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Full-Text Articles in Social and Behavioral Sciences

Econometric Methods For Endogenously Sampled Time Series: The Case Of Commodity Price Speculation In The Steel Market, George J. Hall, John Rust Jul 2002

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 …


Best Response Equivalence, Stephen Morris, Takashi Ui Jul 2002

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.


Error Bounds And Asymptotic Expansions For Toeplitz Product Functionals Of Unbounded Spectra, Offer Lieberman, Peter C.B. Phillips Jun 2002

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 Jun 2002

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.


Nonstationary Discrete Choice, Ling Hu, Peter C.B. Phillips May 2002

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 …


End-Of-Sample Instability Tests, Donald W.K. Andrews May 2002

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 …


Limit Theorems For Estimating The Parameters Of Differentiated Product Demand Systems, Steven T. Berry, Oliver B. Linton, Ariel Pakes May 2002

Limit Theorems For Estimating The Parameters Of Differentiated Product Demand Systems, Steven T. Berry, Oliver B. Linton, Ariel Pakes

Cowles Foundation Discussion Papers

We provide an asymptotic distribution theory for a class of Generalized Method of Moments estimators that arise in the study of differentiated product markets when the number of observations is associated with the number of products within a given market. We allow for three sources of error: the sampling error in estimating market shares, the simulation error in approximating the shares predicted by the model, and the underlying model error. The limiting distribution of the parameter estimator is normal provided the size of the consumer sample and the number of simulation draws grow at a large enough rate relative to …


The Mildest Recession: Output, Profits, And Stock Prices As The U.S. Emerges From The 2001 Recession, William D. Nordhaus May 2002

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 …


Nonlinear Log-Periodogram Regression For Perturbed Fractional Processes, Yixiao Sun, Peter C.B. Phillips May 2002

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. …


Dynamics Of The Federal Funds Target Rate: A Nonstationary Discrete Choice Approach, Ling Hu, Peter C.B. Phillips May 2002

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 …


Efficient Regression In Time Series Partial Linear Models, Peter C.B. Phillips, Binbin Guo, Zhijie Xiao May 2002

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 …


Local Whittle Estimation Of Fractional Integration, Katsumi Shimotsu, Peter C.B. Phillips May 2002

Local Whittle Estimation Of Fractional Integration, Katsumi Shimotsu, Peter C.B. Phillips

Cowles Foundation Discussion Papers

An exact form of the local Whittle likelihood is studied with the intent of developing a general purpose estimation procedure for the memory parameter ( d ) that does not rely on tapering or differencing prefilters. The resulting exact local Whittle estimator is shown to be consistent and to have the same N (0,1/4) limit distribution for all values of d if the optimization covers an interval of width less than 9/2 and the initial value of the process is known.


The Block-Block Bootstrap: Improved Asymptotic Refinements, Donald W.K. Andrews May 2002

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 May 2002

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 …


Dynamic Panel Estimation And Homogeneity Testing Under Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul May 2002

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 …


The Kpss Test With Seasonal Dummies, Sainan Jin, Peter C.B. Phillips May 2002

The Kpss Test With Seasonal Dummies, Sainan Jin, Peter C.B. Phillips

Cowles Foundation Discussion Papers

It is shown that the KPSS test for stationarity may be applied without change to regressions with seasonal dummies. In particular, the limit distribution of the KPSS statistic is the same under both the null and alternative hypotheses whether or not seasonal dummies are used.


Competition In Or For The Field: Which Is Better?, Eduardo Engel, Ronald Fischer, Alexander Galetovic Apr 2002

Competition In Or For The Field: Which Is Better?, Eduardo Engel, Ronald Fischer, Alexander Galetovic

Cowles Foundation Discussion Papers

A principal, who wants prices to be as low as possible, contracts with agents who would like to charge the monopoly price. The principal chooses between a Demsetz auction, which awards an exclusive contract to the agent bidding the lowest price (competition for the field) and having two agents provide the good under (imperfectly) competitive conditions (competition in the field). We obtain a simple sufficient condition showing unambiguously which option is best. The condition depends only on the shapes of the surplus function of the principal and the profit function of agents, and is independent of the particular duopoly game …


Partially Linear Models With Unit Roots, Ted Juhl, Zhijie Xiao Apr 2002

Partially Linear Models With Unit Roots, Ted Juhl, Zhijie Xiao

Cowles Foundation Discussion Papers

This paper studies the asymptotic properties of a nonstationary partially linear regression model. In particular, we allow for covariates to enter the unit root (or near unit root) model in a nonparametric fashion, so that our model is an extension of the semiparametric model analyzed in Robinson (1988). It is proven that the autoregressive parameter can be estimated at rate N even though part of the model is estimated nonparametrically. Unit root tests based on the semiparametric estimate of the autoregressive parameter have a limiting distribution which is a mixture of a standard normal and the Dickey-Fuller distribution. A Monte …


From Nash To Walras Via Shapley-Shubik, Pradeep Dubey, John Geanakoplos Apr 2002

From Nash To Walras Via Shapley-Shubik, Pradeep Dubey, John Geanakoplos

Cowles Foundation Discussion Papers

We derive the existence of a Walras equilibrium directly from Nash’s theorem on noncooperative games. No price player is involved, nor are generalized games. Instead we use a variant of the Shapley-Shubik trading-post game.


Valid Edgeworth Expansions For The Whittle Maximum Likelihood Estimator For Stationary Long-Memory Gaussian Time Series, Donald W.K. Andrews, Offer Lieberman Apr 2002

Valid Edgeworth Expansions For The Whittle Maximum Likelihood Estimator For Stationary Long-Memory Gaussian Time Series, Donald W.K. Andrews, Offer Lieberman

Cowles Foundation Discussion Papers

In this paper, we prove the validity of an Edgeworth expansion to the distribution of the Whittle maximum likelihood estimator for stationary long-memory Gaussian models with unknown parameter donpap26_black.jpg (3566 bytes) . The error of the (s-2)-order expansion is shown to be o ( n ( s -2)/2 ) – the usual iid rate — for a wide range of models, including the popular ARFIMA(p,d,q) models. The expansion is valid under mild assumptions on the behavior of spectral density and its derivatives in the neighborhood of the origin. As a by-product, we generalize a Theorem by Fox and Taqqu (1987) …


Macroeconomic Strategy In Wartime, James Tobin Mar 2002

Macroeconomic Strategy In Wartime, James Tobin

Cowles Foundation Discussion Papers

In 2001-02 the United States has been hit by two quite different shocks, terrorism and recession. As usual in time of war, national defense is the highest priority for use of the country’s resources. Although the opportunities for international warfare are limited, the challenges to the homeland are virtually unlimited. The president’s fiscal year 2003 budget includes $48 billion additional for the military and $38 billion additional for homeland defense. Given the gravity of the threat, it is hard to understand why new expenditures are not undertaken as soon as and as large as possible. This would also be timely …


The Health Of Nations: The Contribution Of Improved Health To Living Standards, William D. Nordhaus Feb 2002

The Health Of Nations: The Contribution Of Improved Health To Living Standards, William D. Nordhaus

Cowles Foundation Discussion Papers

Nations generally measure their economic performance using the yardstick of national output and income. It is not widely recognized, however, that conventional measures of national income and output exclude the value of improvements in the health status of the population. The present study develops a methodology and presents preliminary estimates of how standard economic measures would change if they adequately reflected improvements in health status. The study first discusses the theory of the measurement of national income, examines some of the shortcomings of traditional concepts, and proposes a new concept called ‘health income’ that can be used to incorporate improvements …


I'Ll See It When I Believe It — A Simple Model Of Cognitive Consistency, Leeat Yariv Feb 2002

I'Ll See It When I Believe It — A Simple Model Of Cognitive Consistency, Leeat Yariv

Cowles Foundation Discussion Papers

Psychological experiments demonstrate that people exhibit a taste for consistency. Individuals are inclined to interpret new evidence in ways that confirm their pre-existing beliefs. They also tend to change their beliefs to enhance the desirability of their past actions. I present a model that incorporates these effects into an agent’s utility function and allows me to characterize when: (i) agents become under- and over-confident, (ii) agents exhibit excess stickiness in action choices, (iii) agents prefer less accurate signals, and (iv) agents are willing to pay in order to forgo signals altogether. Applications to political campaigns and investment decisions are explored.


Consistent Testing For Stochastic Dominance: A Subsampling Approach, Oliver B. Linton, Esfandiar Maasoumi, Yoon-Jae Whang Feb 2002

Consistent Testing For Stochastic Dominance: A Subsampling Approach, Oliver B. Linton, Esfandiar Maasoumi, Yoon-Jae Whang

Cowles Foundation Discussion Papers

We propose a procedure for estimating the critical values of the Klecan, McFadden, and McFadden (1990) test for first and second order stochastic dominance in the general k -prospect case. Our method is based on subsampling bootstrap. We show that the resulting test is consistent. We allow for correlation amongst the prospects and for the observations to be autocorrelated over time. Importantly, the prospects may be the residuals from certain conditional models.


How To Auction An Essential Facility When Underhand Integration Is Possible, Eduardo Engel, Ronald Fischer, Alexander Galetovic Feb 2002

How To Auction An Essential Facility When Underhand Integration Is Possible, Eduardo Engel, Ronald Fischer, Alexander Galetovic

Cowles Foundation Discussion Papers

Regulating seaports is difficult in general, even more so for the weak regulatory institutions common in developing countries. For this reason some countries have awarded these facilities via Demsetz auctions, to the port operator that bids the lowest cargo-handling fee. A major concern with Demsetz auctions in this context, is that the winning operator may integrate with a shipper and monopolize the shipping market, by worsening the service quality for competing shippers. The standard policy recommendation against service quality discrimination is to ban the seaport from operating in the shipping market. The effectiveness of such prohibitions is suspect, however, because …


Highway Franchising And Real Estate Values, Eduardo Engel, Ronald Fischer, Alexander Galetovic Feb 2002

Highway Franchising And Real Estate Values, Eduardo Engel, Ronald Fischer, Alexander Galetovic

Cowles Foundation Discussion Papers

It has become increasingly common to allocate highway franchises to the bidder that offers to charge the lowest toll. Often, building a highway increases the value of land held by a small group of developers, an effect that is more pronounced with lower tolls. We study the welfare implications of highway franchises that benefit large developers, focusing on the incentives developers have to internalize the effect of the toll they bid on the value of their land. We study how participation by developers in the auction affects equilibrium tolls and welfare. We find that large developers bid more aggressively than …


An Optimal Fair Job Assignment Problem, Zaifu Yang Jan 2002

An Optimal Fair Job Assignment Problem, Zaifu Yang

Cowles Foundation Discussion Papers

We study the problem of how to allocate a set of indivisible objects like jobs or houses and an amount of money among a group of people as fairly and as efficiently as possible. A particular constraint for such an allocation is that every person should be assigned with the same number of objects in his or her bundle. The preferences of people depend on the bundle of objects and the quantity of money they take. We propose a solution to this problem, called a perfectly fair allocation. It is shown that every perfectly fair allocation is efficient and envy-free, …


Valid Asymptotic Expansions For The Maximum Likelihood Estimator Of The Parameter Of A Stationary, Gaussian, Strongly Dependent Process, Offer Lieberman, Judith Rousseau, David M. Zucker Jan 2002

Valid Asymptotic Expansions For The Maximum Likelihood Estimator Of The Parameter Of A Stationary, Gaussian, Strongly Dependent Process, Offer Lieberman, Judith Rousseau, David M. Zucker

Cowles Foundation Discussion Papers

We establish the validity of an Edgeworth expansion to the distribution of the maximum likelihood estimator of the parameter of a stationary, Gaussian, strongly dependent process. The result covers ARFIMA type models, including fractional Gaussian noise. The method of proof consists of three main ingredients: (i) verification of a suitably modified version of Durbin’s (1980) general conditions for the validity of the Edgeworth expansion to the joint density of the log-likelihood derivatives; (ii) appeal to a simple result of Skovgaard (1986) to obtain from this an Edgeworth expansion for the joint distribution of the log-likelihood derivatives; (iii) appeal to and …


Subjective Distributions, Itzhak Gilboa, David Schmeidler Dec 2001

Subjective Distributions, Itzhak Gilboa, David Schmeidler

Cowles Foundation Discussion Papers

A decision maker has to choose one of several random variables, with uncertainty known distributions. As a Bayesian she behaves as if she knew the distributions. In his paper we suggest an axiomatic derivation of these (subjective) distributions, which is much more economical than the derivations by de Finetti or Savage. They derive the whole joint distribution of all the available random variables.


A Derivation Of Expected Utility Maximization In The Context Of A Game, Itzhak Gilboa, David Schmeidler Dec 2001

A Derivation Of Expected Utility Maximization In The Context Of A Game, Itzhak Gilboa, David Schmeidler

Cowles Foundation Discussion Papers

A decision maker faces a decision problem, or a game against nature. For each probability distribution over the state of the world (nature’s strategies), she has a weak order over her acts (pure strategies). We formulate conditions on these weak orders guaranteeing that they can be jointly represented by expected utility maximization with respect to an almost-unique state-dependent utility, that is, a matrix assigning real numbers to act-state pairs. As opposed to a utility function that is derived in another context, the utility matrix derived in the game will incorporate all psychological or sociological determinants of well-being that result from …