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Articles 1561 - 1590 of 2768
Full-Text Articles in Social and Behavioral Sciences
Asymptotics For Nonlinear Transformations Of Integrated Time Series, Joon Y. Park, Peter C.B. Phillips
Asymptotics For Nonlinear Transformations Of Integrated Time Series, Joon Y. Park, Peter C.B. Phillips
Cowles Foundation Discussion Papers
An asymptotic theory for stochastic processes generated from nonlinear transformations of nonstationary integrated time series is developed. Various nonlinear functions of integrated series such as ARIMA time series are studied, and the asymptotic distributions of sample moments of such functions are obtained and analyzed. The transformations considered in the paper include a variety of functions that are used in practical nonlinear statistical analysis. It is shown that their asymptotic theory is quite different from that of integrated processes and stationary time series. When the transformation function is exponentially explosive, for instance, the convergence rate of sample functions is path-dependent. In …
A Strategic Market Game With Active Bankruptcy, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
A Strategic Market Game With Active Bankruptcy, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
We construct stationary Markov equilibria for an economy with fiat money, one non-durable commodity, countably-many time periods, and a continuum of agents. The total production of commodity remains constant, but individual agents’ endowments fluctuate in a random fashion, from period to period. In order to hedge against these random fluctuations, agents find it useful to hold fiat money which they can borrow or deposit at appropriate rates of interest; such activity may take place either at a central bank (which fixes interest rates judiciously) or through a money-market (in which interest rates are determined endogenously). We carry out an equilibrium …
Moral Hazard In Home Equity Conversion, Robert J. Shiller, Allan N. Weiss
Moral Hazard In Home Equity Conversion, Robert J. Shiller, Allan N. Weiss
Cowles Foundation Discussion Papers
Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once homeowners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes’ values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity …
Wald Revisited: The Optimal Level Of Experimentation, Giuseppe Moscarini, Lones Smith
Wald Revisited: The Optimal Level Of Experimentation, Giuseppe Moscarini, Lones Smith
Cowles Foundation Discussion Papers
This paper revisits Wald’s (1947) sequential experimentation paradigm, now assuming that an impatient decision maker can run variable-size experiments each period at some increasing and strictly convex cost before finally choosing an irreversible action. We translate this natural discrete time experimentation story into a tractable control of variance for a continuous time diffusion. Here we robustly characterize the optimal experimentation level: It is rising in the confidence about the project outcome, and for not very convex cost functions, the random process of experimentation levels has a positive drift over time. We also explore several parametric shifts unique to our framework. …
On The Skiadas ‘Conditional Preference Approach’ To Choice Under Uncertainty, Simon Grant, Atsushi Kajii, Ben Polak
On The Skiadas ‘Conditional Preference Approach’ To Choice Under Uncertainty, Simon Grant, Atsushi Kajii, Ben Polak
Cowles Foundation Discussion Papers
We compare the Skiadas approach with the standard Savage framework of choice under uncertainty. At first glance, properties of Skiadas “conditional preferences” such as coherence and disappointment seem analogous to similarly motivated notions of decomposability and disappointment aversion defined on Savage “ex ante preferences.” We show, however, that coherence per se places almost no restriction on the structure of ex ante preferences. Coherence is an `external’ restriction across preferences whereas notions of decomposability in the Savage framework are ‘internal’ to the particular preference relation. Similarly, standard notions of disappointment aversion refer to ‘within act’ disappointments. Skiadas’s notion of disappointment aversion …
Designing Indexed Units Of Account, Robert J. Shiller
Designing Indexed Units Of Account, Robert J. Shiller
Cowles Foundation Discussion Papers
An indexed unit of account is a unit of measurement defined using an index such as a consumer price index so that prices, wages or deferred payments defined in terms of these units will automatically adjust to changing economic conditions. Evidence on money illusion and sticky prices, and evidence from countries (notably Chile) that have created indexed units of account, suggests that creating such indexed units is an important policy option for governments in countries with unstable prices or incomes. Choices for governments designing indexed units of account are discussed. Governments may choose to encourage the use of the units …
Some Simple Games For Teaching And Research. Part 1: Cooperative Games, Martin Shubik
Some Simple Games For Teaching And Research. Part 1: Cooperative Games, Martin Shubik
Cowles Foundation Discussion Papers
Over many years some simple cooperative games have been considered in lectures on game theory. The games were selected in order to provide insight into various normative theories of solution to n-person games. It is suggested that the results indicate that when solutions have outcomes in common, predictability is higher than when they are apart. The core is attractive but less so when it is heavily nonsymmetric.
The Equivalence Of The Dekel-Fudenberg Iterative Procedure And Weakly Perfect Rationalizability, Jean-Jacques Herings, Vincent J. Vannetelbosch
The Equivalence Of The Dekel-Fudenberg Iterative Procedure And Weakly Perfect Rationalizability, Jean-Jacques Herings, Vincent J. Vannetelbosch
Cowles Foundation Discussion Papers
Two approaches have been proposed in the literature to refine the rationalizability solution concept: either assuming that players make small errors when playing their strategies, or assuming that their is a small amount of payoff uncertainty. We show that both approaches lead to the same refinement if errors are made according to the concept of weakly perfect rationalizability, and there is payoff uncertainty as in Dekel and Fudenberg [ Journal of Economic Theory (1990), 52: 243–267]. For both cases, the strategies that survive are obtained by starting with one round of elimination of weakly dominated strategies followed by many rounds …
Estimation Of Nonparametric Functions In Simultaneous Equations Models, With An Application To Consumer Demand, Donald J. Brown, Rosa L. Matzkin
Estimation Of Nonparametric Functions In Simultaneous Equations Models, With An Application To Consumer Demand, Donald J. Brown, Rosa L. Matzkin
Cowles Foundation Discussion Papers
We present a method for consistently estimating nonparametric functions and distributions in simultaneous equations models. This method is used to identify and estimate a random utility model of consumer demand. Our identification conditions for this particular model extend the results of Houthakker (1950), Uzawa (1971) and Mas-Colell (1977), where a deterministic utility function is uniquely recovered from its deterministic demand function.
Human Behavior And The Efficiency Of The Financial System, Robert J. Shiller
Human Behavior And The Efficiency Of The Financial System, Robert J. Shiller
Cowles Foundation Discussion Papers
Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and underreaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture.
Indexed Units Of Account: Theory And Assessment Of Historical Experience, Robert J. Shiller
Indexed Units Of Account: Theory And Assessment Of Historical Experience, Robert J. Shiller
Cowles Foundation Discussion Papers
An indexed unit of account is a money analogue, used to express prices; the unit’s purchasing power is defined by an index. Indexed units of account are not true money in that they are not used as a medium of exchange. The first successful indexed unit of account, the Unidad de Fomento (UF) has been used in Chile since 1967, and has been copied in Colombia, Ecuador, Mexico, and Uruguay. The reasons for creating such units are discussed from the standpoint of monetary theory. The experience with such units in Chile is discussed. It is argued that important practical problems …
Uniqueness, Stability, And Comparative Statics In Rationalizable Walrasian Markets, Donald J. Brown, Chris Shannon
Uniqueness, Stability, And Comparative Statics In Rationalizable Walrasian Markets, Donald J. Brown, Chris Shannon
Cowles Foundation Discussion Papers
This paper studies the extent to which qualitative features of Walrasian equilibria are refutable given a finite data set. In particular, we consider the hypothesis that the observed data are Walrasian equilibria in which each price vector is locally stable under tâtonnement. Our main result shows that a finite set of observations of prices, individual incomes and aggregate consumption vectors is rationalizable in an economy with smooth characteristics if and only if it is rationalizable in an economy in which each observed price vector is locally unique and stable under tâtonnement. Moreover, the equilibrium correspondence is locally monotone in a …
Non-Convex Costs And Capital Utilization: A Study Of Production Scheduling At Automobile Assembly Plants, George J. Hall
Non-Convex Costs And Capital Utilization: A Study Of Production Scheduling At Automobile Assembly Plants, George J. Hall
Cowles Foundation Discussion Papers
This paper studies how managers at automobile assembly plants organize production across time. Detailed data from eleven single-source automobile assembly plants display considerable cross-plant heterogeneity. At plants which make low- and medium-selling vehicles the capital stock often sits idle, production is more variable than sales, and weeklong shutdowns are often used to vary output. In contrast, at plants which make high-selling vehicles, the capital stock rarely sits idle, production is about as variable as sales, and over time — bit weeklong shutdowns — is most frequently used to vary output. To explain this difference in production scheduling, I formulate and …
Evaluating The Information Content And Money Making Ability Of Forecasts From Exchange Rate Equations, Ray C. Fair
Evaluating The Information Content And Money Making Ability Of Forecasts From Exchange Rate Equations, Ray C. Fair
Cowles Foundation Discussion Papers
This paper evaluates a particular set of equations for the dollar/yen and dollar/mark exchange rates. The forecasts from the equations dominate both forecasts from the random walk model and forecasts using the forward rate. The results also suggest that money may be able to be made in the forward markets using the equations.
Why Not Cut Pay?, Truman F. Bewley
Why Not Cut Pay?, Truman F. Bewley
Cowles Foundation Discussion Papers
Over 300 business people, labor leaders, business consultants, and counselors of unemployed people were interviewed during the recession of the early 1990’s in order to learn why wages and salaries were declining in only a few firms. Employers believed that cutting pay would hurt employee morale, leading to lower productivity and current or future difficulties with hiring and retention. There were few indications that unemployed people had excessive wage expectations. On the contrary, many unemployed were too flexible and found themselves rejected by firms as overqualified.
The Existence And Asymptotic Properties Of A Backfitting Projection Algorithm Under Weak Conditions, Oliver B. Linton, E. Mammen, Jens Perch Nielsen
The Existence And Asymptotic Properties Of A Backfitting Projection Algorithm Under Weak Conditions, Oliver B. Linton, E. Mammen, Jens Perch Nielsen
Cowles Foundation Discussion Papers
We derive the asymptotic distribution of a new backfitting procedure for estimating the closest additive approximation to a nonparametric regression function. The procedure employs a recent projection interpretation of popular kernel estimators provided by Mammen et al. (1997), and the asymptotic theory of our estimators is derived using the theory of additive projections reviewed in Bickel et al. (1995). Our procedure achieves the same bias and variance as the oracle estimator based on knowing the other components, and in this sense improves on the method analyzed in Opsomer and Ruppert (1997). We provide ‘high level’ conditions independent of the sampling …
Large Deviations And The Distribution Of Price Changes, Laurent Calvet, Adlai Fisher, Benoit Mandelbrot
Large Deviations And The Distribution Of Price Changes, Laurent Calvet, Adlai Fisher, Benoit Mandelbrot
Cowles Foundation Discussion Papers
The Multifractal Model of Asset Returns (“MMAR,” see Mandelbrot, Fisher, and Calvet, 1997) proposes a class of multifractal processes for the modelling of financial returns. In that paper, multifractal processes are defined by a scaling law for moments of the processes’ increments over finite time intervals. In the present paper, we discuss the local behavior of multifractal processes. We employ local Hölder exponents, a fundamental concept in real analysis that describes the local scaling properties of a realized path at any point in time. In contrast with the standard models of continuous time finance, multifractal processes contain a multiplicity of …
An Adf Coefficient Test For A Unit Root In Arma Models Of Unknown Order With Empirical Applications To The U.S. Economy, Zhijie Xiao, Peter C.B. Phillips
An Adf Coefficient Test For A Unit Root In Arma Models Of Unknown Order With Empirical Applications To The U.S. Economy, Zhijie Xiao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper proposes an ADF coefficient test for detecting the presence of a unit root in ARMA models of unknown order. Our approach is fully parametric. When the time series has an unknown deterministic trend, we propose a modified version of the ADF coefficient test based on quasi-differencing in the construction of the detrending regression as in Elliot, Rothenberg and Stock (1996). The limit distributions of these test statistics are derived. Empirical applications of these tests for common macroeconomic time series in the US economy are reported and compared with the usual ADF t -test.
Regressions For Partially Identified, Cointegrated Simultaneous Equations, In Choi, Peter C.B. Phillips
Regressions For Partially Identified, Cointegrated Simultaneous Equations, In Choi, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies regressions for partially identified equations in simultaneous equations models (SEMs) where all the variables are I(l) and cointegrating relations are present. Asymptotic properties of OLS and 2SLS estimators under partial identification are derived. The results show that the identifiabilitv condition is important for consistency of estimates in nonstationary SEMs as it is for stationary SEMS. Also, OLS and 2SLS estimators are shown to have different rates of convergence and divergence under partial identification, though they have the same rates of convergence and divergence for the two polar cases of full identification and total lack of identifiability. Even …
Band Spectral Regression With Trending Data, Dean Corbae, Sam Ouliaris, Peter C.B. Phillips
Band Spectral Regression With Trending Data, Dean Corbae, Sam Ouliaris, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Band spectral regression with deterministic and stochastic trends is considered. It is shown that conventional trend removal by regression in the time domain prior to band spectral regression leads to biased and inconsistent estimates of the parameters in a model with frequency dependent coefficients. Time domain and frequency domain procedures for dealing with this problem are examined. Trend removal in the frequency domain produces unbiased estimates and is recommended. An asymptotic theory is developed and the two cases of stationary data and cointegrated nonstationary data are compared. Efficient band spectral regression estimators and associated inferential methods are provided for models …
A Multifractal Model Of Asset Returns, Benoit Mandelbrot, Adlai Fisher, Laurent Calvet
A Multifractal Model Of Asset Returns, Benoit Mandelbrot, Adlai Fisher, Laurent Calvet
Cowles Foundation Discussion Papers
This paper presents the multifractal model of asset returns (“MMAR”), based upon the pioneering research into multifractal measures by Mandelbrot (1972, 1974). The multifractal model incorporates two elements of Mandelbrot’s past research that are now well-known in finance. First, the MMAR contains long-tails, as in Mandelbrot (1963), which focused on Lévy-stable distributions. In contrast to Mandelbrot (1963), this model does not necessarily imply infinite variance. Second. the model contains long-dependence, the characteristic feature of fractional Brownian Motion (FBM), introduced by Mandelbrot and van Ness (1968). In contrast to FBM, the multifractal model displays long dependence in the absolute value of …
Multifractality Of Deutschemark/Us Dollar Exchange Rates, Adlai Fisher, Laurent Calvet, Benoit Mandelbrot
Multifractality Of Deutschemark/Us Dollar Exchange Rates, Adlai Fisher, Laurent Calvet, Benoit Mandelbrot
Cowles Foundation Discussion Papers
This paper presents the first empirical investigation of the Multifractal Model of Asset Returns (“MMAR”). The MMAR, developed in Mandelbrot, Fisher, and Calvet (1997), is an alternative to ARCH-type representations for modelling temporal heterogeneity in financial returns. Typically, researchers introduce temporal heterogeneity through time-varying conditional second moments in a discrete time framework. Multifractality introduces a new source of heterogeneity through time-varying local regularity in the price path. The concept of local Hölder exponent describes local regularity. Multifractal processes bridge the gap between locally Gaussian (Itô) diffusions and jump-diffusions by allowing a multiplicity of Hölder exponents. This paper investigates multifractality in …
The Experiment In Applied Econometrics, James Tobin
The Experiment In Applied Econometrics, James Tobin
Cowles Foundation Discussion Papers
No abstract provided.
A Stochastic Infinite-Horizon Economy With Secured Lending, Or Unsecured Lending And Bankruptcy, Ioannis Karatzas, Martin Shubik, William D. Sudderth
A Stochastic Infinite-Horizon Economy With Secured Lending, Or Unsecured Lending And Bankruptcy, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
Modeling problems for a monetary economy are discussed and some examples are presented in the context of an infinite-horizon economy with one or two types of traders, who use fiat money to buy a single perishable consumption good. Three instances are considered, all with transactions in fiat money. The first model has no borrowing or lending. The second model permits both borrowing and lending, but all loans are secured. The third model has borrowing and unsecured lending, and takes into account the presence of debtors who are unable to honor their debts and go bankrupt. Borrowing and depositing take place …
Simple Counterexample To The Bootstrap, Donald W.K. Andrews
Simple Counterexample To The Bootstrap, Donald W.K. Andrews
Cowles Foundation Discussion Papers
The bootstrap of the maximum likelihood estimator of the mean of a sample of iid normal random variables with mean µ and variance one is not asymptotically correct to first order when the mean is restricted to be nonnegative. The problem occurs when the true value of the mean µ equals zero. This counterexample to the bootstrap generalizes to a wide variety of estimation problems in which the true parameter may be on the boundary of the parameter space. We provide some alternatives to the bootstrap that are asymptotically correct to first order. We consider two types of bootstrap percentile …
A Model Of A Predatory State, Boaz Moselle, Ben Polak
A Model Of A Predatory State, Boaz Moselle, Ben Polak
Cowles Foundation Discussion Papers
We provide a model of a primitive state whose rulers extort taxes for their own ends. This ‘predatory’ state can result in lower levels of both output and popular welfare than either organized banditry or anarchy. The predatory state may provide public goods, such as protection or irrigation, and hence may superficially resemble a contractual state. But, the ability to provide such goods can actually reduce popular welfare after allowing for tax changes. We compare the revenues raised by taxation with those from banditry to get an idea when primitive states are likely to emerge. We then consider interactions between …
Model Selection In Partially Nonstationary Vector Autoregressive Processes With Reduced Rank Structure, John C. Chao, Peter C.B. Phillips
Model Selection In Partially Nonstationary Vector Autoregressive Processes With Reduced Rank Structure, John C. Chao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
The current practice for determining the number of cointegrating vectors, or the cointegrating rank, in a vector autoregression (VAR) requires the investigator to perform a sequence of cointegration tests. However, as was shown in Johansen (1992), this type of sequential procedure does not lead to consistent estimation of the cointegrating rank. Moreover, these methods take as given the correct specification of the lag order of the VAR, though in actual applications the true lag length is rarely known, Simulation studies by Toda and Phillips (1994) and Chao (1993), on the other hand, have shown that test performance of these procedures …
The Significance Of The Market Portfolio, Stefano G. Athanasoulis, Robert J. Shiller
The Significance Of The Market Portfolio, Stefano G. Athanasoulis, Robert J. Shiller
Cowles Foundation Discussion Papers
The market portfolio (world portfolio) is in one sense a least important portfolio to provide to investors; there is always a better portfolio for social planners to make available to them. In a J -agent one-period stochastic endowment economy, where preferences are quadratic, the market portfolio is never spanned by the optimal markets a social planner would create. With identical preferences, the market portfolio is orthogonal to all J - 1 portfolios which achieve a first best solution. These conclusions rely on the assumption that the social planner has perfect information about agents’ utilities. We also show that as the …
Estimation When A Parameter Is On A Boundary: Theory And Applications, Donald W.K. Andrews
Estimation When A Parameter Is On A Boundary: Theory And Applications, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper establishes the asymptotic distribution of extremum estimators when the true parameter lies on the boundary of the parameter space. The boundary may be linear, curved, and/or kinked. The asymptotic distribution is a function of a multivariate normal distribution in models without stochastic trends and a function of a multivariate Brownian motion in models with stochastic trends. The results apply to a wide variety of estimators and models. Examples treated explicitly in the paper are: (1) quasi-ML estimation of a random coefficients regression model with some coefficient variances equal to zero, (2) LS estimation of a regression model with …
Beyond The Cpi: An Augmented Cost Of Living Index (Acoli), William D. Nordhaus
Beyond The Cpi: An Augmented Cost Of Living Index (Acoli), William D. Nordhaus
Cowles Foundation Discussion Papers
This note examines the question of calculating an augmented cost of living index (ACOLI). The ACOLI is the appropriate deflator to apply to pretax market incomes when calculating economic well-being. Well-being includes, not only conventional consumer purchases, but also goods and services provided by employers, by mandated social regulations, and by tax-financed public goods. Because such augmented consumption is often provided in ways that raise prices but not market incomes, deflating with conventional price indexes may understate real income growth. An application of the ACOLI approach to the United States during the 1960-1994 period indicates that the conventional consumer price …