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Articles 1591 - 1620 of 2768
Full-Text Articles in Social and Behavioral Sciences
Second Order Approximation In A Linear Regression With Heteroskedasticity For Unknown Form, Oliver B. Linton
Second Order Approximation In A Linear Regression With Heteroskedasticity For Unknown Form, Oliver B. Linton
Cowles Foundation Discussion Papers
We develop stochastic expansions with remainder o P ( n –2µ ), where 0 < µ < 1/2, for a standardised semiparametric GLS estimator, a standard error, and a studentized statistic, in the linear regression model with heteroskedasticity of unknown form. We calculate the second moments of the truncated expansion, and use these approximations to compare two competing estimators and to define a method of bandwidth choice.
Can We Grow Faster?, James Tobin
Can We Grow Faster?, James Tobin
Cowles Foundation Discussion Papers
It is essential to distinguish between limits on national output and limits on its rate of growth. In the short run if output is below potential, demand stimulus can temporarily increase output and employment, with growth rates that cannot be sustained once the economy reaches full employment, potential output. This barrier is commonly called the NAIRU. The paper discusses the possibility that the economy can reach lower unemployment rates than previously thought, without increasing inflation. As to raising the sustainable rate of growth of potential output, the paper discusses skeptically various proposals: fiscal austerity, tax cuts, downsizing government. Many proposals …
Supply Constraints On Employment And Output: Nairu Versus Natural Rate, James Tobin
Supply Constraints On Employment And Output: Nairu Versus Natural Rate, James Tobin
Cowles Foundation Discussion Papers
NAIRU and NATURAL RATE are not synonymous. NAIRU is a macro outcome of an economy with many labor markets in diverse states of excess demand and excess supply. NAIRU represents an overall balance between the inflation-increasing pressures from excess-demand markets and the inflation-decreasing pressures from excess-supply markets. The natural rate, as described by Friedman, is a feature of walrasian market-clearing general equilibrium. While the NAIRU fits into a Keynesian model, the natural rate is an aspect of a New Classical model. The determinants of the two are theoretically different, and so are their implications for policy. The NAIRU varies from …
Some Higher Order Theory For A Consistent Nonparametric Model Specification Test, Yanqin Fan, Oliver B. Linton
Some Higher Order Theory For A Consistent Nonparametric Model Specification Test, Yanqin Fan, Oliver B. Linton
Cowles Foundation Discussion Papers
We provide second order theory for a smoothing-based model specification test. We derive the asymptotic cumulants and justify an Edgeworth distributional approximation valid to order close to n -1 . This is used to define size-corrected critical values whose null rejection frequency improves on the normal critical values. Our simulations confirm the efficacy of this method in moderate sized samples
Asset Markets And Investment Decisions, A. De Waegenaere, Heracles M. Polemarchakis, L. Ventura
Asset Markets And Investment Decisions, A. De Waegenaere, Heracles M. Polemarchakis, L. Ventura
Cowles Foundation Discussion Papers
In an incomplete asset market, firms assign values to investment plans by projecting their payoffs on the span of the payoffs of marketed assets; equivalently, firms employ the Capital Asset Pricing Model. This is a criterion that does not require firms to possess information, such as the marginal valuation of revenue across date – events by shareholders, which is not observable; rather, it is based on information revealed by the prices and payoffs of marketed assets. Under standard assumptions, competitive equilibria exist. But, competitive equilibrium allocations need not satisfy a condition of constrained pareto optimality that recognizes the incompleteness of …
Stochastic Algorithms For Dynamic Models: Markov Perfect Equilibrium, And The ‘Curse’ Of Dimensionality, Ariel Pakes, Paul Mcguire
Stochastic Algorithms For Dynamic Models: Markov Perfect Equilibrium, And The ‘Curse’ Of Dimensionality, Ariel Pakes, Paul Mcguire
Cowles Foundation Discussion Papers
This paper provides an algorithm for computing policies for dynamic economic models whose state vectors evolve as ergodic Markov processes. The algorithm can be described as a simple learning process (one that agents might actually use). It has two features which break the relationship between its computational requirements and the dimension of the model’s state space. First the integral over future states needed to determine policies is never calculated; rather it is estimated by a simple average of past outcomes. Second, the algorithm never computes policies at all points. Iterations are defined by a location and only policies at that …
Expanding The Scope Of Individual Risk Management: Moral Hazard And Other Behavioral Considerations, Robert J. Shiller
Expanding The Scope Of Individual Risk Management: Moral Hazard And Other Behavioral Considerations, Robert J. Shiller
Cowles Foundation Discussion Papers
There is a large potential for improving individual risk management through new risk management contracts and associated new index-settled derivatives. However, there are some difficult problems in designing contracts so that they will be used effectively. Individuals have idiosyncratic individual risks that can be hedged only at some real resource cost due to moral hazard. Individuals seem to exhibit behavior indicative of lack of appreciation of the principles of risk management. These problems are discussed, and some potential new risk management contracts that would make improvements in the management of major income risks are proposed
Consistent Moment Selection Procedures For Generalized Method Of Moments Estimation, Donald W.K. Andrews
Consistent Moment Selection Procedures For Generalized Method Of Moments Estimation, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper considers a generalized method of moments (GMM) estimation problem in which one has a vector of moment conditions, some of which are correct and some incorrect. The paper introduces several procedures for consistently selecting the correct moment conditions. The procedures also can consistently determine whether there is a sufficient number of correct moment conditions to identify the unknown parameters of interest. The paper specifies moment selection criteria that are GMM analogues of the widely used BIC and AIC model selection criteria. (The latter is not consistent.) The paper also considers downward and upward testing procedures. All of the …
The Generalized War Of Attrition, Jeremy I. Bulow, Paul D. Klemperer
The Generalized War Of Attrition, Jeremy I. Bulow, Paul D. Klemperer
Cowles Foundation Discussion Papers
We generalize the War of Attrition model to allow for N + K firms competing for N prizes. Two special cases are of particular interest. First, if firms continue to pay their full costs after dropping out (as in a standard-setting context), each firm’s exit time is independent both of K and of the actions of other players. Second, in the limit in which firms pay no costs after dropping out (as in a natural-oligopoly problem), the field is immediately reduced to N + 1 firms. Furthermore, we have perfect sorting, so it is always the K -1 lowest-value players …
Promises Promises, John Geanakoplos
Promises Promises, John Geanakoplos
Cowles Foundation Discussion Papers
In the classical general equilibrium model, agents keep all their promises, every good is traded, and competition prevents any agent from earning superior returns on investments in financial markets. In this paper I introduce the age-old problem of broken promises into the general equilibrium model, and I find that a new market dynamic emerges. Given the legal system and institutions, market forces of supply and demand will establish the collateral levels which are required to secure promises. Since physical collateral will typically be scarce, these collateral levels will be set so low that there is bound to be some default. …
Prices, Asset Markets And Indeterminacy, Heracles M. Polemarchakis, P. Siconolfi
Prices, Asset Markets And Indeterminacy, Heracles M. Polemarchakis, P. Siconolfi
Cowles Foundation Discussion Papers
Competitive equilibrium allocations are indeterminate when the net trades in commodities are constrained, while the asset market is incomplete
Conditional Independence Restrictions: Testing And Estimation, Oliver B. Linton, Pedro Gozalo
Conditional Independence Restrictions: Testing And Estimation, Oliver B. Linton, Pedro Gozalo
Cowles Foundation Discussion Papers
We propose a nonparametric empirical distribution function based test of an hypothesis of conditional independence between variables of interest. This hypothesis is of interest both for model specification purposes, parametric and semiparametric, and for non-model based testing of economic hypotheses. We allow for both discrete variables and estimated parameters. The asymptotic null distribution of the test statistic is a functional of a Gaussian process. A bootstrap procedure is proposed for calculating the critical values. Our test has power against alternatives at distance n -1/2 from the null; this result holding independently of dimension. Monte Carlo simulations provide evidence on size …
On The Number Of Bootstrap Repetitions For Bootstrap Standard Errors, Confidence Internals, And Tests, Donald W.K. Andrews, Moshe Buchinsky
On The Number Of Bootstrap Repetitions For Bootstrap Standard Errors, Confidence Internals, And Tests, Donald W.K. Andrews, Moshe Buchinsky
Cowles Foundation Discussion Papers
This paper considers the problem of choosing the number of bootstrap repetitions B for bootstrap standard errors, confidence intervals, and tests. For each of these problems, the paper provides a three-step method for choosing B to achieve a desired level of accuracy. Accuracy is measured by the percentage deviation of the bootstrap standard error estimate, confidence interval endpoint(s), test’s critical value, or test’s p -value based on B bootstrap simulations from the corresponding ideal bootstrap quantities for which B = ∞. Monte Carlo simulations show that the proposed methods work quite well. The results apply quite generally to parametric, semiparametric, …
Bayesian Posterior Distributions In Limited Information Analysis Of The Simultaneous Equations Model Using The Jeffreys’ Prior, John C. Chao, Peter C.B. Phillips
Bayesian Posterior Distributions In Limited Information Analysis Of The Simultaneous Equations Model Using The Jeffreys’ Prior, John C. Chao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies the use of the Jeffreys’ prior in Bayesian analysis of the simultaneous equations model (SEM). Exact representations are obtained for the posterior density of the structural coefficient beta in canonical SEM’s with two endogenous variables. For the general case with m endogenous variables and an unknown covariance matrix, the Laplace approximation is used to derive an analytic formula for the same posterior density. Both the exact and the approximate formulas we derive are found to exhibit Cauchy-like tails analogous to comparable results in the classical literature on LIML estimation. Moreover, in the special case of a two-equation, …
Market Diffusion With Two-Sided Learning, Dirk Bergemann, Juuso Välimäki
Market Diffusion With Two-Sided Learning, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
The diffusion of a new product of uncertain value is analyzed in a duopolistic market in continuous time. The two sides of the market, buyers and sellers, learn the true value of the new product over time as a result of experimentation. Buyers have heterogeneous preferences over the products and sellers compete in prices. The pricing policies and market shares of the sellers in the unique Markov perfect equilibrium are obtained explicitly. The dynamics of the equilibrium market shares display excessive sales of the new product relative to the social optimum in early stages and too low sales later on. …
Hyperfinite Asset Pricing Theory, M. Ali Khan, Yeneng Sun
Hyperfinite Asset Pricing Theory, M. Ali Khan, Yeneng Sun
Cowles Foundation Discussion Papers
We present a model of a financial market which unifies the capital-asset-pricing model (CAPM) of Sharpe-Lintner, and the arbitrage pricing theory (APT) of Ross. The model is based on a recent theory of hyperfinite processes, and it uncovers asset pricing phenomena which cannot be treated by classical methods, and whose asymptotic counterparts are not already, or even readily, apparent in the setting of a large but finite number of assets. In the model, an asset’s unexpected return can be decomposed into a systematic and an unsystematic part, as in the APT, and the systematic part further decomposed leads to a …
Spurious Regression Unmasked, Peter C.B. Phillips
Spurious Regression Unmasked, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper argues that trending time series can admit valid regression representations even when the dependent variable and the regressors are statistically independent, i.e., in situations that are presently characterized in the literature as “spurious regressions.” Our theory is directed mainly at the two classic examples of regressions of stochastic trends on time polynomials and regressions among independent random walks. But it has more general applicability and, we think, wider implications. Contrary to established wisdom, our theory justifies regressions of this type as valid models for the data. The radical conclusion that emerges from this study is that there are …
Price Variations In A Stock Market With Many Agents, Per Bak, Maya Paczuski, Martin Shubik
Price Variations In A Stock Market With Many Agents, Per Bak, Maya Paczuski, Martin Shubik
Cowles Foundation Discussion Papers
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large variations may be due to a crowd effect, where agents imitate each other’s behavior. The variations over different time scales can be related to each other in a systematic way, similar to the Lévy stable distribution proposed by Mandelbrot to describe real market indices. In the simplest, least realistic case, exact results for the statistics of the variations are derived by mapping onto a …
Efficiency Gains From Quasi-Differencing Under Nonstationarity, Peter C.B. Phillips, Chin Chin Lee
Efficiency Gains From Quasi-Differencing Under Nonstationarity, Peter C.B. Phillips, Chin Chin Lee
Cowles Foundation Discussion Papers
A famous theorem on trend removal by OLS regression (usually attributed to Grenander and Rosenblatt, 1957) gave conditions for the asymptotic equivalence of GLS and OLS in deterministic trend extraction. When a time series has trend components that are stochastically nonstationary, this asymptotic equivalence no longer holds. We consider models with integrated and near-integrated error processes where this asymptotic equivalence breaks down. In such models, the advantages of GLS can be achieved through quasi-differencing and we give an asymptotic theory of the relative gains that occur in deterministic trend extraction in such cases. Some differences between models with and without …
Exchange And Optimality, S. Ghosal, Heracles M. Polemarchakis
Exchange And Optimality, S. Ghosal, Heracles M. Polemarchakis
Cowles Foundation Discussion Papers
A feasible social state is irreducible if and only if, for any non-trivial partition of individuals with two groups, there exists another feasible social state at which every individual in the first group is equally well-off and someone strictly better-off. Competitive equilibria decentralize irreducible Pareto optimal social states
Nash And Walras Equilibrium Via Brouwer, John Geanakoplos
Nash And Walras Equilibrium Via Brouwer, John Geanakoplos
Cowles Foundation Discussion Papers
The existence of Nash and Walras equilibrium is proved via Brouwer’s Fixed Point Theorem, without recourse to Kakutani’s Fixed Point Theorem for correspondences. The domain of the Walras fixed point map is confined to the price simplex, even when there is production and weakly quasi-convex preferences. The key idea is to replace optimization with “satisficing improvement,” i.e., to replace the Maximum Principle with the “Satisficing Principle.”
Estimated Inflation Costs Had European Unemployment Been Reduced In The 1980s By Macro Prices, Ray C. Fair
Estimated Inflation Costs Had European Unemployment Been Reduced In The 1980s By Macro Prices, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a multicountry econometric model to estimate what the inflation costs would have been if macropolicies had reduced European unemployment in the 1982:1-1990:4 period. A “non-NAIRU” framework is proposed for thinking about these costs.
Nash And Walras Equilibrium Via Brouwer, John Geanakoplos
Nash And Walras Equilibrium Via Brouwer, John Geanakoplos
Cowles Foundation Discussion Papers
The existence of Nash and Walras equilibrium is proved via Brouwer’s Fixed Point Theorem, without recourse to Kakutani’s Fixed Point Theorem for correspondences. The domain of the Walras fixed point map is confined to the price simplex, even when there is production and weakly quasi-concave preferences. The key idea is to replace optimization with “satisficing improvement,” i.e., to replace the Maximum Principle with the “Satisficing Principle.”
Nash And Walras Equilibrium Via Brouwer, John Geanakoplos
Nash And Walras Equilibrium Via Brouwer, John Geanakoplos
Cowles Foundation Discussion Papers
The existence of Nash and Walras equilibrium is proved via Brouwer’s Fixed Point Theorem, without recourse to Kakutani’s Fixed Point Theorem for correspondences. The domain of the Walras fixed point map is confined to the price simplex, even when there is production and weakly quasi-convex preferences. The key idea is to replace optimization with “satisficing improvement,” i.e., to replace the Maximum Principle with the “Satisficing Principle.”
The Limiting Behavior Of Kernel Estimates Of The Lyapunov Exponent For Stochastic Time Series, Yoon-Jae Whang, Oliver B. Linton
The Limiting Behavior Of Kernel Estimates Of The Lyapunov Exponent For Stochastic Time Series, Yoon-Jae Whang, Oliver B. Linton
Cowles Foundation Discussion Papers
This paper derives the asymptotic distribution of a smoothing-based estimator of the Lyapunov exponent for a stochastic time series under two general scenarios. In the first case, we are able to establish root-T consistency and asymptotic normality, while in the second case, which is more relevant for chaotic processes, we are only able to establish asymptotic normality at a slower rate of convergence. We provide consistent confidence intervals for both cases. We apply our procedures to simulated data.
The Hangman's Paradox And Newcomb's Paradox As Psychological Games, John Geanakoplos
The Hangman's Paradox And Newcomb's Paradox As Psychological Games, John Geanakoplos
Cowles Foundation Discussion Papers
We present a (hopefully) fresh interpretation of the Hangman’s Paradox and Newcomb’s Paradox by casting the puzzles in the language of modern game theory, instead of in the realm of epistemology. Game theory moves the analysis away from the formal logic of the puzzles toward more practical problems, such as: On what day would the executioner hang the prisoner if he wanted to surprise him as much as possible? How should a surprise test be administered? We argue that both the Hangman’s Paradox and Newcomb’s Paradox are analogous to a well-known phenomenon in game theory, that giving a player an …
A Scorecard For Indexed Government Debt, John Y. Campbell, Robert J. Shiller
A Scorecard For Indexed Government Debt, John Y. Campbell, Robert J. Shiller
Cowles Foundation Discussion Papers
Within the last five years, Canada, Sweden and New Zealand have joined the ranks of the United Kingdom and other countries in issuing government bonds that are indexed to inflation. Some observers of the experience in these countries have argued that the United States should follow suit. This paper provides an overview of the issues surrounding debt indexation, and it tries to answer three empirical questions about indexed debt. First, how different would the returns on indexed bonds be from the returns on existing US debt instruments? Second, how would indexed bonds affect the government’s average financing costs? Third, how …
Hedging With Derivatives In Incomplete Markets, Charalambos D. Aliprantis, Donald J. Brown, J. Werner
Hedging With Derivatives In Incomplete Markets, Charalambos D. Aliprantis, Donald J. Brown, J. Werner
Cowles Foundation Discussion Papers
We present necessary and sufficient conditions on the asset span of incomplete derivative markets for insuring marketed portfolios. If the asset span is finite dimensional there exists a polynomial-time algorithm for deciding if every marketed portfolio is insurable, moreover this algorithm computes the minimum cost insurance portfolio. In addition, we extend the Cox-Leland characterization of optimal portfolio insurance in complete derivative markets to asset spans of incomplete derivative markets where every marketed portfolio is insurable.
Tests Of Seasonal And Non-Seasonal Serial Correlation, Donald W.K. Andrews, Xuemei Liu, Werner Ploberger
Tests Of Seasonal And Non-Seasonal Serial Correlation, Donald W.K. Andrews, Xuemei Liu, Werner Ploberger
Cowles Foundation Discussion Papers
This paper considers tests for seasonal and non-seasonal serial correlation in time series and in the errors of regression models. The problem of testing for white noise against multiplicative seasonal ARMA(l,l)-ARMA(l,l) alternatives is investigated. This testing problem is non-standard due to nuisance parameters that appear under the alternative but not under the null hypothesis. The likelihood ratio (LR), sup Lagrange multiplier (LM), and exponential average LM and LR tests are considered and are shown to be asymptotically admissible for multiplicative seasonal ARMA(l,l)-ARMA(l,l) alternatives. In addition, they are shown to be consistent against all (weakly stationary strong mixing) non-white noise alternatives. …
Matrices With Identical Sets Of Neighbors, Imre Bárány, Herbert E. Scarf
Matrices With Identical Sets Of Neighbors, Imre Bárány, Herbert E. Scarf
Cowles Foundation Discussion Papers
Given a generic m by n matrix A , a lattice point h in Z is a neighbor of the origin if the body { x : Ax < b }, with b i = max{0, a i h }, i = 1, …, m , contains no lattice point other than 0 and h . The set of neighbors, N ( A ), is finite and Asymmetric. We show that if A’ is another matrix of the same size with the property that sign a i h = sign a i ’ h for every i and every h in N ( A ), then A’ has precisely the same set of neighbors as A . The collection of such matrices is a polyhedral cone, described by a finite set of linear inequalities, each such inequality corresponding to a generator of one of the cones C i = pos( h in N ( A ): a i h < 0}. Computational experience shows that C i has “few” generators. We demonstrate this in the first nontrivial case n = 3, m = 4.