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Articles 1681 - 1710 of 2768
Full-Text Articles in Social and Behavioral Sciences
Second Order Approximation In The Partially Linear Regression Model, Oliver B. Linton
Second Order Approximation In The Partially Linear Regression Model, Oliver B. Linton
Cowles Foundation Discussion Papers
We examine the second order properties of various quantities of interest in the partially linear regression model. We obtain a stochastic expansion with remainder o P ( n -2µ ), where µ < 1/2, for the standardized semiparametric least squares estimator, a standard error estimator, and a studentized statistic. We use the second order expansions to correct the standard error estimates for second order effects, and to define a method of bandwidth choice. A Monte Carlo experiment provides favorable evidence on our method of bandwidth choice.
Robust Nonstationary Regression, Peter C.B. Phillips
Robust Nonstationary Regression, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper provides a robust statistical approach to nonstationary time series regression and inference. Fully modified extensions of traditional robust statistical procedures are developed which allow for endogeneities in the nonstationary regressors and serial dependence in the shocks that drive the regressors and the errors that appear in the equation being estimated. The suggested estimators involve semiparametric corrections to accommodate these possibilities and they belong to the same family as the fully modified least squares (FM-OLS) estimator of Phillips and Hansen (1990). Specific attention is given to fully modified least absolute deviation (FM-LAD) estimation and fully modified M (FM-M)-estimation. The …
The Natural Rate As New Classical Macroeconomics, James Tobin
The Natural Rate As New Classical Macroeconomics, James Tobin
Cowles Foundation Discussion Papers
Friedman identified his “natural rate” as Walrasian equilibrium. Keynes’s “full employment” is also classical equilibrium: labor markets are clearing at existing real wages. Why is equilibrium unemployment not zero? Keynes and Friedman cite, but do not explain, “frictional” unemployment. They differ on what explains cycles. Friedman and Lucas answer: misperceptions of inflation. Markets clear at wrong prices and quantities. Today New Classicals stress variations in the natural rate itself. In Keynesian cycles markets don’t clear. Excess supplies or demands trigger Phillips-curve movements of wages and prices. Unemployment and vacancies coexist in varying proportions because inter-sectoral shocks always occur. Adjustment dynamics, …
Macroeconomic Shocks In An Aggregative Disequilibrium Model, Vassilis A. Hajivassiliou
Macroeconomic Shocks In An Aggregative Disequilibrium Model, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
In this paper, I first show how aggregation over submarkets that exhibit varying degrees of disequilibrium can provide a foundation to the classic “short-side” disequilibrium econometric model of Fair and Jaffee [11]. I then introduce explicit randomness in the aggregative model as arising from economy-wide demand and supply shocks, which are allowed to be serially correlated. I develop suitable simulation estimation methods to circumvent hitherto intractable computational problems resulting from serial correlation in the unobservables in disequilibrium analysis. I show that the introduction of macroeconomic shocks has fundamentally different implications compared to the traditional approach that arbitrarily appends an additive …
A Simulation Estimation Analysis Of The External Debt Crises Of Developing Countries, Vassilis A. Hajivassiliou
A Simulation Estimation Analysis Of The External Debt Crises Of Developing Countries, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
In this paper I develop models of the incidence and extent of external financing crises of developing countries, which lead to multiperiod multinomial discrete choice and discrete/continuous econometric specifications with flexible correlation structures in the unobservables. I show that estimation of these models based on simulation methods has attractive statistical properties and is computationally tractable. Three such simulation estimation methods are exposited, analyzed theoretically, and used in practice: a method of smoothly simulation maximum likelihood (SSML) based on a smooth recursive conditioning simulator (SRC), a method of simulated scores (MSS) based on a Gibbs sampling simulator (GSS), and an MSS …
Empirical Process Methods In Econometrics, Donald W.K. Andrews
Empirical Process Methods In Econometrics, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper provides an introduction to the use of empirical process methods in econometrics. These methods can be used to establish the large sample properties of econometric estimators and test statistics. In the first part of the paper, key terminology and results are introduced and discussed heuristically. Applications in the econometrics literature are briefly reviewed. A select set of three classes of applications is discussed in more detail. The second part of the paper shows how one can verify a key property called stochastic equicontinuity. The paper takes several stochastic equicontinuity results from the probability literature, which rely on entropy …
The Theory Of Money And Financial Institutions, Martin Shubik
The Theory Of Money And Financial Institutions, Martin Shubik
Cowles Foundation Discussion Papers
A sketch of a game theoretic approach to the Theory of Money and Financial Institutions is presented in a nontechnical, nonmathematical manner. The detailed argument and specifics are presented in previous articles and in a forthcoming book.
Forward Exchange Market Unbiasedness: The Case Of The Australian Dollar Since 1984, Peter C.B. Phillips, James W. Mcfarland
Forward Exchange Market Unbiasedness: The Case Of The Australian Dollar Since 1984, Peter C.B. Phillips, James W. Mcfarland
Cowles Foundation Discussion Papers
This paper implements a new statistical approach to robust regression with nonstationary time series. The methods are presently under theoretical development in other work, and are briefly exposited here. They allow us to perform regressions in levels with nonstationary time series data, they accommodate data distributions with heavy tails and they permit serial dependence and temporal heterogeneity of unknown form in the equation errors. With these features the methods are well suited to applications with frequently sampled exchange rate data, which generally display all of these empirical characteristics. Our application is to daily data on spot and forward exchange rates …
Common Knowledge, John Geanakoplos
Common Knowledge, John Geanakoplos
Cowles Foundation Discussion Papers
This paper surveys the implications of “common knowledge” in interactive epistemology and game theory, with special emphasis on speculation, betting, agreeing to disagree, and coordination. The implications of approximate common knowledge are also analyzed. Approximate common knowledge is defined three ways: as knowledge of knowledge … of knowledge, iterated N times; as p -common knowledge; and as weak p -common knowledge. Finally the implications of common knowledge are examined when agents are boundedly rational.
On The Sources And Significance Of Interindustry Differences In Technological Opportunities, Alvin K. Klevorick, Richard C. Levin, Richard R. Nelson, Sidney G. Winter
On The Sources And Significance Of Interindustry Differences In Technological Opportunities, Alvin K. Klevorick, Richard C. Levin, Richard R. Nelson, Sidney G. Winter
Cowles Foundation Discussion Papers
The set of technological opportunities in a given industry is one of the fundamental determinants of technical advance in that line of business. We examine the concept of technological opportunity and discuss three categories of sources of those opportunities: advances in scientific understanding and technique, technological advances originating in other industries and in other private and governmental institutions, and feedbacks from an industry’s own technological advances. Data from the Yale Survey on Industrial Research and Development are used to measure the strength of various sources of technological opportunity and to discern interindustry differences in the importance of these sources. We …
Nonlinear Econometric Models With Deterministically Trending Variables, Donald W.K. Andrews, John Mcdermott
Nonlinear Econometric Models With Deterministically Trending Variables, Donald W.K. Andrews, John Mcdermott
Cowles Foundation Discussion Papers
This paper considers an alternative asymptotic framework to standard sequential asymptotics for nonlinear models with deterministically trending variables. The asymptotic distributions of generalized method of moments estimators and corresponding test statistics are derived using this framework. The asymptotic distributions are shown to be the same with deterministically trending variables as with non-trending variables. That is, the distributions are normal and chi-squared respectively. The asymptotic covariance matrices of the estimators, however, are found to depend on the form of the trends. These findings provide a justification for the use of standard asymptotic approximations in nonlinear models even when the variables have …
Simulating Normal Rectangle Probabilities And Their Derivatives: The Effects Of Vectorization, Vassilis A. Hajivassiliou
Simulating Normal Rectangle Probabilities And Their Derivatives: The Effects Of Vectorization, Vassilis A. Hajivassiliou
Cowles Foundation Discussion Papers
An extensive literature in econometrics and in numerical analysis has considered the computationally difficult problem of evaluating the multiple integral representing the probability of a multivariate normal random vector constrained to lie in a rectangular region. A leading case of such an integral is the negative orthant probability, implied by the multinomial probit (MNP) model used in econometrics and biometrics. Classical parametric estimation of this model requires, for each trial parameter vector and each observation in a sample, evaluation of a normal orthant probability and its derivatives with respect to the mean vector and the variance-covariance matrix. Several Monte Carlo …
Classical Estimation Methods For Ldv Models Using Simulation, Vassilis A. Hajivassiliou, Paul A. Ruud
Classical Estimation Methods For Ldv Models Using Simulation, Vassilis A. Hajivassiliou, Paul A. Ruud
Cowles Foundation Discussion Papers
This paper discusses estimation methods for limited dependent variable (LDV) models that employ Monte Carlo simulation techniques to overcome computational problems in such models. These difficulties take the form of high dimensional integrals that need to be calculated repeatedly but cannot be easily approximated by series expansions. In the past, investigators were forced to restrict attention to special classes of LDV models that are computationally manageable. The simulation estimation methods we discuss here make it possible to estimate LDV models that are computationally intractable using classical estimation methods. We first review the ways in which LDV models arise, describing the …
Admissibility Of The Likelihood Ratio Test When A Nuisance Parameter Is Present Only Under The Alternative, Donald W.K. Andrews, Werner Ploberger
Admissibility Of The Likelihood Ratio Test When A Nuisance Parameter Is Present Only Under The Alternative, Donald W.K. Andrews, Werner Ploberger
Cowles Foundation Discussion Papers
This paper establishes the asymptotic admissibility of the likelihood ratio (LR) test for a general class of testing problems in which a nuisance parameter is present only under the alternative hypothesis. The paper also establishes the finite sample admissibility of the LR test for testing problems of this sort that arise in Gaussian linear regression models with known variance.
The Money Rate Of Interest And The Influence Of Assets In A Multistage Economy With Gold Or Paper Money: Part Ii, Martin Shubik, Shuntian Yao
The Money Rate Of Interest And The Influence Of Assets In A Multistage Economy With Gold Or Paper Money: Part Ii, Martin Shubik, Shuntian Yao
Cowles Foundation Discussion Papers
We consider the relationship between the length of life of individuals and the assets they own and their influence on trustless trade. In particular in some structures a role for government or an outside bank may be called for to support an equilibrium. An example of an OLG model with production illustrates the need for expanding the fiat money supply if population growth is greater than zero.
The Money Rate Of Interest And The Influence Of Assets In A Multistage Economy With Gold Or Paper Money: Part I, Martin Shubik, Shuntian Yao
The Money Rate Of Interest And The Influence Of Assets In A Multistage Economy With Gold Or Paper Money: Part I, Martin Shubik, Shuntian Yao
Cowles Foundation Discussion Papers
The role of long lived assets is considered in serving as hostages to extend the domain of trustless trade in an exchange economy. Assuming that individuals have life cycle preferences, we consider the most general set of utility functions consistent with these preferences and a stationary equilibrium for an OLG economy. The influence of the type of asset, durable or storable on the need for money is considered.
Aggregate Income Risks And Hedging Mechanisms, Robert J. Shiller
Aggregate Income Risks And Hedging Mechanisms, Robert J. Shiller
Cowles Foundation Discussion Papers
Estimates are made, from time series data on real gross domestic products, of the standard deviations of returns in markets for perpetual claims on countries’ incomes. The results indicate that the variability of returns is of a magnitude comparable to that of returns in stock markets. Evidence is shown that there may be only minimal possibility of cross hedging these returns in existing capital markets. Methods of establishing markets for perpetual claims on aggregate incomes are examined. Such markets, by allowing hedging of these aggregate income risks, might make for dramatically more effective international macroeconomic risk sharing than is possible …
Fully Modified Least Squares And Vector Autoregression, Peter C.B. Phillips
Fully Modified Least Squares And Vector Autoregression, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Fully modified least squares (FM-OLS) regression was originally designed in work by Phillips and Hansen (1990) to provide optimal estimates of cointegrating regressions. The method modifies least squares to account for serial correlation effects and for the endogeneity in the regressors that results from the existence of a cointegrating relationship. This paper provides a general framework which makes it possible to study the asymptotic behavior of FM-OLS in models with full rank I(1) regressors, models with I(1) and I(0) regressors, models with unit roots, and models with only stationary regressors. This framework enables us to consider the use of FM …
Measuring The Impact Of Global Warming In Agriculture, Robert Mendelsohn, William D. Nordhaus, Daigee Shaw
Measuring The Impact Of Global Warming In Agriculture, Robert Mendelsohn, William D. Nordhaus, Daigee Shaw
Cowles Foundation Discussion Papers
This paper develops a “Ricardian” approach for measuring the economic impact of environmental factors such as climate by examining the direct impact of the environmental factor on land prices. Estimating the model using cross-sectional data on climate, farm-land prices, and other economic and geophysical data for almost 3,000 countries in the United States, we find that higher temperatures in all seasons except autumn reduce average farm values in the United States and more precipitation in all seasons except autumn increases farm values. Applying the model to a global-warming scenario finds a range of impacts depending upon whether the model emphasize …
Hypothesis Testing With A Restricted Parameter Space, Donald W.K. Andrews
Hypothesis Testing With A Restricted Parameter Space, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper considers hypothesis tests for nonlinear econometric models when the parameter space is restricted under the alternative hypothesis. Multivariate one-sided tests are a leading example. Optimal tests, called directed tests, are derived using a weighted average power criterion. The likelihood ratio test is shown to be admissible and to maximize power against alternatives that are arbitrarily distant from the null hypothesis. Exact results are established first for Gaussian linear regression models with known variance. Asymptotic analogues are then established for dynamic nonlinear models. Simulation is used to compare the tests discussed in the paper. The D–W ∞ directed test …
An Old Keynesian Counterattacks, James Tobin
An Old Keynesian Counterattacks, James Tobin
Cowles Foundation Discussion Papers
Both New Classical and New Keynesian macroeconomic theorists misunderstand and distort old Keynesian economics, alleging that its diagnoses and prescriptions depend on the indefensible assumption that money wages and prices are “rigid.” Here it is argued that all Keynesian macro requires is that labor and product markets are not instantaneously and continuously cleared by perfectly flexible prices. Assuming imperfect flexibility, not necessarily rigidity, suffices to open the door for involuntary unemployment. Moreover, once the economy is displaced from full employment, it is far from clear that economy-wide movements of money wages and prices will, in the absence of Keynesian demand …
A Strategic Market Game With Seigniorage Costs Of Fiat Money, Martin Shubik, Dimitrios P. Tsomocos
A Strategic Market Game With Seigniorage Costs Of Fiat Money, Martin Shubik, Dimitrios P. Tsomocos
Cowles Foundation Discussion Papers
A model that includes the cost of producing money is presented and the nature of the inefficient equilibria in the model are examined. It is suggested that if one acknowledges that transactions are a form of production, which requires the consumption resources, then the concept of Pareto optimality is inappropriate for assessing efficiency. Instead it becomes necessary to provide an appropriate comparative analysis of alternative transactions mechanisms in the appropriate context.
Behavioral Heterogeneity And Cournot Oligopoly Equilibrium, Jean-Michel Grandmont
Behavioral Heterogeneity And Cournot Oligopoly Equilibrium, Jean-Michel Grandmont
Cowles Foundation Discussion Papers
It is not infrequent to see studies of imperfect competition or of industrial organization rest upon questionable foundations such as the hypothesis that inverse market demand is, whenever it is positive, concave or even linear. Assumptions of this sort are not robust (i.e., “additive”) in the sense that they are not usually preserved through aggregation of different sectors that would satisfy them individually. The present paper investigates an alternative specification that is based upon the plausible existence of significant heterogeneities among demanders. It is demonstrated that specific forms of demand heterogeneity tend to stabilize market expenditures. In a partial equilibrium …
Adaptive Estimation In Arch Models, Oliver B. Linton
Adaptive Estimation In Arch Models, Oliver B. Linton
Cowles Foundation Discussion Papers
We construct efficient estimators of the identifiable parameters in a regression model when the errors follow a stationary parametric ARCH(P) process. We do not assume a functional form for the conditional density of the errors, but do require that it be symmetric about zero. The estimators of the mean parameters are adaptive in the sense of Bickel [2]. The ARCH parameters are not jointly identifiable with the error density. We consider a reparameterization of the variance process and show that the identifiable parameters of this process are adaptively estimable.
Hyper-Consistent Estimation Of A Unit Root In Time Series Regression, Peter C.B. Phillips
Hyper-Consistent Estimation Of A Unit Root In Time Series Regression, Peter C.B. Phillips
Cowles Foundation Discussion Papers
It is shown that the fully modified ordinary least squares (FM-OLS) estimator of a unit root in time series regression is T 3 /2 -consistent. Relative to FM-OLS, therefore, the least squares and maximum likelihood estimators are infinitely deficient asymptotically. Simulations show that this dominance of FM-OLS persists even in small samples.
An Alternative Theory Of Firm And Industry Dynamics, Richard Ericson, Ariel Pakes
An Alternative Theory Of Firm And Industry Dynamics, Richard Ericson, Ariel Pakes
Cowles Foundation Discussion Papers
This paper provides a model of firm and industry dynamics that allows for entry, exit and firm-specific uncertainty generating variability in the fortunes of firms. It focuses on the impact of uncertainty arising from investment in research and exploration-type processes. It analyzes the behavior of individual firms exploring profit opportunities in an evolving marketplace and derives optimal policies, including exit, in this environment. Then it adds an entry process and aggregates the optimal behavior of all firms, including potential entrants, into a rational expectations, Markov perfect industry equilibrium, and proves ergodicity of the equilibrium process. Numerical examples are used to …
Measuring Asset Values For Cash Settlement In Derivative Markets: Hedonic Repeated Measures Indices And Perpetual Futures, Robert J. Shiller
Measuring Asset Values For Cash Settlement In Derivative Markets: Hedonic Repeated Measures Indices And Perpetual Futures, Robert J. Shiller
Cowles Foundation Discussion Papers
Two proposals are made that may facilitate the creation of derivative market instruments, such as futures contracts, cash-settled based on economic indices. The first proposal concerns index number construction: indices based on infrequent measurements of nonstandardized items may control for quality change by using a hedonic repeated measures method, an index number construction method that follows individual assets or subjects through time and also takes account of measured quality variables. The second proposal is to establish markets for perpetual claims on cash flows matching indices of dividends or rents. Such markets may help us to measure the prices of the …
Some Dynamics Of A Strategic Market Game With A Large Number Of Agents, John M. Miller, Martin Shubik
Some Dynamics Of A Strategic Market Game With A Large Number Of Agents, John M. Miller, Martin Shubik
Cowles Foundation Discussion Papers
This paper is designed to combine the game theoretic investigation of the static or equilibrium properties of large strategic market games together with the investigation of some very simple dynamics, which nevertheless are sufficient to show differences between two related games, one in which both borrowing and trade take place. The role of banking reserves emerges as relevant and sensitive to the transient state dynamics. Several 100,000 player games are simulated and the behavior is constructed with the analytical prediction for the games with a continuum of agents.
The Complex Of Maximal Lattice Free Simplices, Imre Bárány, Roger Howe, Herbert E. Scarf
The Complex Of Maximal Lattice Free Simplices, Imre Bárány, Roger Howe, Herbert E. Scarf
Cowles Foundation Discussion Papers
The simplicial complex K ( A ) is defined to be the collection of simplices, and their proper subsimplices, representing maximal lattice free bodies of the form { x : Ax < b }, with A a fixed ( n + 1) × n matrix. The topological space associated with K ( A ) is shown to be homeomorphic to R n , and the space obtained by identifying lattice translates of these simplices is homeomorphic to the n -torus.
The Large Sample Correspondence Between Classical Hypothesis Tests And Bayesian Posterior Odds Tests, Donald W.K. Andrews
The Large Sample Correspondence Between Classical Hypothesis Tests And Bayesian Posterior Odds Tests, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper establishes a correspondence in large samples between classical hypothesis tests and Bayesian posterior odds tests for models without trends. More specifically, tests of point null hypotheses and one- or two-sided alternatives are considered (where nuisance parameters may be present under both hypotheses). It is shown that for certain priors the Bayesian posterior odds test is equivalent in large samples to classical Wald, Lagrange multiplier, and likelihood ratio tests for some significance level and vice versa.