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Articles 1531 - 1560 of 2768
Full-Text Articles in Social and Behavioral Sciences
Empirical Limits For Time Series Econometric Models, Werner Ploberger, Peter C.B. Phillips
Empirical Limits For Time Series Econometric Models, Werner Ploberger, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper seeks to characterize empirically achievable limits for time series econometric modeling. The approach involves the concept of minimal information loss in time series regression and the paper shows how to derive bounds that delimit the proximity of empirical measures to the true probability measure in models that are of econometric interest. The approach utilizes generally valid asymptotic expressions for Bayesian data densities and works from joint measures over the sample space and parameter space. A theorem due to Rissanen is modified so that it applies directly to probabilities about the relative likelihood (rather than averages), a new way …
Pareto Improving Price Regulation When The Asset Market Is Incomplete, Jean-Jacques Herings, Heracles M. Polemarchakis
Pareto Improving Price Regulation When The Asset Market Is Incomplete, Jean-Jacques Herings, Heracles M. Polemarchakis
Cowles Foundation Discussion Papers
When the asset market is incomplete, competitive equilibria are constrained suboptimal, which provides a scope for pareto improving interventions. Price regulation can be such a pareto improving policy, even when the welfare effects of rationing are taken into account. An appealing aspect of price regulation is that it that it operates anonymously on market variables. Fix-price equilibria exist under weak assumptions. Such equilibria permit a competitive analysis of an economy with an incomplete asset market that is out of equilibrium. Arbitrage opportunities may arise: with three or more assets actively traded, an individual may hold an arbitrage portfolio at equilibrium. …
Work Motivation, Truman F. Bewley
Work Motivation, Truman F. Bewley
Cowles Foundation Discussion Papers
No abstract provided.
Preference For Information And Dynamic Consistency, Simon Grant, Atsushi Kajii, Ben Polak
Preference For Information And Dynamic Consistency, Simon Grant, Atsushi Kajii, Ben Polak
Cowles Foundation Discussion Papers
We provide necessary and sufficient conditions for a dynamically consistent agent always to prefer more informative signals (in single-agent problems). These conditions do not imply recursivity, reduction or independence. We provide a simple definition of dynamically consistent behavior, and we discuss whether an intrinsic information lover (say, an anxious person) is likely to be dynamically consistent.
Decomposable Choice Under Uncertainty, Simon Grant, Atsushi Kajii, Ben Polak
Decomposable Choice Under Uncertainty, Simon Grant, Atsushi Kajii, Ben Polak
Cowles Foundation Discussion Papers
Savage motivated his Sure Thing Principle by arguing that, whenever an act would be preferred if an event obtains and preferred if that event did not obtain, then it should be preferred overall. The idea that it should be possible to decompose and recompose decision problems in this way has normative appeal. We show, however, that it does not require the full separability across events implicit in Savage’s axiom. We formulate a weaker axiom that suffices for decomposability, and show that this implies an implicit additive representation. Our decomposability property makes local necessary conditions for optimality, globally sufficient. Thus, it …
Cheap Talk And Co-Ordination With Payoff Uncertainty, Sandeep Baliga, Stephen Morris
Cheap Talk And Co-Ordination With Payoff Uncertainty, Sandeep Baliga, Stephen Morris
Cowles Foundation Discussion Papers
Two players seek to co-ordinate their behavior in an incomplete information setting. We show that if each player’s preferences over his opponent’s action is independent of his own action or type, then cheap talk cannot expand the set of equilibrium outcomes.
A Theory Of The Onset Of Currency Attacks, Stephen Morris, Hyun Song Shin
A Theory Of The Onset Of Currency Attacks, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
The swiftness and devastating impact of recent financial crises have taken many market participants by surprise, and pose challenges for economists seeking a theory of the onset of a crisis. We propose such a theory based on two features. The actions of diverse economic actors which undermine the currency are mutually reinforcing, while the fragmented nature of the media create small disparities in their information. In such circumstances, the beliefs of market participants can be tracked in the same way as the economic fundamentals, and an attack is triggered when the economic fundamentals deteriorate sufficiently to fall below the minimum …
Estimating Yield Curves By Kernel Smoothing Methods, Oliver B. Linton, E. Mammen, Jens Perch Nielsen, C. Tanggaard
Estimating Yield Curves By Kernel Smoothing Methods, Oliver B. Linton, E. Mammen, Jens Perch Nielsen, C. Tanggaard
Cowles Foundation Discussion Papers
We introduce a new method for the estimation of discount functions, yield curves and forward curves for coupon bonds. Our approach is nonparametric and does not assume a particular functional form for the discount function although we do show how to impose various important restrictions in the estimation. Our method is based on kernel smoothing and is defined as the minimum of some localized population moment condition. The solution to the sample problem is not explicit and our estimation procedure is iterative, rather like the backfitting method of estimating additive nonparametric models. We establish the asymptotic normality of our methods …
Dynamic Common Agency, Dirk Bergemann, Juuso Välimäki
Dynamic Common Agency, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider a general model of dynamic common agency with symmetric information. We focus on Markov perfect equilibria and characterize the equilibrium set for a refinement of the Markov perfect equilibria. Particular attention is given to the existence of a marginal contribution equilibrium where each principal receives her contribution to the coalition of agent and remaining principals. The structure of the intertemporal payoffs is analyzed in terms of the flow marginal contribution. As a byproduct, new results for the static common agency game are obtained. The general characterization results are then applied to two dynamic bidding games for a common …
Fiat Money And The Efficient Financing Of The Float, Production And Consumption. Part I: The Float, Martin Shubik
Fiat Money And The Efficient Financing Of The Float, Production And Consumption. Part I: The Float, Martin Shubik
Cowles Foundation Discussion Papers
The basic distinction in the optimization conditions between the general equilibrium model of a T period exchange economy and a strategic market game process model is between a set of equations homogeneous of order zero and a set of nonhomogeneous equations. The latter have an amount M of outside or fiat money added to the system. If there is an outside bank willing to lend or accept deposits at an interest rate rho > 0 at the end of time T the initial amount of money M will have been consumed in interest payments to the outside bank. The price level …
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 …
The Health Of Nations: Irving Fisher And The Contribution Of Improved Longevity To Living Standard, William D. Nordhaus
The Health Of Nations: Irving Fisher And The Contribution Of Improved Longevity To Living Standard, William D. Nordhaus
Cowles Foundation Discussion Papers
Among Irving Fisher’s many contributions to economics, one that is little noted and barely remembered is his emphasis on the economic importance of health. For the most part, his concern was in promoting healthy life styles. In addition, he made an early (perhaps the earliest) estimate of the impact of mortality and morbidity on national output.
Requiem For Kyoto: An Economic Analysis Of The Kyoto Protocol, William D. Nordhaus, Joseph G. Boyer
Requiem For Kyoto: An Economic Analysis Of The Kyoto Protocol, William D. Nordhaus, Joseph G. Boyer
Cowles Foundation Discussion Papers
This paper uses the newly developed RICE-98 model to analyze the economics of the Kyoto Protocol. It analyzes versions of the Kyoto Protocol that have different approaches to trading emissions rights and compares these with efficient approaches. The major conclusions are: (a) the global cost of the Kyoto Protocol is $716 billion in present value, (b) the United States bears almost two-thirds of the global cost;and (c) the benefit-cost ratio of the Kyoto Protocol is 1/7. Additionally, the emissions strategy is highly cost-ineffective, with the global temperature reduction achieved at a cost almost 8 times the cost of a strategy …
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 …
Price Competition For An Informed Buyer, Giuseppe Moscarini, Marco Ottaviani
Price Competition For An Informed Buyer, Giuseppe Moscarini, Marco Ottaviani
Cowles Foundation Discussion Papers
We investigate the outcomes of simultaneous price competition in the presence of private information on the demand side. Each of two sellers offers a different variety of a good to a buyer endowed with a private binary signal on their relative quality. We analyze how the unique equilibrium of the game changes as a function of the (common) prior belief on the relative quality of the goods and the precision of the private information of the buyer. Competition is fierce, and the buyer enjoys high rents, when the prior belief is biased in favor of one good and private signals …
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.
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 …
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 …
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 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 …
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 …
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 …
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 …
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 …
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 …
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.