytic Finance: When Does It Work?, Stephen Morris, Hyun Song Shin
Catalytic Finance: When Does It Work?, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
In a simple model of currency crises caused by creditor coordination failure, we show that bailouts that reduce ex post inefficiency will sometimes create ex ante moral hazard but will sometimes enhance the incentives for governments to take preventative actions. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.
Coordination, Communication And Common Knowledge: A Retrospective On The Electronic Mail Game, Stephen Morris
Coordination, Communication And Common Knowledge: A Retrospective On The Electronic Mail Game, Stephen Morris
Cowles Foundation Discussion Papers
Common knowledge plays an important role in coordination problems and coordination problems are central to many areas of economic policy. In this paper, I review some common knowledge puzzles culminating in the electronic mail game. These puzzles may seem distant from practical concerns. However, I then argue why insights derived from this literature are useful in interpreting empirical evidence of how people coordinate under uncertainty and in understanding the role of communication in coordinating behaviour.
The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
We show that a demand function is derived from maximizing a quasilinear utility function subject to a budget constraint if and only if the demand function is cyclically monotone. On finite data sets consisting of pairs of market prices and consumption vectors, this result is equivalent to a solution of the Afriat inequalities where all the marginal utilities of income are equal. We explore the implications of these results for maximization of a random quasilinear utility function subject to a budget constraint and for representative agent general equilibrium models. The duality theory for cyclically monotone demand is developed using the …
Laws And Limits Of Econometrics, Peter C.B. Phillips
Laws And Limits Of Econometrics, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We start by discussing some general weaknesses and limitations of the econometric approach. A template from sociology is used to formulate six laws that characterize mainstream activities of econometrics and the scientific limits of those activities., we discuss some proximity theorems that quantify by means of explicit bounds how close we can get to the generating mechanism of the data and the optimal forecasts of next period observations using a finite number of observations. The magnitude of the bound depends on the characteristics of the model and the trajectory of the observed data. The results show that trends are more …
The Elusive Empirical Shadow Of Growth Convergence, Peter C.B. Phillips, Donggyu Sul
The Elusive Empirical Shadow Of Growth Convergence, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
Two groups of applied econometricians have figured prominently in empirical studies of growth convergence. In terms of a popular caricature, one group believes it has found a black hat of convergence (evidence for growth convergence) in the dark room of economic growth, even though the hat may not exist (the task may be futile). A second group believes it has found a black coat of divergence (evidence against growth convergence) even though this object also may not exist (empirical reality, including the nature of growth divergence, is ever more complex than the models used to characterize it). The present paper …
Rationalizing And Curve-Fitting Demand Data With Quasilinear Utilities, Donald J. Brown, Caterina Calsamiglia
Rationalizing And Curve-Fitting Demand Data With Quasilinear Utilities, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
In the empirical and theoretical literature a consumer’s utility function is often assumed to be quasilinear. In this paper we provide necessary and sufficient conditions for testing if the consumer acts as if she is maximizing a quasilinear utility function over her budget set. If the consumer’s choices are inconsistent with maximizing a quasilinear utility function over her budget set, then we compute the “best” quasilinear rationalization of her choices.
Heterogeneity And Uniqueness In Interaction Games, Stephen Morris, Hyun Song Shin
Heterogeneity And Uniqueness In Interaction Games, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Incomplete information games, local interaction games and random matching games are all special cases of a general class of interaction games (Morris (1997)). In this paper, we use this equivalence to present a unified treatment of arguments generating uniqueness in games with strategic complementarities by introducing heterogeneity in these different settings. We also report on the relation between local and global heterogeneity, on the role of strategic multipliers and on purification in the three types of interaction game.
Bonds Or Loans? The Effect Of Macroeconomic Fundamentals, Galina Hale
Bonds Or Loans? The Effect Of Macroeconomic Fundamentals, Galina Hale
Cowles Foundation Discussion Papers
The costs of debt crises are not invariant to the foreign debt instrument composition: bank loans or bonds. The lending boom of the 1990s witnessed considerable variation over time and across countries in the debt instrument used by emerging market (EM) borrowers. This paper tests how macroeconomic fundamentals affect the composition of international debt instruments used by EM borrowers. Analysis of micro-level data using ordered probability model shows that macroeconomic fundamentals explain a significant share of variation in the ratio of bonds to loans for private borrowers, but not for the sovereigns.
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 …
Generalized Potentials And Robust Sets Of Equilibria, Stephen Morris, Takashi Ui
Generalized Potentials And Robust Sets Of Equilibria, Stephen Morris, Takashi Ui
Cowles Foundation Discussion Papers
This paper introduces generalized potential functions of complete information games and studies the robustness of sets of equilibria to incomplete information. A set of equilibria of a complete information game is robust if every incomplete information game where payoffs are almost always given by the complete information game has an equilibrium which generates behavior close to some equilibrium in the set. This paper provides sufficient conditions for the robustness of sets of equilibria in terms of argmax sets of generalized potential functions and shows that the sufficient conditions generalize the existing sufficient conditions for the robustness of equilibria.
Gmm Estimation Of Autoregressive Roots Near Unity With Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Gmm Estimation Of Autoregressive Roots Near Unity With Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper investigates a generalized method of moments (GMM) approach to the estimation of autoregressive roots near unity with panel data and incidental deterministic trends. Such models arise in empirical econometric studies of firm size and in dynamic panel data modeling with weak instruments. The two moment conditions in the GMM approach are obtained by constructing bias corrections to the score functions under OLS and GLS detrending, respectively. It is shown that the moment condition under GLS detrending corresponds to taking the projected score on the Bhattacharya basis, linking the approach to recent work on projected score methods for models …
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.
Who Refers To Whom: A Study Of Research References And The Relationship Between Research Reports And Final Publication, Samuel Mccarthy, Martin Shubik, Jianfeng Yu
Who Refers To Whom: A Study Of Research References And The Relationship Between Research Reports And Final Publication, Samuel Mccarthy, Martin Shubik, Jianfeng Yu
Cowles Foundation Discussion Papers
The size and style of referencing for a large sample of 60 years of publications of the Cowles Foundation are examined. The influence of computerization is considered. Self-referencing is noted and some observations are made on the costs and distribution of research papers.
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.
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.
Tests Of Independence In Separable Econometric Models, Donald J. Brown, Marten H. Wegkamp
Tests Of Independence In Separable Econometric Models, Donald J. Brown, Marten H. Wegkamp
Cowles Foundation Discussion Papers
A common stochastic restriction in econometric models separable in the latent variablesis 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
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.
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 …
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.
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 …
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 …
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.
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 …
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 …
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.
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
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 …
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 …