texts: Emerging Market dollar debt, FX swaps and exchange rate risks

texts:
"An FX swap, on the other hand, creates no exchange rate risk for its counterparties. This is because currencies are sold and repurchase at fixed spot and forward rates. In other words, when you sell one currency for another through an FX swap, you know from the start how much of your original currency you will get back. An FX swap is a liquidity management tool, not a risk management tool." Source: https://icmacentre.blog/2017/09/22/are-fx-swaps-and-forwards-missing-global-debt-why-the-bis-is-wrong/

However, consider the following: An Emerging Market (EM) corporate issues dollar debt and hedges its exposure by entering an FX swap agreement with an International Entity (i.e. a global bank). The EM corporate exchange the amount of Dollar that it received from bond issuance for domestic EM currency at the beginning of the contract.

In this scenario isn't, the global bank exposing herself to exchange rate risk, ceteris paribus?

1) First, the global bank needs to convert its dollar assets into the EM domestic currency in order to supply the domestic currency to the EM corporate and enter into a FX swap agreement.

2) Second, at the end of the contract the global bank will receive back an amount of EM domestic currency at a predetermined forward rate from the EM corporate. However, the global bank presumably derives "utility" from dollar assets and hence will need to convert the EM currency proceeds that she receives from the FX swap into dollars using the future spot rate.

3) The future spot rate is clearly uncertain at the time when the FX swap is initially signed, hence the global bank is exposing herself to exchange rate risk.


texts: Why do expectations of inflation decrease SRAS (Short Run Aggregate supply)?

texts:
If firms and workers expect the prices to rise, the short run aggregate supply will shift to the left to SRAS2.
  (https://www.albert.io/blog/what-shifts-aggregate-demand-and-supply-ap-macroeconomics-review/)

In other words, the SRAS will DECREASE. But why? Especially considering that firms react with increased output supplied to inflation in the short run. According to theory of sticky prices such reaction happens because many firms with flexible output prices see increased inflation as chance to rip additional profit in the short run. So why would they decrease quantity supplied at all possible price levels (i.e. shift SRAS to the left) when they expect inflation to increase?


texts: Proof that two utility functions $u(x_1,x_2) \text{ and } v(x_1,x_2)$ with the same MRS represent the same preference

texts:
I am having some difficulty proving that two utility functions with the same marginal rate of substitution represent the same preference. I think I need two use some argument related to strictly increasing monotonic transformation, but I am really lost. If someone could help me, it would be great.
Thank you very much!


texts: Formula for splitting profit and loss for every person

texts:
I am looking for a formula to calculate even distribution of loss or profit between involved parties. Let's speak with some examples as I feel it will be easier.

Example 1

Person 1

Balance: 2,000,000
Supplies (investment): 70,000

Person 2

Balance: -260,000
Supplies (investment): 260,000

Person 3

Balance: -17,000
Supplies (investment): 84,000

Description

As we can see one person made profit in this example. To distribute everything evenly he should pay every person loss (so 259,000 to Person 2 and 17,000 to Person 3) and divide what's left by 3 and distribute that as well.

Example 2

Person 1

Balance: 2,000,000
Supplies (investment): 80,000

Person 2

Balance: 1,000,000
Supplies (investment): 150,000

Person 3

Balance: -900,000
Supplies (investement): 900,000

Person 4

Balance: -150,000
Supplies (investment): 100,000

Description

As we can see two people here made profit so it gets trickier. We still want to distribute everything evenly. Easiest way I see is to sum all the negative balances (1,050,000 here), subtract that from profit (3,000,000 - 1,050,000 = 2,950,000) so everyone 737,500 / 4 so Person 2 has to give back a little from his balance (profit) and so does Person 1. Easiest would be to cumulate all profit in one account (e.g. Person 1) and make Person 1 split everything but it seems more work.

Example 3

Person 1

Balance: -10,000
Supplies (investment): 50,000

Person 2

Balance: -20,000
Supplies (investment): 20,000

Person 3

Balance: -500
Supplies (investment): 500

Description

As we can see no-one made any profit but Person 1 earned 40,000 as he used 50,000 for supplies and  has only -10,000 in losses. So this 40,000 should be evenly distributed but according to their usage of supplies.

Is that correct way of thinking? Is there a formula for splitting profit and loss?


texts: How does hyperinflation affect investment?

texts: Title says it all - how does hyperinflation affect investment and how does this differ from how creeping inflation might affect investment?


texts: Just a question to satisfy my Mathematical itch, but is there anything in Economics that uses Chaos Theory from Math?


texts: Why does the US have public debt if they make more than that annually?

texts:
Probably a dumb question:

I know next to nothing about economics and I'm just trying to make sense of what I'm trying to learn.

So, I've been looking into GDP lately, trying to understand what it means, and I came across a wiki page which states that in 2013 the US had a public debt of 17607 billion USD and that it was 74% of its GDP. From my understanding, that means that the US makes around 17607*100/74$\approx$23793 USD per year, so shouldn't that mean that they should have been able to pay the debt in a couple of years?

Also, the same wiki page says that the overall world public debt is 56308 USD. What does that mean? If one country A has a debt to country B, which has debt on country C and country C has debt on country A, can't some of the debts be canceled out?


texts: Why might it make sense to buy bonds in a company facing restructuring?

texts:
In this video, Sal Khan states, "If you really thought that Lehman Brothers in the long term was going to come back, what you might want to do is somehow try to become one of its bondholders, and then when it goes through bankruptcy, on the other side of the bankruptcy, you might end up in shares of the new bank, whatever it's called, you know, Goldman Brothers, or whatever."
My understanding is that, minor secondary market factors aside, you could only break even or lose via this strategy.  If the assets of the company being restructured were truly worth less than its liabilities, then the owners of each tranche of those liabilities would receive shares worth at most the value they were owed, and at least the equity tranche would receive less.  How could this be a profitable strategy?


texts: Why Chinese GDP does not correspond to Chinese GDP growth rate?

texts:
Hi all. According to google we have:
China GDP 2017=12.24 trillion USD
China GDP 2016=11.19 trillion USD
Therefore
China GDP 2017 growth rate=(12.24-11.19)/11.19=0.0938 that is approximately 9.4%
However according to google China GDP growth rate 2017 is equal to 6.9%
Why those numbers do not correspond?


texts: Suppose a monopolist adopts a technology that allows him to produce his product at lower cost. What is the likely effect on the monopoly price ?


texts:
I have 5-year sales information from a grocery store in Canada. I want to check whether an event that happened in 2017, affected the effect of the price of a product on its sales.
For example, imagine that before treatment price elasticity (i.e. the degree to which changes in price impact the unit sales of a product) for diary goods was -0.05, I am eager to know whether my treatment changed it or not. Actually, I already know that price influences sales, but I suspect that the imposition of the treatment might alter the consumers' price sensitivity.
The standard DiD model only investigates the impact of treatment on the outcome variable. While I need to see whether the treatment has affected the coefficient of the regression model (Sales ~ Price) or not. In other words, I need to check whether the treatment affected the relationship between my independent variable (Price) and dependent variable (Sales). Would you please guide me on what formula should I use as the standard difference-in-difference model does not seem to be working here?
$$
log(Outcome_{it})= \beta_1 + \beta_2Treat_{i} + \beta_3 Post_{t} + \beta_4 (Treat \times Post)_{it} + \epsilon_{it}
$$
can I use the below model instead?
$$
log(Sales_{it})= \beta_1 + \beta_2Treat_{i} \times Price_{it} + \beta_3 Post_{t} \times Price_{i} + \beta_4 DiD_{it} \times Price_{it}  + \epsilon_{it}
$$
where DiD is:
$$
DiD = Treat \times Post
$$


texts: Identify absolute ability from a wage equation

texts:
Consider a simple model where the wage of a worker $i$ in period $t$ is:

$$w_{it} = \theta_{t} a_{i}$$

where $\theta_{t}$ is the wage rate or efficiency wage per unit of ability, and $a_{i}$ is the workers' ability endowment.

For simplicity let us assume no other factor affects a workers' wage (no experience, education, or any the usual Mincer stuff).

If I run a panel data regression such as (also known as a two-way effects model):

$$ \ln w_{it} = \ln \theta_{t} + \ln a_{i} + \epsilon_{it} $$

then, according to my model, the estimated effect for the individuals correspond to (the log of) absolute ability. However, in the literature you always see that predicted unobserved heterogeneity is not ability per se but ability together with it's price. This is, there is always a coefficient like in $c\ln a_{i}$ or in $\ln c a_{i}$, and then they move to calculate relative ability by just comparing the ratio of predicted heterogeneity for two workers.

I just can't see why it is not possible to identify absolute ability. Where is the missing link in my model?


texts:
Im familiar with sequential games in game theory. Specifically Im interested in if one can forecast using such a method?

what specific models I should know about if I can forecast using game theory?


texts: I want to test the CAPM. I have collected monthly data from 1-9-2012 to 1-9-2017. I have data from the return of Standard&Poor's 500 and data from various US companies. The beta's seem right, but my goodness of fit ($R^2$) are low: Ameren 0.0614, Apple 0.2456. My question is: Can this be right? If you're testing the CAPM or am I doing something wrong. I used the CAPM regression $R_{i,t}-R_{f,t}=\alpha_i+\beta_i(R_{M,t}-R_{f,t})+e_i$.


texts: My fundamental concern is whether in real life when applying to microeconomic theory, we derive the demand curve using utility and indifference curves approach, or we simply may get data on quantity demanded of the consumer for different prices and using linear regression derive the demand curve?


texts: rotating and exchanging x for y's in regression

texts:
I was just wondering what happens generally if i send all my x points to y's and y's to x's (i.e reflect along the y=x line) - if I change the x's and y's will my old error minimizing line still be the error minimizing line after reflection? How about if I rotate points?

Many thanks


texts:
I have undergraduate level experience in macroeconomics...but I want to do some further learning to try and acquaint myself with where mainstream macroeconomics is at the moment in the hopes that I can understand the economy better. I understand that most macroeconomics is highly mathematical at this stage and I have no problem with this, but a more intuitive/wordy/theoretical approach would be preferred.

Are there any good online lecture notes, textbooks etc. for this sort of thing?


texts: Is evolutionary game theory a useful modelling tool?

texts: Has evolutionary game theory ever been used to successfully describe an ecosystem or a reasonably closed subsystem of the economy? A frequently used example is about side-blotched lizards but I don't know of any others. And has it ever been proven that in this case the main factor is really relative fitness of strategies and not some other factor, such as the dynamics of gene recombination?


texts: Econ Intuition for Jacobian inverse in demand system

texts:
Consider the following simple linear demand system (in vector notation) with n different products

Demand: $\quad\mathbf{q=B\left(a-p\right)}$

Inverse demand: $\quad\mathbf{p=a-B^{-1}q}$

where $\mathbf{p}$ is the vector of prices and $\mathbf{q}$ is the vector of quantities supplied. The Jacobians of these two equations

$\dfrac{\partial\mathbf{q}}{\partial\mathbf{p}}=-\mathbf{B}\quad$
  and  $\quad\dfrac{\partial\mathbf{p}}{\partial\mathbf{q}}=-\mathbf{B}^{-1}$

tell you how prices react to a change in quantity supplied and vice-versa. Now, consider the example:

$\mathbf{B}=\left[\begin{array}{cc}
\frac{4}{3} & -\frac{2}{3}\\
-\frac{2}{3} & \frac{4}{3}
\end{array}\right]\quad$ so that $\quad\mathbf{B}^{-1}=\left[\begin{array}{cc}
1 & .5\\
.5 & 1
\end{array}\right]$

then it is easy to see that, for some product $i$:

$\dfrac{\partial q_{i}}{\partial p_{i}}\neq\left(\dfrac{\partial p_{i}}{\partial q_{i}}\right)^{-1}$

I understand that that is true mathematically and will generally be the case, but what does it mean in terms of economic intuition? Why does the demand curve for product $i$  slope differently depending on whether I put $q_{i}$ on the vertical axis rather than the horizontal axis?


texts: How exactly can blockchain technology be used to make a supply chain more efficient?

texts:
I am a software developer, and have been studying Bitcoin, Ethereum and blockchain technology over the last 8 months or so. I have read a lot on the Internet about how blockchain technology will revolutionize the supply chain. The content I found was either on:

websites of tech companies working on this, so I guess they do not want to reveal the details of how exactly their solution works.

OR

commerce news sites, written by people not knowledgeable about the technical aspects, describing the benefits of blockchain technology and what it would enable in the supply chain but only at a very high level without any explanation of how those goals would be achieved in the supply chain space.

I want to understand how exactly people in the business / commerce / economics world see blockchain technology being applied to supply chains to achieve the stated benefits of "eliminating inefficiencies, speed up transactions, enable innovative new business models, transparency, trackability,... on and on, including but not limited to "tracking freshness of produce".

I am looking for someone who knows the technology and the domain and can explain how these business goals can be achieved using blockchain technology.


texts: I am trying to learn John Cochrane's Asset Pricing. I notice there are Coursera resources (link). However, it is not available now. Did anyone try that class before? Does anyone know what's the next time it opens? Is it worth waiting for? Are there any good alternatives?


texts: Inequality and Growth: the Role of Democracy

texts: In the Alesina and Rodrik (1994) study on the impact of inequality on growth, why did they include a dummy for democracies in their empirical estimation? In other words, why did they want to study whether the impact would be different for democracies vis-a-vis non-democracies?


texts: Do general equilibrium models include money?

texts:
An economics professor told me that General Equilibrium models are a sophistication of barter. Does that imply that they don't include money? And if that is the case, are there any attempts to include it?

Moreover, does this have any implications on the way we understand macroeconomics?

Thanks.


texts: Difference between CCAR and ICAAP stress tests

texts:
What is the difference between ICAAP and CCAR?

Except that one is for USA and other is for Canada?


texts: Solow growth model - analytic proof that Inada conditions imply steady state capital is increasing in the savings rate

texts:
Let's take the example of a generic Harrod-neutral (labor-augmenting) production function $f(k)$; all letters denote the growth rates they usually would. In the regular Solow growth model with the Inada assumptions, it is a result of its comparative statics that, since $sf(k^*)=(n+\delta+g)k^*$ is the steady-state condition, if we assume $k^*$ is a function of the savings rate then $\frac{\partial k^*}{\partial s}>0$. Total differentiation gives us that
$$ \frac{\partial k^*}{\partial s} = \frac{f(k^*)}{(n+g+\delta)-sf'(k^*)},$$
and in my class the professor claimed that this last expression is strictly positive because the numerator is (fine) and the denominator is too. Basically, it boils down to the fact that $\frac{n+g+\delta}{s} > f'(k^*)$, and that this is a fact implied by the Inada assumptions.

I have tried messing around with the statement about the limiting behavior of the derivative at 0 (infinity) and as k tends to infinity (zero); all to no avail. If someone could please offer some hints or an explanation or a proof of this fact I would deeply appreciate. This was not a question posed for an assignment or anything of the sort, just personal interest (having some background in analysis).


texts: Show that an equilibrium in strictly dominant strategies is a unique Nash equilibrium

texts:
I am new to game theory and I came across this line, " A strategy profile (s1, . . . , sn) in which every si is dominant for agent i (strictly, weakly, or very weakly) is a Nash equilibrium."

But why is that? And how would an equilibrium form in strictly dominant strategies? Do they both just yield the same best payoff?

Any help would be appreciated!


texts: Plotting money market equilibrium for 2020

texts:
I am trying to roughly sketch up supply / demand curves by parameterizing the major happenings in the money market in 2020. I intend to use this chart as the template:

Below, I'll outline my thought process for each curve:
Money supply

Interest rate targeted at zero
Fed balance sheet expands (a lot)

Graph implication: money demand curve(straight line) shifts to the right
This is the tricky part, as money demand is not something we can directly observe in practice, though I tried my best to be objective/conservative.
Money demand

Unemployment spikes in April, then slowly stabilizes around 6% in 3Q20

Total income probably drops off a cliff for a few months and slowly revives with industries streamlining / automating / outsourcing, setting a lower total income floor than pre-pandemic times

Stimulus / helicopter money offsets deflationary forces

Risk-off sentiment during March's downturn drives defensive portfolio positioning, increasing demand for cash

BofA September poll: fund manager consensus that it's a new bull market, investors rotate out of cash/equivalents and into higher yielding assets, reducing demand for cash

Graph implication: Money demand undergoes a short-term shift to the right, but trends to a shift to the left from a likely permanent contraction in total income and the onset of a new bull market (admittedly not a slow bull)
Conclusion: I realize there are multiple factors at play here, but I think it's reasonable to assert that, on balance, the demand curve shifts left and the supply curve shifts right.
And thus I present my rough sketch of the money market:

Question
Is this parameterization consistent with mainstream economic analysis on the money market in 2020?


texts: preference relations and monotonic transformations of utillity functions

texts:
Given a choice set $X$ (NOT assumed to be a commodity set...), and utility functions $u,u'$ on $X$, it is clear that if $u'$ is a strictly monotonic transformation of $u$ then they induce the same preference relation on $X$.

My question is, under what conditions does the opposite hold? What are the least strict conditions we can think of that imply that if $u,u'$ induce the same preference relation on $X$, that $u'$ must then necessarily be a strictly increasing transformation of $u$?


texts: Inability of a long-term bond market intervention to contribute to achieving a peg

texts:
In «The Federal Reserve's Large-scale Asset Purchase Programmes: Rationale and Effects» 2012 paper, there's the following sentence:

  According  to  the  pure  expectations theory of the term structure,
  targeting three separate interest rates should succeed if and only if
  the private sector's expectations of the path of the short rate are
  aligned in a way that precisely   generates   the   targeted
  configuration   of   rates. In this environment,  for  a  given
  expected  path  for  the  short-term  rate,  direct  intervention in
  longer  maturity  Treasury  markets  could  not  contribute  to
  achieving  the  peg.

Why is it that intervening in the long-term market would not help achieve the peg?

Any help would be appreciated.


texts: Why is a nations economy is divided into sectors?

texts:
I understand that modern economists divide a nations economy into sectors such as such as primary, secondary, tertiary, quaternary and quinary.

What is the point of such classification?


texts: How to interpret coefficients in a dynamic OLS model?

texts:
I am trying to understand how to interpret the dynamic and static effect from coefficients in regression models.
$GDP\_growth\_rate_{t,i} = \beta_1GCF_{t,i} +\beta_2GCF_{t-1,i}+\beta_3GCF_{t-2,i} +\beta X_{t,i} +u_{t,i}$
where GCF is Gross Capital Formation and the model is estimated using OLS.
My question is am I correct in interpreting $\beta_1$ as the impact multiplier /immediate effect of GCF on GDP and $\beta_1+\beta_2+\beta_3$ as the long-run multiplier/effect?


texts: Alternative ways of visualizing longitudinal macro data?

texts:
Problem: Visualizing longitudinal is challenging when the dataset has large number of panel members. A common ways to visualize such data is to either make a large set of small individual plots  such as the example below  on the left from Frank 2009, or they resort to 'spaghetti graphs' such as the one on the right

Both ways of visualization have their problems as the charts on the left are hard to read even on A4 due to their size, while chart on the right is even worse as everything overlaps and it becomes completely unintelligible.
Question: Are there any studies/technical reports/academic literature in general that uses some alternative ways to visualize macroeconomic longitudinal macro data?
I am primarily looking for some examples applied to settings like U.S. or EU state level data (i.e. some  longitudinal data with $N>20$).

PS: the visualization does not necessary needs to be 'exotic'. For example, I know US can be geographically divided into West, Midwest, South and North and North East. Unfortunately, from my experience even splitting states into 4 smaller panel series produces 'spaghetti' graph (but perhaps there is some other way how to make some trade-off between having one giant spaghetti graph and having individual graph per state?).
PPS: Even though I am looking for examples applied to macro data, I am willing to accept examples from other areas as long as it can be argued that visualization would be useful for macro data as well.


texts: How do deal with negative values when finding log difference?

texts: I’m trying to run a regression with GDP quarterly growth as the dependent variable. I’ve been asked to find the log diff of the data values however I’m unsure on how to do this on excel and how to deal with negative values


texts: Applying the Martingale central limit theorem to the score process of an autoregressive model

texts:
This question is a natural continuation of the following question: How do I construct the score process of a Markov model and verify that it is a Martingale? In this problem, we set up as follows:

  Consider the following autoregressive model:
  $$
X_{t+1} = \alpha_0 + \beta_0 (X_t - \alpha_0) + W_{t+1},
$$
  where $-1 < \beta_0 < 1$ and $W_{t+1}$ is distributed as a normal with mean zero and variance one.

The question constructs a log-likelihood process and the associated score process:

  $$
s_t(\theta \mid \textbf X) =
\begin{bmatrix}
 (1 - \beta_0) \sum_{j=1}^t W_j \\
 \sum_{j=1}^t W_j (X_{j-1} - \alpha_0)
\end{bmatrix}.
$$

After verifying that the score process is a Martingale, a natural follow is to compute
the covariance matrix for a central limit approximation for this process and find the inverse of the matrix. How would I do this? Also, how would I interpret the one-one component of the inverse?

After looking at the Wikipedia article on the Martingale central limit theorem, it seems like this may be a little difficult given that the statement of the theorem requires the difference sequence to be uniformly bounded. Am I missing something or is there a generalization that I'm missing?


texts:
This is very simple, however, I have the following setup

Suppose that the company ABC has a product that shows a constant
annual demand rate of 3600 items. One item costs £3.
Ordering cost is £20 per order and holding cost is 25% of the value of inventory.

What I want to do is calculate the EOQ

$$
EOQ = \sqrt{\frac{2DS}{H}}
$$

Where

D = annual demand (here this is 3600)
S = setup cost (here that's £20)
H = holding cost
P = Cost per unit (which is £3 here)

I figured that I would have

$$
H = 0.25 \times 3 = 0.75
$$

I'm sceptical about this result though.


texts: Why plug deficits with bonds rather than printing money?

texts:
The UK is running a budget deficit £107 billion a year. Inflation is currently running at 1%.

Given these facts, why do they plug the gap by selling debt rather than just creating the money to cover the gap?

Just creating the money seems like it has a lot of upside and not a lot of downside when inflation is so low. Why do we not see countries doing this?


texts: Forums to discuss and learn hot topics of economics research

texts:
Math Overflow is the best forum to learn about pure math researches. Does there exist a similar website or forum for economics researches?

The econ stack exchange seems quiet.


texts: VAR/VECM Fitted/Predicted values (BEER model)

texts:
I am running a BEER model (Behavioral Equilibrium Exchange Rate Model) and using VAR/VECM and Johansen method to estimate the equation. For context, I am looking at the XR of Czech crown and the euro.

The equation takes the following form:
$RER=b_1*TS_1+b_2*TS_2+b_3∗TS_3+b_4∗TS_4$,
where RER is the real exchange rate (nominal rate adjusted for price levels) and $TS_i$ are the relevant time series determinants.

The goal is to get Behavioral Equilibrium Exchange Rate - a variable/time series that does not appear in the equation. When I run co-integration analysis and use VAR/VECM model, how do I get the BEER time series? In all relevant literature I have read, this step is essentially skipped and results are shown.

Understanding check: the $b_i$ values are given by the co-integration vector? Correct?

TL;DR: How do I get what I am trying to estimate when it doesn't even appear in the equation?


texts:
I recently encountered upon this question:

Suppose, in  an economy,autonomous consumption is Rs 100 crore and autonomous investment is Rs 60 crore. Imagine that in this economy,with every increase in income 80 °/° of it is spent on consumption .  If the full employment level of income is Rs 1000 crore,what will be the additional investment?

So, the MPC is 0.8 and so the multiplier would be 5 times.
The consumption function is C =  Autonomous consumption + MPC.y
Hence, C = 100 + (0.8)1000 = 900 crore.
But then given that the multiplier is the ratio  change in income to change in investment, how to proceed further?


texts: What if international date line being shifted to Atlas Ocean? Most of trade partners will have different date, States and all America continents will enter day first etc. So what can be coincidence of this? I am asking this because I have read that samoa was shifted to have better trade partnership with Australia.


texts: why do we analysis the housing market from 'short run' and 'long run'?

texts: As we can see the factors impacting the housing market, particularly house price, are always analysed from the long run and short run, even some researchers analysis those factors from cyclical and structural approach. How can we understand the long run and short run? And what are cyclical and structural influences on house price? Thank you.


texts: Variable for future income or future disposable income

texts: I am doing a project in macroeconomics. I need future disposable income data for the analysis which I couldn't find. Is there a variable/formula which captures future disposable income?


texts:
Consider the following composite function

$$ \lambda(\theta(J)) $$

If you want to think about it in more economic terms, think about it how values of firms $J$ affects market tightness $\theta$, and through that, job finding rates $\lambda$.

Let $\eta_{a,b}$ denote the elasticity of $a$ w.r.t. $b$. Then we have, under some abuse of notation,

$$ \eta_{\lambda, J} = \frac{\partial \lambda}{\partial \theta}\frac{\partial \theta}{\partial J} \cdot \frac{J}{\lambda} \\
\eta_{\lambda, J}= \frac{\partial \lambda}{\partial \theta} \frac{\theta}{\lambda}\frac{\partial \theta}{\partial J} \cdot \frac{J}{\lambda} \frac{\lambda}{\theta} \\
\eta_{\lambda, J}= \eta_{\lambda, \theta} \eta_{\theta, J} \frac{\lambda}{\theta}
$$

Could someone give me an intuition for $\lambda / \theta$ in the last expression? Why is the total elasticity not just the chain of elasticities, $\eta_{\lambda, \theta}\cdot \eta_{\theta, J}$?


texts: Explaining the net capital outflow - trade balance identity

texts:
In an open economy, the following equation always holds, it is an identity:

$S-I=NX$ where $S-I$ represents net capital outflow and $NX$ represents trade balance (net exports).

This equation tells us that there is an inextricable link between the financial markets and the markets for goods and services. But how can we explain it and why is it true, intuitively?


texts: Interpretation of $\frac{\partial }{\partial p_1}Q_1(p_1, p_2)/\frac{\partial}{\partial p_2} Q_1(p_1, p_2)$

texts:
I am interested in an economic interpretation for the ratio of partial derivatives of a demand function $Q_1(p_1, p_2)$, which is
\begin{equation}
t=\frac{\frac{\partial}{\partial p_1}Q_1(p_1, p_2)}{\frac{\partial}{\partial p_2}Q_1(p_1, p_2)}.
\end{equation}
Assume the goods are complements so that both partial derivatives are negative.

This has the same form as the MRS in consumer theory, but the intuition does not readily apply.

I have been thinking about this as the ratio of demand sensitivities: if $t>1$ then the demand for good 1 is more sensitive to changes in $p_1$; if $t<1$, then the demand for good 1 is more sensitive to changes in $p_2$.

I would also say this is somewhat related to the cross price elasticity of demand, but the formula is not the same.

Any interpretations or intuitions would be great!


texts: The process of printed money reaching the government?

texts:
I saw a link that suggested that when the fed prints money, this money is actually lent to the government in the form of bonds, not given. This, despite the fact that the Fed is (loosely) associated with the government.

My question is...

Is this correct?
If so, how are the interest rates determined?


texts: Stone-Geary preferences and competitive equilibrium

texts: Does anybody know if a competitive equilibrium obtains under Stone-Geary preferences; are there multiple equilibria problems; do such preferences admit an analysis with more than one type of representative agents; any good+relevant resources on the subject?


texts:
I am very interested in learning about debt and credit - not personal debt and credit - but debt and credit of countries and the like. I have searched everywhere but it's difficult to find books that are related to these topics. One such book that I found was Alexander Graeber's "Debt: The First 5000 Years".

I was wondering if someone has a recommendations for books that would allow someone to get a much better idea of what exactly debt and credit are and how they affect the world around us.

Thanks!

P.S. I apologize in advance if this question is off topic but this was my last resort. :)


texts:
(My research question is economics based, but for simplicity, I'm using a non-economics example)

Suppose I'm trying to find out whether average body temperature of a population is equal to 37 degrees Celsius. I take a random sample of people and take their body temperature.

The problem is, some people have taken their body temperature once, but others have taken their temperature multiple times (twice, thrice, or even ten times).

Ordinarily I would regress body temperature on a constant, and do hypothesis testing with $H_0: \beta_0 = 37$. However, I am worried about serial correlation.

Would clustering the standard errors by person be sufficient to correct for this serial correlation? (e.g. using reg bodytemperature, cluster(person) in Stata)


texts: Relationship Input Distance Function and Output Distance Function

texts:
I was wondering if anybody knows how input distance functions (IDF) and output distance functions (ODF) relate to each other. One of the advantages of distance functions over cost and revenue functions is that they don't require the assumption of cost-minimizing or revenue-maximizing behavior. Thus, I thought the estimated coefficients - and thus measures like economies of scale - of IDFs and ODFs should be similar. However in my empirical example, I obtain unreasonably high economies of scale for the IDF (about 3.2) and quite reasonable scale economies for the ODF (about 1.25). Can anybody think of an explanation for this?

Thank you very much in advance, every hint or thought will be highly appreciated.

Stefan


texts: Is foreign-financed Basic Income Guarantee inflationary?

texts:
The question came up on comments in Politics.SE:

Situation:

A government of a country sets up an unconditional Basic Income Guarantee (defined as monthly payments to EVERY resident, unconditionally, of a certain sum).

The sum can be  roughly estimated as "only enough for a person to survive on" as per Wiki definition.
The financing of the program is 100% entirely set up from external, foreign sources - charity donation, or no-strings-attached aid from another government.

Is it a certainty that such an arrangement would be highly inflationary for recipient country, assuming that BIG total financing is a non-trivial compared to recieving country's GDP?

All Wikipedia says on the topic is:

  A common concern with Basic Income among the general public is the risk of inflation raising prices and thus undoing its effect. Economists Ed Dolan and Karl Wilderquist say that since the funding for basic income would come from reductions in public spending and/or taxation, there would be no inflationary effect.[citation needed]

... which seems to NOT address foreign-financed BIG at all.


texts:
I am in the process of starting a research paper (for those in the IB Board, this is the Extended Essay) and I had previously formed my research question like this:

To what extent will factor x impact the economic growth and development of country y.

But then I thought I should narrow it down more so I made it:

To what extent will factor x impact the economic growth and development of city y.

I want to know if it's valid to talk about the economic growth and development of a city instead of a country. I have this confusion because I have never read the analysis of the economic growth and development of a city.

I mean development on a city basis is usually considered, but will looking at these macro concepts (growth and development) be viable for an economics research paper?

If yes, when I talk about growth, do I talk about the increase in AD/GDP or the increase in government revenue for city y etc?


texts: Does a social welfare gain cause economic growth?

texts: For example, if the consumption of goods with negative externalities of consumption were reduced to the socially optimum amount, thus eliminating the social welfare loss, would that directly cause economic growth?


texts: How long into the past can we trace the effect of institutions?

texts:
In one of my courses we recently went through several institutional economic papers (The colonial origins of comparative development, The Slave Trade and the Origins of Mistrust in Africa, The Long-Term effects of Afirca's slave trades, ...). In these papers the authors are able to (or at least claim to) find significant effects of historical events, developments and so on, that still have an effect on today's institutions or economic outcomes. Some of the historical causes go back a few hundred years.

This is where my question comes in, was there an attempt made or is there some vague understanding of how long we can see significant effects? Obviously, there won't be an exact number, but is there some research going on, that asks about this? Or what are the longest time spans researchers have convincingly traced back effects of institutions, culture and so on?


texts:
Consider a simple closed economy model where Y = C + I + G, consumption is given by the function C = 100 + 0.5 (Y - T), investment is I = 50, government purchases are G = 20, and the government’s
budget is balanced.

How do I work out what tax is, to work out the amount of autonomous spending? Is there something obvious I'm missing?


texts: If there was world war 3, which stocks should I short?

texts: With the Trump administration, Turkish dictatorship, North Korean nuclear weapons, and general tension around the world, we might think that there is a likelihood of something like a world war happening soon. If this were the case, and someone wished to profit from such a situation, which stock or commodities would be the best short (or invest in)?


texts: Does 'ethical investing' have any effect?

texts:
Some mutual funds make a point of only investing in ethical companies (eg avoiding arms companies, polluters, human rights violators, etc).

Or other organisations pressure funds to stop investing in particular industries/companies. (example).

Some organisations involved in ethical investments are particular big. For example the New Zealand Super Fund is worth $20bn, and frequently recieves pressure to divest in certain firms.

The question is - does divesting from unethical firms have any impact on those companies?

No doubt that consumers boycotting what the company is producing would have an effect, as that directly effects their revenue.

Similarly refusing to loan money, or provide additional capital to ethically questionable companies would limit their ability to do business.

But as far as I can see not owning shares in particular companies simply reduces demand for, and thus value of those companies, improving the return on investment for people who are willing to own those shares.

Does boycotting ownership of ethically questionable companies/industries have any effect on those companies/industries?


texts: What's the difference between public debt, government debt and national debt?

texts:
When it comes to non-private debt, I hear these three terms the most, but I am not sure if they're interchangeable or discernible. Also, are they recorded in the balance of payments? I'm guessing if they are, they'd be recorded in the transfers part of the current account and the capital and financial accounts.

I understand that this is a duplicate question, but my previous question had no contributions other than my own, so I figure it would be sensible to repeat it.


texts:
I have a contention with the Law of Supply's dictum "if the price of a good falls, then the quantity supplied of that good falls, ceteris paribus."
Imagine a market for widgets produced by multiple factories with colossal machinery; the average cost differs among the factories.
If the price of the good decreases, then, according to the Law of Supply, quantity supplied decreases. The explanation I'm supposed to give in examinations goes along the lines of "the profit margin decreases, hence producers are incentivized to produce less".
Yet I would argue that, provided the drop in price is not drastic, every factory should produce the same amount as before, even those for which the price has dropped below the average cost, as this scenario would leave their owners better off compared to paying the fixed costs without revenue. Thus, the same quantity of widgets would be produced after the price drop.
The holes in my contention that are obvious to me are:

If the decrease in price was drastic, then some owners would be obliged to shut down their factories.
If the same machinery could be used to produce bananas instead of widgets, then the factories would switch to banana production if it yields more profit, thereby reducing the quantity of widgets supplied.

I also think that my argument is only valid in the short run: then, the marginal costs of individual firms would be more or less constant, and negligible changes in it would probably be brought about by small-scale laying off of employees. In the long run, owners could sell machinery and buildings and the marginal cost would be more variable.
So, taking account of all assumptions so far, i.e. the decrease in price is not drastic, the machinery is not good for anything other than producing widgets, and we are only considering the short run, then decreases in price should effect only slight changes in the quantity produced: this would be represented by a very inelastic supply curve. But, if interpreted as a marginal cost curve, this curve also says that for tiny nudges in the quantity produced, the marginal cost varies significantly, which is contrary to my earlier understanding that the marginal cost is approximately constant because factories cannot dump machinery easily in the short run.
What am I missing?


texts: How does the private bank reserve increase when money is being withdrew?

texts:
The federal government raises 400 million by selling bonds to the general public in order to pay for a construction program. The program cost 440 million so the government withdraws 25 million from its Royal Bank deposits and 15 million from its Bank of Canada deposits. If the target reserve ration of the private banks if 10%, what is the change in private bank reserve?

I not sure what's going on. The answer is private bank reserve rise by 15 million, but all I see is that the money all cancels out. There might be a change in money supply because of the decreased deposits, but those still would not give a rise in 15 million. What am I not understanding?

EDIT: After some thought, I think it's because the 15 that was in the Bank of Canada in now deposited in private banks by the public, hence the 15 million increase.


texts: Autocorrelation test for AR(p) (Breusch-Godfrey LM test)

texts:
I have a question regarding the test for the error term.
As you know, in AR(p) model

The error term must be i.i.d., so after the regression I want to see if there is no serial correlation in the error term.
The text book says Breusch-Godfrey's LM test is designed to test autoregression in the error term model such as

I wonder if we can use BG's LM test to test serial correlation of the error term in AR(p) model. Is it okay to counstruct the auxiliary regression as usual? By the way, I already know Ljung-Box's Q test.
Thanks, in advance.


texts: What would happen if a company bought back of all of its stock? Would it own 100% of itself?

texts:
Companies occasionally own some of their own stock. A company owning its own stock is actually pretty weird when you think about it. If I own 1% of a business's stock (and therefore own 1% of the business's assets), and the company owns 50% of its own stock, I as a stockholder of the business, indirectly control 0.5% of the business. Through the 0.5%, I own 0.25%. Through the 0.25%, I own 0.125%, and ad infinitum. This adds up to 2% (which makes sense, since if I own 1% out of 50% of the stock, I would own 2% of the business.)

What happens though if a company controls all of its stock. This would mean that the company owns itself. In particular, it isn't really owned by any individuals anymore. The purpose of a public company is to create value for its shareholders, but what does that mean if it owns itself?

Practically, how would this affect things like voting and bankruptcy?


texts: Is it common to see hedge funds go bankrupt?

texts:
Have any hedge funds gone bankrupt as a consequence of the "GameStop scandal"?
And more generally is it common to see hedge funds go bankrupt?


texts: How are assets distributed by types of organisations?

texts: How wealth, assets or capital (measured in terms of revenues, assets, equity, etc.) is distributed among the various types of organizations (e.g. State, public companies, private conpanies, individuals) existing in an economy?


texts: Can vaccine distribution and appointment setting up be considered game theory?

texts:
New to game theory and I started thinking about the difficulty of setting up an appointment for the covid vaccine.
Could this be something to study in game theory?
Would we need to figure out the Nash equilibrium?
The way I see it is we have N players, and each player may or may not want a vaccine, but we also have a government player who wants the most vaccinated. Each player has some payoff.


texts: What would be the mean of a finite aggregation of AR(1) processes?

texts:
What would be the (expected) mean at each period $t$ of a (in)finite aggregation of $AR(1)$ processes generated by the same data generating process?
How would the resulting plot look?
For $i.i.d.$ data generating process, expected mean would always be zero, in finite or infinite cases.
What about $AR(1)$?


texts: Studying growth in US and Sweden, what variables should I watch out for in a regression?

texts: I've be assigned a project on growth paradigms in US vs Sweden as part of my introductory course in econ. Can somebody please help me out with regression ideas?


texts:
I have a statistics question for the insider problem in the Kyle (1985) model:
How does one go from
$\max\limits_{X} E[(v-\bar{v}-\lambda(X+u))X|v]$
to
$\max\limits_{X} (v-\bar{v}-\lambda X)X$ ?


texts:
Usually, in an optimisation problem, a binding constraint is one at which the optimal solution holds at the constraint with equality, i.e. it's a boundary solution.
However, in many articles, for example this one, from what I could interpret, the authors talk about non-binding ZLB as if meaning that the ZLB could be not valid, and the interest rates be negative (like in Switzerland and Japan). When talking about a binding ZLB, they seem to mean that ZLB is valid.
To me, at least, this seems to be at odds with the usual definition of a binding/non-binding constraint. Or am I missing something?


texts: Does a monopolistically competitive market outcome involves assuming rational expectations?

texts:
E.g. When Grazzini et al. (2014) discuss a "monopolistically competitive outcome" (MC) in their paper ($2.1), which is based on Dixit-Stiglitz's model, 1977, does this outcome involve assuming rational expectations in their model? They don't discuss rational expectations explicitly, but they do discuss evidence for heterogeneous expectations, which lead nevertheless to both quantity and price converge towards the MC equilibrium, which acts as a benchmark to compare their behavioural model and experimental data

I wonder how close this type of behaviour of firms resembles rational expectations, although the term is probably never used in this context. However, the main idea behind rational expectations is basically using all available information optimally, often accompanied by a full information assumption. I guess both apply to the Dixit Stiglitz model?

Grazzini, J., Massaro, D., Assenza, T., Grazzini, J., & Massaro, D. (2014). Dipartimento di Economia e Finanza PQ Strategies in Monopolistic Competition : Some Insights from the Lab. March.


texts: I remember seeing a fallacy mentioned concerning the different valuations you put on something just because you own it. I would like a link to the discussion of that fallacy. Thanks.


texts:
I'm interested in currently hot research topics within Labor Macro. I'm only aware of the debate on the recent shift in the US Beveridge curve, and, of course, the olden but golden Shimer puzzle.

What else are current debates within Labor Macro?


texts: When a stock market crashes, how does money just disappear?

texts:
I looked it up online (here), but I find it hard to believe that money literally "disappears".  For example, if I buy 10 stocks of a toaster company for \$100 per share, and then the stock value drops to \$10, I've lost \$900, but the entities I bought from have gained \$900 collectively.  I understand that money is supposed to be an abstract concept, but we should be able to trace where the dollars go.

So how does money just disappear when the stock market crashes?


texts: Can we consider a supermarket as a market?

texts:
Good morning,
I have been reading a book in which the author said that "the supermarket is not a market, because despit the large number of buyers, the seller is unique".

So, I've been wondering because according to me, even if the market has just a one seller, we can consider it as a market. Then, if we consider the competition on this market, there's only one seller and if we consider that this supermarket is the only one in a country, we could say that it's a monopolistic market (no competition).

What do you think ?


texts: Why does adding a quadratic term to a regression change unrelated coefficients?


texts: What industries, if any, are best when nationalized/government-run?

texts:
In free-market economics, private firms are said to be more efficient and better for consumers as competition between private firms in an industry breeds innovation, low cost (for consumers), and higher quality as they seek to capture profits from consumers. However, there are some industries where competition cannot exist do to the fundamental nature of the industry.
Here is an example:
If we have a private firm that ran a city's water system (i.e. distribution and purification), you would have to have a monopoly because it would be infeasible for consumers to experience any competition since entry costs are large for new competitors. A competitor would have a difficult time trying to re-pipe the entire city for to compete with the established company. They'd not only be fighting off the competitor, but also anger by the locals for the disruption caused by the huge amounts of construction.
For something as essential as the water supply for a city ran by a monopoly, it would necessarily be heavily regulated by the government since market forces do not motivate the firm to innovate, produce higher quality products/services, or lower costs for consumers. Also, with an industry like the water supply for a city, the health of consumers is extremely important. By virtue of these circumstances, the government already mostly controls the private firm's operations anyway while still being an expense to the government (consumers overall through taxes) to make sure that the firm is complying with regulations and standards.
At this point, you have an entity with a monopoly over a service, controlled and inspected by the government, and new competitors cannot enter the industry (at least locally). This entity becomes no longer concerned with innovation and quality but rather increasing profits which all private firms seek to do anyway. This is because there is no need to do so since the firm is guaranteed its revenue and consumer base. But without the constraint of an open market and competition, this leads to even worse outcome for consumers since the entity will try to do the bare minimum required to create a larger margin by cutting costs leading to lower quality and unnecessarily higher costs for consumers.
At this point, you might as well have the government run the industry where it can be held accountable by the people (in a democracy). I mean, why charge the consumers a higher cost to produce profits for the private firm when that is completely unnecessary, and is basically operated by the government? What does the private firm present to consumers that would justify them receiving profits?
Here is my question: Is my line of thinking wrong? If yes, why? And if not, are there any other industry where it would be best for the government to run them?


texts: How can I construct a process for cumulative returns that is riskless?

texts:
This question is a little more specific than the title. Here I use the same notation that is set forth in this other question about cumulative returns (the sum of return observations). That is, let $r_{t,t+n} = \sum_{i=1}^n r_{t+i}$. Suppose that $r_t$ is an AR(1) process (say with Normally distributed errors) where
$$
\text{Cov}(r_t,r_{t+j}) = \rho^j \sigma^2
$$
and thus
$$
\text{Corr}(r_t, r_{t+j}) = \rho^j.
$$
In the same notes references in the other question I see a claim that when $\rho = -1$
that the cumulative return is riskless, i.e.,
$$
\text{Var}(r_{t,t+n}) = 0.
$$
How can this be? For example, if I let define the AR(1) process as follows
$$
r_{t+1} = - r_t + \epsilon_{t+1},
$$
then consider the following example:
\begin{align}
\text{Var}(r_{t,t+2}) &= \text{Var}(r_{t+1} + r_{t+2}) \\
 &= \text{Var}(\epsilon_{t+2}),
\end{align}
or
\begin{align}
\text{Var}(r_{t,t+4}) &= \text{Var}(\epsilon_{t+2} + \epsilon_{t+4}).
\end{align}
So, this doesn't appear to work.

If I define $\sigma^2$ as the unconditional, long-run variance of an observation,
$\text{Var}(r_{t+1}) = \sigma^2$ as I did in the other question (linked), then when
$\rho = -1$ this variance doesn't is undetermined/infinite. Am I missing something? Can I reconcile the claim made in these notes?


texts: How can I formulate price elasticity of demand equation when I want to add cross price elasticity?

texts:
I am trying to calculate the price elasticity of demand for a product where I used the equation
log(volume) = elasticity * log(price) + seasonality dummies + trend index + CPI
Here CPI is the consumer price index, formula of CPI = (sum - price)/(price *n )] ,
price = price of the product ,sum = sum of all other product ,n = number of all other product
How can I add cross elasticity to the equation? Or have CPI covered it


texts: Solving Constrained Optimization Problem with Two-Period Model of Human Capital

texts:
I'm trying to solve a constrained optimization problem in human capital model. The objective function is
$\max_{c_1,c_2,\nu} U = u(c_1) + \beta u(c_2)$,
subjected to
$c_1 = w +(1-\nu)\theta_1 h_1^a$ and $c_2 =  \theta_2 h_2^a$.
The list below summarizes the variables used:

$c_t$ is the consumption in period $t$. Note that $u(c) = log(c)$.
$\theta_t$ is the wage rate in period $t$.
$\nu$ is time spent in the first period to accumulate human capital. $\nu$ is normalized to be between [0,1], and $(1-\nu)$ is time spent working in first period.
$h_t$ is the human capital in period $t$. Note that $h_2 = h_1(1+\nu)$.
$a$ is the innate ability. Together, $\theta_t h_t^a$ represents income in period $t$.
$w$ is the initial wealth.

So, given $(w,a,h_1)$, individuals choose optimal $\nu$ in the first period that determines consumption in both first and second period. $\theta$ is exogenous variable. Now solving this optimization problem using the method of Lagrange equation:
$L = u(c_1) + \beta u(c_2) - \lambda_1(c_1 - w -(1-\nu)\theta_1 h_1^a) - \lambda_2(c_2 - \theta_2 h_2^a)$.
Solving for $\dfrac{\partial L}{\partial c_1} = \dfrac{\partial L}{\partial c_2} = 0$ gives the following two equation:
$c_1 = \dfrac{1}{\lambda_1}$ and $c_2 = \dfrac{\beta}{\lambda_2}$.
Now solving for $\dfrac{\partial L}{\partial \nu} = 0$:
$\dfrac{\partial L}{\partial \nu} = -\lambda_1 \theta_1 h_1^a + \lambda_2 \theta_2 a h_1^a(1+\nu)^{a-1}$ = 0.
Substituting $\lambda_1$ and $\lambda_2$, we get:
$\dfrac{\theta_1 h_1^a}{c_1} = \dfrac{\theta_2 a \beta h_1^a(1+\nu)^{a-1}}{c_2}$.
Substituting the equality constraints and solving for $\nu$, we get:
$\dfrac{\theta_1 h_1^a}{w+(1-\nu)\theta_1 h_1^a} = \dfrac{\theta_2 a \beta h_1^a(1+\nu)^{a-1}}{\theta_2 h_1^a (1+\nu)^a}$
$\dfrac{\theta_1 h_1^a}{w+(1-\nu)\theta_1 h_1^a} = \dfrac{a \beta}{1+\nu}$
$\nu = \dfrac{a \beta w + a \beta \theta_1 h_1^a - \theta_1 h_1^a}{(\theta_1 h_1^a)(1+a \beta)}$.
What I do not understand is why $\theta_2$ does not play a role in determining the optimal $\nu$. Logically, individuals invest in human capital in the first period, by foregoing possible income in the first period, to earn more income in the second period. However, even if $\lim_{\theta_2 \to 0}$, this solution will still recommend individuals to invest in human capital in the first period, by exactly $\dfrac{a \beta w + a \beta \theta_1 h_1^a - \theta_1 h_1^a}{(\theta_1 h_1^a)(1+a \beta)}$ much.


texts: How does inflation affect the value of savings?

texts:
Well, I got basically a question about economics of our world, I hope I'm wrong in my assumptions, because it's pretty ugly and I'm really hope it's more about me being wrong than it's actually the truth. So...:

What does inflation actually means when we talk about savings? For example, If Joe works his ass off and makes some savings in US dollars and puts them in the bank. So say Joe's savings are about \$100,000 and he decides to transfer them to his kid's bank account so when his kid grows up his kid could take the money. But, as I understand it, this \$100,000 won't be the same \$100,000 in about 20 years, when Joe's kid has grown up and wants to take the money. Instead he would get much less than \$100,000, because each year the inflation will eat out by at least 1.5% (avg. for my opinion for Western countries) of this money. Is this really how it is?

I don't know what tags to put, if you may, please help with this too.


texts: Showing utility function gives preferences that are rational and convex

texts:
Consider a consumer with preferences relation $\succsim$ over non-negative commodities $x_1$ and $x_2$ such that their utility U = $x_1$ + $\ln(x_2)$
Are these preferences rational and are they convex/strictly-convex?
I'm a bit confused on how to do this.  So first, I know preferences need to be complete and transitive to be rational, but for a utility function, it just needs to be continuous right?  Is there another property it needs?  With that said, how would I mathematically prove this function is actually continuous?  If I graph it, it's continuous, but is there a mathematical proof for this?
For the second part, if preferences are (strictly) convex, then the preferences must be (strictly) quasi-concave right?  How would I mathematically prove that this function above is quasi-concave?
Online, it says a function is quasi-concave if $f(\lambda x+(1-\lambda )y)\geq \min {\big \{}f(x),f(y){\big \}}$, but I'm having a tough time understanding this in relation to a utility that has both an $x_1$ and an $x_2$ value.  When I'm looking at the above function, I only understand it for like $f(a) = a^2$ and there's not a second variable in there.
Thanks!


texts: How would you calculate the Price Elasticity of Demand if the Prices are constant, given that there is change in quantity demanded?

texts:
I have data that I have collected suggests that the prices are more or less constant throughout the month whereas the quantity demanded changes on a day to day basis. Recalling the formula for PED, we can write:

$$PED= {P*\Delta Q \over Q*\Delta P}$$ we can observe that $\Delta P=0$ as I mentioned earlier, giving us $PED=infinity$. However in reality the demand is inelastic. Is there a way to handle this error?

Assumption while measuring the prices: The supply was constant.

These are tuples of the form (Price and Demand)

(275,30)

(275,80)

(275,20)

(275,70)

(282,0)

(282,50)

(282,100)

(282,80)


texts: How do I calculate the impact of an independent variable on a dependent var. when the independent var. changes from 0 to some positive value?

texts:
I will try to explain my question using two production functions here.

Let

$Y$ = Yield of a certain crop (tons/hectare)

Assume yield (output) is a function of two inputs, $Y = f(N,I)$, where

$N$ = Nitrogen fertilizer (input) (kg/hectare)

$I$ = Irrigation (mm/hectare)

Case 1: Assume I have data on 400 different plots. Each observation includes yield (output) and N (input). There is no irrigation in this case, $I = 0$.

$Y_1$ = $\alpha_0$ + $\alpha_1$ * $N_1$ + $\alpha_2$*$N^2$ + $e$

Case 2: Irrigation (say up to 100 mm/hectare) is introduced in all plots, therefore, the value of $I$ ranges from 0-100. Irrigation increases yields in most plots. However, for a large number of plots, irrigation alone does not increase yields and additional N is required to increase yields. I have data on both inputs and the corresponding yields (output).

$Y_1$ = $\alpha_0$ + $\alpha_1$ * $N_1$ + $\alpha_2$*$N^2$ + $\alpha_3$ * $I_1$ + $\alpha_4$ * $I^2$+ $\alpha_5$ * $N*I$ + $e$

What I want to measure is:
(1) What is the impact of irrigation on yields?
(2) Given that irrigation increases yields, how much additional Nitrogen (on average) is necessary to get to these yield increases?

a) From what I understand, I can't use a diff-in-diff type estimation here because the impacts of irrigation are heterogeneous, i.e., I can't simply add an irrigation dummy to the regression.

I would appreciate any help. Thank you so much!


texts: How is labor disutility modeled in Arrow-Debreu model?

texts: In DSGE models, utility function contains labor disutility components. But I cannot not see how labor disutility is incorporated in Arrow-Debreu-Mackenzie model.


texts: Slutsky matrix computed from budget shares

texts:
In Haag et al. 2009 Testing and imposing Slutsky symmetry in nonparametric demand systems, the authors claim that the Slutsky matrix can be computed from share functions expressed in terms of logged prices and logged wealth.
In particular they claim that, let $p$ and $w$ be logged prices and logged wealth.
$s_{ij}=\frac{\partial{b_i(p,w)}}{\partial{p_j}}+\frac{\partial(b(p,w))}{\partial w}b_j(p,w)+b_j(p,w)b_i(p,w)-\delta_{i,j}b_i(p,w)$
where $\delta_{i,j}$ is the kronecker delta function that says that in the diagonal terms we have to substract $b_i(p,w)$.
He claims that this is the Slutsky matrix in unlogged prices terms, but how can this beif everything is in terms of shares. I have tried to derive it myself but I cannot reproduce what they have, but maybe I am making some mistake. The authors cite Mas-Colell et al. do you know the exact reference in the book they only provide the general reference.
Reference:Haag, B. R., Hoderlein, S., & Pendakur, K. (2009). Testing and imposing Slutsky symmetry in nonparametric demand systems. Journal of Econometrics, 153(1), 33–50.


texts: Derivation of aggregate demand function for Monopolistic Competition (based on Combes et. al, 2008)

texts:
A specialized question for those, who excel in monopolistic competition and modern trade theories. I am interested in a derivation of an aggregate demand function for a model of monopolistic competition presented in the (text-)book by Combes, Mayer and Thisse (2008).

Setup of consumer problem

Utility of an individual consumer: $$U_i = CM^{\mu}$$
Where $M$ stands for a composite manufacturing good defined a a sum of "manufacturing" goods consumed by a representative agent: $$M \equiv \left(\Sigma_i^n q_i^{\frac{\sigma - 1}{\sigma}}\right)^\frac{\sigma}{\sigma-1} $$
Budget constraint:
$$PM \leq y$$
Where $P$ is a composite price index for a composite manufacturing good defined as follows: $$P \equiv  \left(\Sigma_i^n p_i^{-(\sigma - 1)}\right)^{-\frac{1}{\sigma-1}} $$
Here comes the punchline (p. 57). Without any additional derivations, authors write the following:

  In this case, it is well-known that the aggregate demand function take the form: $$ M = \frac{\mu L y}{P} $$ My comment: $L$ stands for a total labor supply in a country.

Two questions:

This well-known result is totally unknown to me. Could someone kindly show its derivation (or maybe hint to a textbook) in detail?
Throughout the chapter, authors treat $y$ as an exogenous value albeit the model they present is in a general equilibrium setting. This implies that $y$ should be a sum of wages in the economy that feature in variable costs of firms: $C(q_i) = f + wq_i$. I suppose that they assume a perfect competition on a labour market among the identical workers and therefore the wage rates could be treated as fixed. Is my intuition true?


texts: What benefits do OPEC countries obtain by cutting oil supply?

texts: It is unclear to a economic novice like me why OPEC is not cutting down production and raising oil prices. I have read several journalists commenting upon this on the internet but perhaps an economist can explain this current fact better.


texts: Axiomatic Bargaining: Kalai-Smorodinsky and Nash solutions coincide

texts:
Under standard assumptions on the domain of bargaining problems like Pareto Optimality, Symmetric, Scale Invariance and Independent of Irrelevant Alternatives / Individual Monotonicty, in which conditions (on feasible set S, or disagreemnt point d) that characterize the domain in which Kalai-Smorodinsky and Nash solutions coincide?

My idea is that when feasible set is symmetric, both solutions should coincide but it should be other cases..?


texts: What is the difference between microeconomics money and macroeconomics money?

texts:
In microeconomics, \$USD are a store of value.  I can sell a candy bar for \$1, and I can hang onto that \$1 for a year and then buy the same candy bar for that same \$1.  If I print \$1 (and get away with it), I can wait a year and buy a candy bar with it.  My \$1 has some inherent value.

In macroeconomics, \$USD are simply a means to inject liquidity into the market.  If the world sets up a global savings fund, and puts \$1 into it, that money is moot.  There won't be more candy bars next year than there are this year.  The \$1 is just a means to make my exchange of candy bars convenient.  It has no inherent value.

This is something of an over-simplification, and I'm no economist, so probably not entirely correct.  However, I frequently encounter people who apply personal-finance microeconomics-style reasoning to discussions of goverment fiscal policy.  I have found it to be incredibly difficult to introduce the above distinction, and I have no citations or sources.  This is just how it makes sense to me, and my words are apparently insufficient.

So, does this distinction have a name?  Is this distinction studied in any text and/or academic circles?  What are some ways that the microeconomic dollar and the macroeconomic dollar are two different beasts?  What are some simple ways to introduce this distinction to laypeople?


texts: Market with changing number of goods and services

texts:
In the General Equilibrium framework of Arrow, Debreau and others, there are a fixed number of commodities, which I feel is a valid assumption in the short run but maybe not in the long run.
Over time, new products are introduced and old products seize to exist in the market. What are some models that address such markets? What are the welfare implications?
On a somewhat similar line, for example a smartphone was not available for most people earlier, but not only that, many people didn't even imagine such a device. Was the smartphone in their Choice Set earlier? If not, and if the introduction of the smart phone changes the Choice Set, can the welfare of a consumer before and after the introduction of the smart phone be compared (does it even make sense), as the preference relation is usually defined for a particular Choice Set?


texts: If production function is concave, then demonstrate that profit function will also be concave

texts:
Show that concavity of firm's production function implies concavity of its profit function.
(Hint: For a concave function, first order conditions gives the vector that maximizes the function)
Confusing point: How do I relate the concavity of production function to the profit function. And where do I begin this proof mathematically.


texts: How is trade in services conducted under the WTO in the absence of the Doha conclusion?

texts:
The Doha round of negotiations for the WTO had a focus on services, but that round has not been concluded.

Does that mean that trade in services between trading partners without a preferential trade agreement in place, for example the EU and the USA is effectively prohibited? Or legislated for on a case-by case basis?

Or is trade in services effectively unaffected by the traditional tariff model of the WTO?


texts: Why are share repurchases particularly accretive?

texts:
From the "Manual of Ideas"...

  VALUE CREATION VIA BUYBACKS Share repurchases tend to be particularly accretive in the case of companies generating cash from operations while trading below tangible book value.

Why are they particularly accretive given these conditions. This is not clear to me at all how to think about this.

  If such companies apply free cash flow toward buying back stock, they accrete tangible book value per share...

Why is this?

  ...widening the gap between the market price and the accounting net worth. It becomes exceedingly difficult for the stock price to decrease when the discount to book value per share keeps getting wider if the stock price remains constant.

This also is not clear but may be explained by the bits above.


texts:
I am learning basic Oligopoly models.

I know that :

In Cournot model firms set output - output is the strategic variable.
In Bertrand model firms set prices - price is the strategic variable.

Simple problems I see are usually given demand/cost fucntion for a differentiated duopoly and let us determine the Bertrand or Cournot equilibrium.

Here however is a mixed market:

Assume the following duopoly (firms are denoted by 1 and 2) with the following demand functions:

$$P_1=100-0.5Q_1-0.4Q_2 \\
P_2=100-0.5Q_2-0.4Q_1$$

Firm 1 plays Cournot while firm 2 plays Bertrand. Assuming that there are no costs, find the optimal Nash quantity-price solution.

How can I solve for the equilibrium?


texts:
Consider a regression model on the form:

$y_{i} = \alpha + \beta_{1}X_{i} + u_{i}$ (1)

I am given $var(u_{i}|X_{i}) = 10$ and I know the OLS estimates for $\alpha$ and $\beta$ and using this I have to calculate the standard errors of the parameter estimates.

I am following Hayashi's book and I know that

$se(b_{k}) = \sqrt(s^{2}(X'X)^{-1}_{kk})$

Where $b_{k}$ is the parameter estimate of interest. I know $(X'X)^{-1}$ but what is confusing me is going from the given model to expressing it in matrix notation and that this does not use the variance of the error term.

I can express (1) as $Y = X\beta + u$ and since $var(u_{i}|X_{i}) = var(y_{i} - \alpha - \beta_{2}X_{i}|X_{i})$ but is this equal to $var(Y - X\beta|X)$?

If so, I can express $var(u_{i}|X_{i}) = 10$ as $\sigma^{2}I_{n}$ where $\sigma^{2} = 10$. And then could I use the fact that

$var(b_{k}|X) = (X'X)^{-1}X' \sigma^{2} I_{n} X(X'X)^{-1}$

To find the standard errors of interest.


texts: How to determine the default probability of a county in a bond that is not in its native currency?

texts:
Consider the following case:

Country P uses the currency Euro and gives p percent interest on a one year bond issued in Euro.

Country Q uses the currency TL and gives q percent interest on a one year bond issued in Euro.

Question:

How can we determine the probability of default of the country Q with respect to P ?


texts: How to find the long-run relationship using this regression (3rd time posted)

texts:
This is an old exam question I can't figure out.

I thought to find the relationship you would sum the coefficients on the Ys, so it would be
0.80 + 0.70 - 0.10, giving you C = 1.4Y, but this isn't an option. Could someone tell me where I went wrong? Is it something to do with the fact it's in log form?


texts:
I am trying to understand the statmement that 'public information kills insurance opportunity' -- referred to as Hirshleifer effect. Does it (in general) lead to some undesirable outcomes? Could you explain that to me with a simple example? For me it is easy to form examples of trade breaking when there is asymmetric information (adverse selection for example) and that having an undesirable effects. But I am not able to fully grasp the meaning and consequences of Hirshleifer effect.

Thanks

UPDATE: Here is what I thought could be a simple example. Suppose there are two periods ($t_0, t_1$) and two possible states of nature ($s_1,s_2 $) that arise in period $t_1$. Suppose there are two agents. The first agent has an income stream that pays off only in state $s_1$ while, second agent's income stream pays off only in state $s_2$. Consumption happens only in $t_1$ and both agents prefer to consume in both the states than in just one (Inada condition as consuption goes to 0 is not satisfied) and more is always better. If at $t_0$, neither agent knows the state at $t_1$ then they might enter into a trade that ensures them positive consumption across both the states.

On the other hand, if, in $t_0$, state is already revealed publicly (in this example even privately to one agent) an agent who has a positive pay-off in $t_1$ would not be interested in any trade with the unlucky agent.

Is this way of thinking in the example correct?

Thanks for any comment


texts: Would a fair distribution of wealth from the super rich increase the purchasing power/life quality of the average person?

texts:
I will start by saying that I do not have any background in finance and that the following question might be very much naive, but it has been bugging me for a while now. The general narrative seems to be  that redistribution of wealth from the super rich (top 1%) would benefit the other 99% and increase their quality of life. In the answer to this question, it is calculated that in case of redistribution from the top 1%, everybody among the bottom 99% would receive around $111,000. However, this answer does not really go into detail on what would happen in terms of purchasing power if everyone in the bottom 99% would get said amount. Specifically, my question is the following (and is, to first degree, purely of abstract nature). Let us consider a closed economic system in which most of the population is similarly wealthy, but a very tiny fraction owns a large amount of money. For simplicity, let us assume that we have a city with 1,000,0000 inhabitants from which 999,999 inhabitants are similarly wealthy, while there is 1 inhabitant who owns 90% of the wealth. Let us assume the wealth this one person owns is purely in the form of cash and he basically just hoards his money, so that this money is virtually non-existent in our system. Now assume that his money gets equally distributed between the inhabitants. Would this really make any difference to the purchasing power of the inhabitants and thus to their life quality? Wouldn't prices just simply rise so that purchasing power would stay roughly constant? The question boils down to two main assumptions:

The number of super rich people is much smaller than the number of average people
The money of the super rich is hoarded and virtually non-existent in our closed economic system

If my reasoning is correct with those assumptions, how are these assumption distorted in the real world?


texts: On the (rather strange) notion of strategies in repeated games

texts:
As undergraduates often note, the definition of a strategy appears to be rather strange in the context of repeated games. To illustrate, consider a very simple game in which one player needs to make a decision twice. Every time they need to make the decision, they have 2 possible choices -- call them A or B. Ordinarily, we would think of this person as having $4$ possible (pure) strategies: choose A twice, choose B twice, choose A then B, or choose B then A. According to the standard definition, however, we would say that there are 2 possible histories (A or B); and that a strategy must specify what happens following every possible history. As a result, the player really has $2^3 = 8$ pure strategies! Moreover, each of these strategies specifies what would happen in an impossible situation; namely, if the person were to have made a different choice in the first stage than the one they planned to make.
In case this doesn't seem strange to you, let me provide an example of a pure strategy (I'll put it verbally to convey the full force of the strangeness):

In the first round, I will choose action A. After choosing A, I will then choose A again. However, if I had chosen B in the first round, then I would then have chosen B again in the second round.

My question is why we need to include this last sentence.
Before finally posing my question, I also want to note that this question is not specific to the rather trivial game above. Obviously, one can devise similar examples for more complex multi-player games.
Question: Why does the standard notion of 'strategy' force players to specify what they would do in situations that they know will never arise given their choices earlier in the game? And can we prove standard results (e.g. existence of a Nash equilibrium in extensive games) without making use of this rather un-natural concept of a strategy?


texts:
I am attempting to solve a variation of Leeper's (1991) model, which deals with the FTPL. This is what I have done so far:

The utility function is $\log(c_t)+\delta\log(M_t/p_t)$.

I obtain two first order conditions:

(1) $\frac{1}{R_t}=β E_t \left[\frac{1}{\pi_{t+1}} \right]$ and

(2) $m_t = \delta c \left[ \frac{R_t}{R_t - 1} \right]$.

Where $R_t$ is the gross nominal interest rate, $\pi_t$ is the gross inflation rate and $c$ the deterministic steady state value of consumption.

Suppose the monetary authority follows the following rule:

$R_t = α0+ απ_t+ θ_t R_t$, where $θ_t = ρ_1 θ_{t−1} + ϵ_{1t}, |ρ_1|<1$.

The fiscal authority follows:

$τ_t = γ_0 + γ b_{t−1} + ψ_t$, where $ψ_t = ρ_2 ψ_{t−1} + ϵ_{2t}$.

I am having trouble seeing how Leeper was able to take all the given information so far and produce the following two equations:

(3) $E_t \hat{π}_{t+1} = αβ\hat{\pi}_t + βθ_t$

(4) $φ_1 \hat{π}_t + \hat{b}_t + φ_2 \hat{π}_{t−1} - (β^{−1} − γ)\hat{b}_{t−1} + φ_3 θ_t + ψ_t + φ_4 θ_{t−1}=0$

where the varphi's are the steady state constants:

$\varphi_1 = \frac{\delta c}{\bar{R} - 1} \left[ \frac{1}{\beta \bar{\pi}} - \frac{\alpha}{\bar{R} - 1} \right] + \frac{\bar{b}}{\beta \bar{R}}$

$\varphi_2 = - \frac{\alpha}{\bar{\pi}} \left[ \frac{\delta c}{\left(\bar{R} - 1\right)^{2}} - \bar{b} \right] $

$\varphi_3 = \frac{\delta c}{\left(\bar{R} - 1\right)^{2}}$

$\varphi_4 = - \frac{1}{\bar{\pi}} \left[ \frac{\delta c}{\left(\bar{R} - 1\right)^{2}} - \bar{b} \right] $

Note: I was able to solve for (3); however, I am still unsure why $\theta_t$ does not have a hat on top of it. If someone can walk me through how to reach (4), I would very much appreciate it!


texts: Real exchange rate of India and United State?

texts:
According to OECD the price level of India is 29, and that of united states is 113, and nominal exchange rate is 64-1(INR-$). So what is the real exchange rate?

Is it $$RER = NER\times\frac{US_{PriceLevel}}{INR_{PriceLevel}}=273 \\ or \\RER = NER\times\frac{INR_{PriceLevel}}{US_{PriceLevel}}=16$$

I believe it should be the second one, because the price level in India is less than that in US so buying power of dollar should be less. Is this reasoning correct?


texts: Skepticism about the claims of instrument variable validity/exclusion through a statistical test—the Arellano-Bond Test

texts:
I am an applied researcher and occasionally come across papers that have panel data and that use dynamic models with both a fixed-effects term and lagged DV (or multiple autoregressive terms):
$y_{it} = \beta_0 + B_1X_{it}+\alpha y_{i(t-1)}+\delta D_{it} + \lambda_i + \gamma_t + \epsilon_{it}$
where $i$ denotes the panel unit and $t$ denotes the time dimension.  The parameter of interest is $\delta$ and $D_{it}$ denotes a binary treatment.  When the number of time periods is small, such a model cannot be estimated using OLS because of Nickell's bias.
One approach I have seen people use is to employ higher lags as instruments.  The identifying assumption is usually stated as no serial correlation between higher-order error terms.
Is it correct to take this assumption of no serial correlation as the exclusion restriction, i.e., the IV affects the final outcome only through the instrumented variable? If yes, then how does this square with the general point that causality/exclusion cannot generally be established with statistical tests such as the Arellano Bond Test, which statistically tests for the null hypothesis of "no autocorrelation," and proceeds if there is a failure to reject the null for higher orders?
In Mostly Harmless Econometrics (book), Angrist & Pischke write (p. 245):

The problem here is that the differenced residual, $\Delta \epsilon_{it}$, is necessarily correlated with the lagged dependent variable, $\Delta Y_{i(t-1)}$, because both are a function of $\epsilon_{i(t-1)}$. Consequently, OLS estimates of (5.3.6) are not consistent for the parameters in (5.3.5), a problem first noted by Nickell (1981). This problem can be solved, though the solution requires strong assumptions. The easiest solution is to use $Y_{i(t-2)}$ as an instrument for $\Delta Y_{i(t-1)}$ in (5.3.6).10 But this requires that $Y_{i(t-2)}$ be uncorrelated with the differenced residuals, $\Delta \epsilon_{it}$. This seems unlikely, since residuals are the part of earnings left over after accounting for covariates. Most people’s earnings are highly correlated from one year to the next, so that past earnings are also likely to be correlated with $\Delta \epsilon_{it}$. If $\epsilon_{it}$ is serially correlated, there may be no consistent estimator for (5.3.6).

Angrist & Pischke make no reference to the Arellano Bond Test to establish the validity/exclusion of the IV.  Instead, they make qualitative arguments as I generally see with IV models used for other types of data generation processes.
Does the Arellano Bond (AB) Test really establish exclusion/validity?  Or, is it merely a diagnostic that may be used as a secondary argument along with primarily qualitative arguments for exclusion.  If the AB test is merely a diagnostic, how should one evaluate research studies that assert identification on the basis of the AB test?  (i.e., the AB test fails to reject the null of "no autocorrelation" but qualitatively, one may have reasons to believe that there should be a correlation but the current sample does not show it).
NOTE: Slightly edited version cross-posted on https://stats.stackexchange.com/questions/490747/skepticism-about-the-claims-of-instrument-variable-validity-exclusion-through-a


texts: Raising the elasticity of substitution in an economy

texts: Papers such as de la Grandville (1989) and Klump/de la Grandville (2000) have shown that a higher elasticity of substitution leads to higher economic growth. My question is, if there is a way to increase the elasticity of substitution through policy measures for a simple case of a two-input (capital and labour) CES production function.


texts:
Theoretically speaking, if all the Earth's inhabitants were to save money and invest, is it possible for everybody to get, let's say, a 4% yearly return for everyone?

Is the economy a zero sum game (where if someone gains, others lose) or not?


texts:
Is it true that the Chinese manufacturers pay 75% of the cost of the Trump's tariffs?

https://www.econpol.eu/sites/default/files/2018-11/EconPol_Policy_Brief_11_Zoller_Felbermayr_Tariffs.pdf

  The  US  government has strategically levied  import  duties on goods
  with high import elasticities, which transfers a great share of the
  tariff burden on to Chinese exporters. Chinese firms pay
  approximately 75% of the tariff burden and the tariffs decrease Chinese
  exports of affected goods to the  United States by around 37%. This
  implies that the bilateral trade deficit between the US and China drops
  by 17%. The additional tariffs generate revenues of around USD 22.5
  billion, which could subsequently be redistributed in the US.

What cost are we talking about exactly? Because as far as I know, they're not paying them at all since it's the consumer who bear the brunt of the cost if they're buying the Chinese-made items. If they're not buying them, the Chinese manufacturers aren't paying any of the cost since they can put the goods in their inventory and sell it elsewhere, and reducing manufacturing output isn't a cost in any shape of form.


texts:
I came across a very thought-provoking quote by JK Galbraith concerning supply-side economics. The quote is as follows:

  The poor don't work because they have too much money. The rich don't
  work because they don't have enough money. If you believe that, you'll
  believe anything. -- J.K. Galbraith

With famous titles like: The Affluent Society, Galbraith was a expert in economics. Also he is very witty, and between these qualities I'm having a hard time connecting the dots for myself. I'm not sure how much of his explanation/comment is sarcasm and how much is genuine.

Question: Is there any notion/assumption/principle in supply-side economics that could legitimately be alluded to in Galbraith's remark here?

In other words, he must have phrased it this way for a reason; and let's not forget, this is in the context of supply-side economics. So by juxtaposing these false statements with our intuitive understanding of supply and demand, it's as though he's mocking that school of thought. So what is the original concept of the supply-side school of thought that he his mocking?

Surely there is something he thought was paradoxical in supply-side theory that made him say this comment.


texts: What are the consequences of deflation in Japan?

texts:
Most of the literature I can find about deflation in Japan takes for granted that deflation is bad for the country. I can also find a lot of literature on why deflation is bad in theory. Is there any analysis of the 20 years of deflation in Japan and its specific consequences?

I guess it is a wonderful recent study case of deflation, to be compared with the established view on the subject, so someone must certainly have done it. Can you point to such literature?


texts: What is the producer surplus given the price the consumer paid + price they are willing to pay, and the marginal cost of producing the product?

texts:
Linda is willing to pay $6 for a cereal box. Linda bought a cereal box for $4.  The marginal cost of producing that cereal box is $3 per box. Assuming the price Linda paid was the equilibrium price, what is the producer surplus?
I've been wracking my head trying to wrap my head around this topic but I'm getting really confused, mostly about how this would look on a graph. My notes tell me Producer Surplus = (Market Price - Marginal Cost) * Quantity Sold, but I don't think it can be that easy...Producer Surplus is only $1, while Consumer Surplus would be $2? Could anyone please explain how this would look graphically? Thanks very much in advance!


texts: How to define the optimal lag K in GARCH-MIDAS?

texts:
Does anyone here have experience with GARCH-MIDAS? I estimated a garch midas model using the package mfGARCH and I have to choose the lag K that corresponds to the model with the minimum BIC.

The problem is that I Don't know where to stop since the BIC continues to decrease each time I increase the Lag K ( this was the case until i reached K=70 which I find unrealistic ! ).

Is that common ? Or, is there any additional condition to fix the lag K  (the significance of some parameters in the output, for instance...).


texts: How can power/electricity prices be negative?

texts:
Bloomberg shows this chart:

I understand the above chart to mean that consumers were actually paid to use electricity. (Please correct me if I'm mistaken.)

I was wondering how this is possible? How is the power/electricity market special and different from other markets? (Or perhaps the German electricity market is special.)


texts: How is the ARIMA model a valid approach for forecasting Economic Variables?

texts:
Ive noticed the use of univariate forecasting methods (i.e the ARIMA model) employed in forecasting inflation (see references below).

How is this a valid approach in terms of forecasting economic variables? does this approach not omit the large amount of economic theory which determines how these variables are determined (i.e via equilibrium and interaction of variables other than themselves?)

1.https://scholar.harvard.edu/files/stock/files/forecastinginflation.pdf see pages 6-72.http://repository.graduateinstitute.ch/record/294965/files/HEIDWP05-2017.pdfhttp://repository.graduateinstitute.ch/record/294965/files/HEIDWP05-2017.pdf
3.http://www.unagaliciamoderna.com/eawp/coldata/upload/pakistans%20inflaction_arima%20model.pdf


texts: Is Investopedia wrong about a Collar's maximum loss and profit?

texts:
Are the last two paras. below correct? Shouldn't they be reversed?

Isn't your maximum profit when $P \le 77$? Then you can exercise your 77P, but the call holder can't exercise his 97C. Your profit $= 77 - P -$ options premiums.
Isn't your maximum loss when $P \ge 97$? Then you can'texercise your 77P, but the call holder can exercise his 97C. Your loss $= P - 97 +$ options premiums.

  Collar Example

  Assume an investor is long 1,000 shares of stock ABC at a price of \$80 per share, and the stock is currently trading at \$87 per share. The investor wants to temporarily hedge the position due to the increase in the overall market's volatility.

  The investor purchases 10 put options (one option contract is 100 shares) with a strike price of \$77 and writes 10 call options with a strike price of \$97.

  Cost to implement collar (Buy Put @ \$77 & write Call @ \$87) is a net debit of \$1.50 / share.

  Break even point = \$80 + \$1.50 = \$81.50 / share.

  The maximum profit is \$15,500, or 10 contracts x 100 shares x ((\$97 - \$1.50) - \$80). This scenario occurs if the stock prices goes to \$97 or above.

  Conversely, the maximum loss is \$4,500, or 10 x 100 x (\$80 - (\$77 - \$1.50)). This scenario occurs if the stock price drops to \$77 or below.


texts: How is project value enhanced by uncertainty in market payoff?

texts:
I was reading about the concept of real options valuation. It says that ROV has shown that uncertainty in market pay-off enhances the project value (V). How is that? Will it be possible to explain that with an example?

Here by 'uncertainty' we mean stochastic variability of parameter distributions.

{V = f(performance,cost,time,market requirement,market payoff) }


texts: What could be an example of equity-efficiency tradeoff in healthcare, social protection or defense? For environment I did think of pollution permits that can cause geographical differences in pollution. But for other sectors of government spending I do have a trouble with coming up with an example.


texts: What is the graphic intuition behind Marginal rate of subsitution

texts: So I think I understand the math, but I don't understand the intuition on a 3d graph. Why does the ratio of partial derivatives give us a tangent line on a level curve(indifference curve)? My understanding is  $\frac{\partial U(x_1,x_2)}{\partial x_1}$ Will give a tangent line parallel to the $U(x_1,x_2), x_1$ plane and $\frac{\partial U(x_1,x_2)}{\partial x_2}$ Will give a tangent line parallel to the $U(x_1,x_2), x_2$ plane. So why does dividing them end up with a tangent line parallel to the $(x_1, x_2)$ plane?


texts: Quoting convention for Gold in the early 1900s

texts: I was looking at some historical references on gold prices over the past century and I noticed that London gold prices are written as "$x$ s. $y$ d" (e.g., '$121 \text{s}. 1.75 \text{d}$'). I'm wondering how I'd go about converting this into pounds. Thanks!


texts:
Does the discipline of economics have an accepted rigorous definition of capitalism?
 I.e. not something like "some economists would quote Hayek and say that so and so constitutes capitalism" but an if and only if definition that most economists would agree on.


texts: Is the CES a special case of the translog production function?

texts:
I was discussing today with a classmate about the relationship between prodution functions, and we tried to prove that the CES is a special case of the translog production function, but we failed. We have related the CES, the cobb-douglas and the leontief already, but we are missing the link with the translog. Is it possible to show the assumption in terms of CES parameters that yield a CES? Any help is more than welcome.

Thanks! Jonas.


texts:
Two common drawbacks of Pigouvian subsidy mentioned in the literature are related to monetisation and measurement of social cost (Baumol) and reciprocity of social cost (Coase).

What alternatives to Pigouvian taxes are proposed in the literature? Have any of such alternative measures been implemented in practice?


texts: I have a utility function of $U = B^{.67}Z^{.33}$ with Income $Y$, Price of Good B is $P_b$ and price of Z is $P_z$ I now need to derive an engel curve for this. I have no idea where to start.


texts:
The AIIB is the Asian Infrastructure Investment Bank. It's an international financial institution proposed by China. Almost all Asian countries have joined and a lot of European countries. Here is the link to the Wikipedia page

My question: How come Japan is not part of the AIIB ? Why are all the countries of North America against it ?


texts:
Is there any up-to-date list of hours of work needed to buy a Big Mac?

I have found only up to 2018.


texts: What is the state of the art in capital theory?

texts:
In the first half of the 20th century a great deal was written about capital theory, including writers such as Hayek, Böhm-Bawerk, Sraffa, Knight, Robinson and Fisher. Many of these figures debated and often staked out radically different schools of thought with regards to capital and interest. These debates seem to me some of the most interesting and difficult in all of economic theory. My impression as a non-economist is that there has not been much interest in the 21st century in these debates and it is not taught to students. My question is: is this true, and what is currently the "state of the art" in modern capital theory?
EDIT: Let me elaborate a bit. In the writers I mentioned, some favoured a "pure productivity" theory of interest (Knight), others favoured a "pure time preference" theory (Mises and, I would assume, Hayek), others favour a mixed productivity-time preference theory (Fisher), and other said that the interest rate is simply set by power relations and not by any market equilibrium (Sraffa). Robinson, I would assume, as a Keynesian, favoured a liquidity-preference theory. My impression is that modern economists favour some kind of synthesis between the Fisherian theory and the liquidity preference theory (is this impression of mine accurate?).
With regards to the Romer and Solow growth model mentioned by muflon, as far as I understand these are models with a homogeneous capital stock and so is essentially a "Knightian" theory, the same kind of theory that ignited the Cambridge Capital Controversy. I have seen one economist (Nick Rowe of "Worthwhile Canadian Initiative") say that the whole CCC debate was silly because both sides were trying to explain interest rates without any reference to time preference.
What motivated this question is that when I have tried to understand capital and interest I tend to get drawn to these very old works and very old debates. The various neoclassical growth models certainly use the concept of capital, but I wouldn't say they constitute capital theory in that don't seem to tackle the more fundamental questions associated with capital that got raised in the early 20th century debates.


texts:
I'm not sure where should I post this under since it's both about Power Systems and Economics but I want to understand the economics aspect of it.

This is the answer:

This is my attempt, tabulated:

Am I doing this entirely wrong?


texts:
Consider the standard Diamonds coconut economy. One could imagine that people who search longer, have a different likelihood of matching someone to trade with.

Has there been something done akin this (in any part of matching theory)?

Second Example Say, we want to match liver transplants between donors $d$ and recipients $r$. The longer anyone waits, the higher the likelihood of being matched with someone from the other side.

Hence, we would have a distribution of $r$ and $d$ w.r.t the time that they have already been waiting. And instead of an aggregate matching function $M(r, d)$ we would have something that takes into account these distributions.

What has been done in this area so far?


texts: Finding Mixed Nash Equilibria in a $3\times 3$ Game

texts:
I am tasked with finding all of the Nash Equilibria (pure or mixed) in the of the following game:

$$\begin{array}
\\&L&C&R\\
T&2,2&2,3&1,2\\
M&0,3&3,2&1,1\\
B&3,1&0,2&0,3\end{array}$$

I have already deduced that there are no pure strategy equilibria here by using the "underline the best response" method. In order to find mixed strategies, I know that one must be indifferent to all of his own options given a probability distribution from the other player, i.e. the expected utility from any of his choices is the same given what his opponent might play.

To do this, I started by finding the expected utility of each of the pure strategies by assigning probabilities to each of their actions. For Player $1$, $T$, $M$, and $B$ got probabilities of $x$, $y$, and $1-x-y$, respectively; I did a similar thing for Player $2$, with $p$, $q$, and $1-p-q$. Then, I calculated each players' utility given that his opponent picked a pure strategy; for Player $1$:

$$U_1((x,y,1-x-y),L)=3-x-3y$$
$$U_1((x,y,1-x-y), C)=2x+3y$$
$$U_1((x,y,1-x-y), R)=x+y$$

and for Player $2$:

$$U_2(T, (p,q,1-p-q))=q+2$$
$$U_2(M, (p,q,1-p-q))=2p+q+1$$
$$U_2(B, (p,q,1-p-q))=3-2p-q$$

Using these, I hoped to be able to see whether or not any of the pure strategies was strictly dominated given some other mixed strategy (e.g. $M$ is strictly dominated by some combination of $t$ and $B$). However, I'm not confident that this is the best way of actually doing this problem. Any suggestions as to where to go/what method to employ would be sincerely appreciated. Cheers.