texts: (Microeconomics) How to classify Public Goods and Common Resources in Externalities?

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In Microeconomics there are 4 types of externalities - Positive Consumption Externality, Positive Production Externality, Negative Consumption Externality, and  Negative Production Externality. And along with externalities you learn about common resources and public goods which are classified according to their excludability and rivalry.

I believe that common resources go in the category of negative externality since they tend to be over-produced, and that public goods go in the category of positive externality since they tend to be under-produced.

What I'm confused about is whether common resourses are classified as Negative Consumption Externality or Negative Production Externality. The two have different characteristics that are represented by their different graphs, where the Negative Production Externality has two Cost Curves (Private Marginal Cost and Social Marginal Cost) and one Utility curve, while Negative Consumption Externality has two Utility Curves (Private Marginal Utility and Social Marginal Utility) and one Cost curve. I'm confused as to which negative externality common resources belongs to.

The same goes for public goods. Are public goods Positive Consumption Externality, or Positive Production Externality? Like the explanation written previously, the two have different features and graphs as well depending on whether it is consumption, or production externality.

So to sum up I guess I have two questions which are a bit similar:

Are Common Resourses classified as Negative Consumption Externality, or Negative Production Externality?
Are Public Goods classified as Positive Consumption Externality, or Positive Production Externality?

I would sincerely appreciate it if someone can provide me with a detailed explanation regarding each question. Thanks! :)


texts: Which elements to forecast/estimate Oil/Pretroleum derivatives, would you consider?

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I mean, if you had to forecast the price or production volumes of polyethylene or polyurethane, for example, which elements would you include to the model, in addition to oil crude prices/volumes?

The idea was to biuld an econometric model, but I have doubts of which factors I could add into the model, since the focus is to predict oil derivatives and not crude oil per se.


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Never, never, understood this.

I know what Nominal and Real GDP is, I know how the base year calculations work, my question still remains.

The idea behind real GDP that makes most sense to me is the one Smith came up with, which was the first conception of a GDP anyway. The point of the GDP seems to be that the amount of stuff people consume is a decent indicator of how well the country is doing. It's hard to give a small figure that can be grasped quickly of the amount of stuff people consume in units of xyz goods so we just give them weights equal to a price and add them together. So the weights clearly seem to indicate how much more "consumptiony" one good is compared to the other, I guess the prices are a decent indicator of how "important" one good is relatively (debatable).

So we take these weights (prices) in one year and say "we'll use these" from then on. So an increase in the GDP can only ever indicate people consuming more stuff.

But if we keep changing base year prices, the Real GDP get's a boost despite people not consuming more stuff, it's even possible people consume less stuff and the Real GDP still increases, only because people are throwing more money at goods, probably because the central bank threw more money into the economy.

So what exactly is this change in base year supposed to capture?


texts: if you have convex set how can i prove that the function is concave

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Let $x$ belongs to $\mathbb{R}_+^n$ and $θ$ belongs to $\mathbb{R}_+^n$ be the vectors of choice variables and parameters.

Consider the problem max $f(x)$ for $x$ where $f:\mathbb{R}_+^n \rightarrow \mathbb{R}_+$ such that $(x,θ)$ belongs to a subset $S$ of $\mathbb{R}_+^{n+k}$, if $S$ is convex and $f(x)$ is concave then the value of function of the problem $φ(θ)$ is a concave function.

I have this proof.the question is since $S$ is a convex set $(\bar{X}, \bar{Θ})=[λ'x+(1-λ)x'',λθ'+(1-λ)θ'']$ belongs to $S$ for all $λ$ belongs $[0,1]$

Can I prove that $φ$ function is concave?


texts: Mathematical open problems that (when answered) might unlock MAJOR mathematical (micro)economics/finance/econometrics discoveries

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Are there any (specific) math open problems that mathematical (micro)economics / finance / econometrics researchers wish mathematicians could solve for their discoveries to flourish? If positive, which math open problems are related to which applied topics and how they are related?

When I ask that, it really comes to my mind the case of stochastic analysis and option asset pricing problems in mathematical finance.


texts: How to find the Utility Possibility Frontier when there are Perfect Substitutes?

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I am trying to derive the Utility Possibility Frontier (UPF) when both utility functions display perfect substitutes (in an Edgeworth economy with to consumers and two goods).
The specific problem:

$u_A = 2x_{1A}+x_{2A}$

$u_B = x_{1B}+2x_{2B}$

The total endowments being five of each good. Thus:

$x_{1A}+x_{1B}=5$

$x_{2A}+x_{2B}=5$

We are given the hint that "the Utility Possibility Set can be described as the set of
$(u_A, u_B)$ in the non-negative orthant of $R^2$ satisfying: $u_A ≥ 0, u_B ≥ 0$".

I keep trying different approaches, but always end up with imposible conditions. When following the suggestions from this another post (How to derive utility possibility frontier?), I keep getting weird first order conditions such as "1=0".

Once the UPF is found, we are asked to maximize social welfare through the following Social Welfare Function (SWF):

$W(u_A,u_B) = 3u_A + u_b$

Thank you in advance.


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This should be fairly simple but I think I am missing something here.

Gross Investments:    46
Exports:  9
Disposable
Income:  190
Personal Savings: 10
Purchases:    84
Net Foreign Factor Income:    10
Consumption of Fixed Capital: 52
Dividends:  13
Imports of the U.S.:  12
Taxes on Production and Imports:  22
Personal Taxes:   38
SS   Contributions:   23
Statistical Discrepancy:  0

What is the net domestic product?

I am calculating 265 but being told it is 255. Am I suppose to subtract savings afterwards?

This is how I am calculating it:

Investments + Purchases + Disposable Income + Exports - Imports - Depreciation(Consumption of Fixed Capital)

46 + 84 + 190 + 9-12 - 52 = 265 then apply - 10 from Personal Savings?


texts: How does the treasury determine the rates of the bonds they sell?

texts: My understanding is that price and yields are determined via supply and demand. How are the interest rates determined when the bonds are auctioned off?


texts: Has any research found that automation will decrease inequality?

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A paper by IMF researchers (but not an official position of the IMF) has found that automation will lead to higher inequality under all scenarios they considered.

Even in the scenario where robots only compete for some jobs, and the impacts on wages and growth are reduced, the IMF paper said inequality gets worse.
"Allowing for tasks that complement robots does not help as much as one might think, partly because more and more workers compete for those jobs, driving down the overall wage.
"In addition to the fall in the average wage and the rise in the capital share, unskilled workers suffer large decreases in absolute and relative wages."
Even in areas where robots can't compete, the news isn't great from the IMF team.
"This also does not really help, again because there are only so many of those jobs to go around, and labour chased out of the automatable sector tends to drive down wages."

There are two more reports I found (which I haven't look at in much detail), one from UBS and one from BAML which point to the same thing: auotmation drives inequality.
So, is there any research coming up with the opposite conclusion, i.e. that automation can/will reduce inequality? (And I mean to inquire about research based on some modelling, not just some "just so story").
Ref: Andrew Berg; Edward F Buffie; Luis-Felipe Zanna, (May 21, 2018) "Should We Fear the Robot Revolution? (The Correct Answer is Yes)",  IMF Working Paper No. 18/116


texts: Calculating rate of growth of per capita income

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Given this question:

National income is increasing by 1.5% a year and population by 2.5% a year. What is the rate of growth of per capita income?

Attempt:

Since per capita income is GDP/ population. I divided 1.5 by 2.5 and got 0.6. Is this right?
Thanks.


texts: What's the advantage of DSGE relative to BVARs?

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DSGE models and BVARs are commonly used in academia and policy circles.

They generate different performances (e.g., in forecasting) and perhaps serve different purposes. Notwithstanding, they have a relationship and mapping to one another, and may be used jointly in forecast combination exercises.

I'm just wondering if there are specific and well-separated advantages and disadvantages to DSGE relative to BVARs -- for instance as regards certain diagnostic metrics or at certain horizons and certain situations?


texts: I am learning about shifts in supply and demand. Things that shift supply include things like improvement in production technologies. But why would a firm want to increase their supply if they are just going to sell more product for less at the new equilibrium ?


texts: Supplier offers "Price Protection Tariff" w/o exit fees, and more expensive Variable Price tariff. Does that mean it is betting on the price falling?

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My energy supplier offers two tariffs:

The first is a "Price Protection tariff". It gives you a fixed per-kWh price for 12 months, and has no exit fees (23.28 cent)

The other is a "Variable price tariff". It has a higher per-kWh price (25.31 cent).

This appears to be the only difference.

I am a little thrown regarding the economics here.

Does this mean the company is assuming the price will likely go down?
If they believed the price will likely go up, should I not have to pay a premium for the price being fixed.
Otherwise, what would be a reason for a customer to choose the variable price tariff?


texts: In a production function, the technology can vary across the firms and times. But the "power" must be same for the same industry?

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Let $F_t=A_tK_t^\alpha L_t^{1-\alpha}$ be the production function with two parameters.

In regression, we know the firm level $F_t$, $K_t$, and $L_t$. We want to estimate $A_t$ and $\alpha$.

I've heard that, for the same industry, $\alpha$ is the same for all the firms. $\alpha$ is also usually assumed to be the same across the time period.

However, the technology parameter can shift across the firms and times.

I am not sure if I am correct on this.


texts: How to find the mean of a two-part Poisson-based hurdle model

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If I have a hurdle model in which the distribution is one Poisson distribution for observations $=0$ and another distribution for observations not equal to zero, how do I go about finding the mean of such a distribution?

EDIT: this is the distribution I am given

$$
\Pr[y_i=j] = \begin{cases} e^{-\theta} & j=0, \\[10pt]
\dfrac{(1-e^{-\theta})e^{-\lambda} \lambda^j}{j!(1-e^{-\lambda})} & j = 1,2,\ldots \end{cases}
$$


texts: In social sciences, a lot of work is done on social networks. However, I have not found any work on invisible networks. If there are some, please list the same. If there are not any, why this is so? Think of invisible (sub)network as a set of nodes (people) connected to each other, but these connection are not visible (known) to rest of the network.


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A follow up to my previous question:

  Given $u(x) = (x_1-b_1)^\alpha (x_2-b_2)^\beta(x_3-b_3)^\gamma$

and ending up with from a maximization that

$$x(p,w) = (b_1, b_2, b_3) + (w - (b \cdot p))\left(\frac{\alpha}{p_1},\frac{\beta}{p_2},\frac{\gamma}{p_3}\right)$$

How do I show that $x(p, w)$ is convex? I already showed that it is homogeneous of degree zero and satisfies Walras' Law. The book from Mas-Colell says that the solution is obvious, but I have not gotten anywhere with it. My setup for showing convexity is that I want to show:

$$x(tp + (1-t)p', tw + (1-t)w') < tx(p,w) + (1-t)x(p',w')$$

But I'm not finding anyway to simplify this expression to show it is true. Any help would be appreciated, as I feel like I am missing something very obvious.


texts: What are main reasons a typical DSGE model is called non-linear? Why are these non-linearities important? Is a non-linear model inherently less stable than a linear model? Why?


texts: I have been reading a BBC news article about inflation in the UK, which is saying that inflation has recently become negative (http://www.bbc.co.uk/news/business-33147660). The article suggests that this is a bad thing. However, I would have thought that positive inflation is generally a bad thing, because it creates instability, resulting in people spending all their money rather than saving it. Certainly, I know that hyperinflation can cause a huge deal of trouble. Can somebody explain why positive inflation (in modest quantities) is necessarily a good thing?


texts:
In this article, the author looks at some of the indirect effects caused by the rioting in Ferguson, Missouri after the jury's decision not to indict the police officer.  He explains that the rioting has hurt the economy (both short-term and long-term) in Ferguson and other communities where rioting is taking place.

Are there actual numbers that support this conclusion?  Also, can this conclusion be expanded to say that rioting impairs the economy?


texts: Why is it relevant for a company to use dividends to incentivize shareholders to maintain ownership of the company's stocks?

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I was reading the definition of "Bottom Line" on Investopedia  and one of the reasons companies increase their bottom-line is to issue payments (dividends) to stockholders as an incentive to maintain ownership
However, I'm a bit confused about why maintaining ownership is a reason for companies paying dividends to shareholders.  Particularly because if a stockholder did decide to sell his shares (for whatever reason which could be that there were no dividends/not enough dividends), since its a secondary market, it would just go to another buyer who really wanted those shares. I understand at the start in the primary market a company would want to incentivize buyers to buy their shares, but once we get into the secondary market it's not like the stocks are going to disappear, so it doesn't matter who it goes to as long as someone is holding it. Essentially, a share cannot be sold without a buyer, so regardless of whether ownership is maintained there will always be a new owner to pay for and hold that share.
I know there are other reasons why a dividend's existence is important, but specifically, Investopedia's reasoning on maintaining ownership doesn't make much sense to me/seems irrelevant.
I know I'm wrong, so hopefully, I can figure out soon why... Thank you so much for all your time!


texts: World Inequality Database: Top 10% Income Share U.S. vs. Top 10% Average Income

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I want to use the U.S. data from the World Inequality Database for a VAR analysis. However, I am confused as to why the series for the top 10% income share only runs back to 1962, while the series for the top 10% average income runs back to 1913. As there is data on total national income that runs back even farther, why has the 10% income share not been computed? I looked at some of the documentation but couldn't find an answer.

https://wid.world/data/

I realize this is a very specific question. I am hoping someone closely acquainted with the data, or even someone who worked on the data, might be able to help. Thank you.


texts: Multiple Forgone Job Opportunities and Economic Profit

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I'm told that forgone job opportunities are implicit costs, to be included in calculating economic profit, but I can't seem to see how I could list and consider many different forgone opportunities. My question here is how do we do so?

For example, if I have a piece of land or big city real estate, there could be a great many different uses for it. If I considered each of these forgone opportunities an implicit cost, I would think the expression of my economic costs would be useless to me.

So I suspect that either I'm suffering from an oversimplified ECON101 explanation of implicit and opportunity costs or simply an incorrect one. Any references would be appreciated.


texts: What is state space representation for DSGE modeling

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I'm beginning with DSGE modeling, and a mathematical representation (perhaps trivial for most of the people that are more with this topic) is the space-state state representation of a dynamical model, like depicted here (s.2), or similar documents.
I have already read the Wikipedia article about this topic, and I get the general idea (in this case applied to engineering). But I want a further explanation in how this applies in DSGE modeling, and if possible some literature (preferably economics-focused). The concrete question is what is a state-space representation, if possible with some of the intuition, its uses in economics (control theory), and some key insights about the notation.
Thank you!


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Say I have a time series of two variables, $X$ and $Y$, and want to find out which one of these two moves first. One example is the one of GDP growth and investment growth, where we usually tell the story that at a business cycle frequency, investment moves "earlier" than production or consumption.

I dont want to do eyeballing econometrics ("this thingy here clearly moved first"). What is the standard way of dealing with these things in the literature? What methodology can be used? Answers that allow for more than two variables are very welcome.


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I am reading papers about moral hazard. What is one dimensional, ordered type $\theta\in\Theta$?

What is one dimensional, not ordered type $\theta\in\Theta$?

Could you please give an example?

References:

Riley (1979)

Azevedo and Gottlieb (2016)


texts: What are the logistic implications of using bottle caps as currency?

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I have recently been playing the game of fallout 4 and I was struck by an interesting spec of the game.

People in the nuclear post-apocalyptic world use bottle caps as barter money.

Inquiring a little, it is said that it has a certain logic to use them, since they resist more or less well the inclemencies of the climate.

They are difficult to duplicate without heavy machinery, which is scarce in the post-nuclear world.

The banks of the world are supposed to base their value on purified water and that in a certain way, if you came to a bank with 100 bottle caps you could come out with a bucket of water.

(I do not know if this means that the banks function at the same time as exchange houses and water purification and distribution facilities)

All this sounds good and in a way with some logic, but reading this only left me more doubts than answers.

How would inflation work in such an economic environment?

How can people buy expensive objects like houses or maybe vehicles, (they cost at least 10000)?

How would a bank know if another has launched a new version of purple coin that is worth more than any other single bottle cap?

If a new bottle cap of unique color appears, how to corroborate that a bank in another village supports its value? (that is, that is not false).

(Sorry about my tags I could not find some tags for a "what if" scenarios).


texts: Gali (2015) Chapter 8 Symmetric Steady State

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In Chapter 8 (small open economy) of Gali's 2015 version of Monetary Policy, Inflation, and the Business Cycle, he often performs log linearisations around a symmetric steady state like below:

My questions are:
1. What exactly is a symmetric steady state,
2. How do we know that it exists
3. How do we know that $P_H = P_F = P$ in steady state? (I know from S=1, that I can infer that $P_H = P_F$, but I'm confused about whether S=1 is the cause for $P_H = P_F$ or a consequence of $P_H = P_F$).

Thank you very much for your time in advance!


texts: Can number of children in rich country is small due to this simple economic factor?

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In rich countries, people are expensive.

Even taxi driver in Singapore earns $6k per month.

Now, the "market" tend to correct it self.

If something is expensive, and it's marginal productivity is low, then the "market" would produce less of that thing.

The market produces far more computer than abacus for obvious reason. Once the market produces more and more computer abacus become obsolete and too expensive.

The same way with humans. Humans are getting more and more expensive. So the market produce less of them.

And that's why rich countries produce less and less of them.

Now, I have many doubt about this theory. After all, the number of children you have is not up to the market fully.

It depends on how well you can attract mates to knock up. Yes. That would be market mechanism.

However, there are many government rules that sort make this not market mechanism. Polygamy tend to be illegal. Government tend to subsidize children of the poor with public schools and welfare. Minimum wage means poor people's salary are set by government. Child support laws are set proportional to man's wealth.

But still, market "distortion" may not be that "big". The market may still handle it.

And overall, things still follow market mechanism. The market, decides that we have too many humans. The market stop producing it.

Poor men, for example, can't get a girlfriend. Or poor people think that cost of raising children is too high they decided not to produce children and so on. Those seem like the way the market handles things.

Am I right? Wrong? Anyone study this?


texts: Conditional independence and no correlation

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I have a question regarding basic econometrics.
Consider the model
$$y_i=\alpha +\beta x_i +u_i$$

I understand that assumption 4 of the linear regression model states

$$[1] \quad  E(u|x)=0$$

However, I often see this condition written as:

$$[2] \quad E(ux)=0$$

Are these two things equivalent? I see that if [1] and $E(u)=0$ then we get [2]; however I don't understand why [2] would imply [1].


texts: What is the chain of events that occur when oil price drops that makes the Canadian dollar lose value?

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A large part of why the CAD has been weakening (against the USD) is because the value is crude oil has been falling, and Canada is a big exporter of oil.

But this oil doesn't belong to Canada. It belongs to the private companies that extracted the oil from the ground, such as Suncor Energy, EnCana Corp, and Canadian Oil Sands.

So if the value of crude oil falls, then these oil companies become less valuable because their inventory of oil decreases in value.

If the oil company's oil-inventory decreases in value, then the company's equity decreases (as "assets = equity - liabilities").

If the oil company exports this less-valuable oil, they'll receive less money for it, as they'll have to sell it for a low-than-usual price.

So if the oil company's equity decreases, then the company's shares decrease in value, leading to a decrease in the company's market capitalization.

Where does the drop in the value of the Canadian dollar come into play?


texts: Can a market function if everyone has the same preferences

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Assume everyone has the same preferences. Therefore there would be , for example, no trivial concept of liquidity preference differences etc.

Would the economy still work?


texts: How widespread is the subjective theory of value ?

texts: I typically see the subjective theory of value supported by pro-free market type individuals. But in the present day what theory of value is used for other schools of thought that favor things such as mixed market economies, Keynesianism, socialism, etc ?


texts: How are petro states able to maintain gasoline subsidies without black market export smuggling?

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I don't understand how petro states can have crazy low gasoline prices without smugglers exporting the gasoline and selling it elsewhere.

For example, in Venezuela the domestic price of gasoline is about 5 cents per gallon (compared to the current US retail price of around $2.10 per gallon). In other words, the US retail price is about 40 times the Venezuelan price. That is a pretty big incentive for a smuggler. There are other countries which have similar subsidized prices.

How does Venezuela prevent smugglers from just loading up trucks with gasoline and exporting it? They don't even have to ship it out of Venezuela. They could truck it across the border into one of the neighboring countries and sell it there or export it from the neighbor. Venezuela must have some mechanism for controlling who is receiving the cheap gas and preventing them from exporting it, what is it?

As a second question along the same lines, how do they prevent people from converting the oil into a different product and then exporting that product. So, for example, oil can be converted into polypropylene pellets. A person could take the (virtually) free oil, convert it into polypropylene and then export the polypropylene. How do they prevent this from happening?


texts:
I thought that the St Louis FED was the ultimative resource for macro data, but even they don't appear to have a time series of state level unemployment numbers for the United States.

Who does?


texts:
One of the arguments against inheritance tax is that it lowers the incentive to work for those close to retirement who have earnt enough money to be comfortable in old age.

How much is this offset by the lower incentive to work (e.g. towards a mortgage or for greater financial security) for those who expect to receive the inheritance? Is there any empirical evidence for such an effect, if it exists?


texts: Proofs in the Appendix A of Sannikov (2007)

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I have a few questions about the proofs in Appendix A of Sannikov (2007), Games with Imperfectly Observable Actions in Continuous Time.

In lemma 4, when he shows the Lipschitz continuity of $H_a(w,\theta)$ in $\theta$, he derives an auxiliary function $F(\theta^\prime)$, takes its derivative, and bounds that derivative (page 41). How does he get that bound? What is $|\mathcal{V}|$? How is he able to bound the factor involving $\beta^1$ and $\beta^2$?
In proposition 4, why does Lipschitz continuity of the objective guarantee continuity of the value function? Does this just follow from the Maximum Theorem? If so, why did we need Lipschitz continuity?
Also in proposition 4: why does the initial curvature being positive guarantee that it stays positive?
How does idempotency of $Q_i(a)$ guarantee that $\bar{Q} \geq 1$?


texts: Difference between a Data Scientist and an Econometrician?

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I've noticed there are a lot of similarities between data scientists and econometricians and I'am having a hard time telling the difference between the scope of each field and what problems they attempt to answer.

What are the primary differences between a data scientist and Econometrician?


texts: Given the following random walk model $\Delta Y_t = Y_t - Y_{t-1}=\beta_0+u_t$, where $u_t \sim N(0,\sigma^2_u)$, how do we derive the standard error $\beta_0$ in terms of the estimated $\sigma^2_u$? The model is largely similar to the one given here, except that $t=1,2...,T$ and $Y_0$ is a given. I am unsure of how the degrees of freedom might change in this case.


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Given two goods (where more is better), and I am consuming at a point that maximizes my utility (i.e on the budget line, with an indifference curve tangential to the budget line).

When the prices of the two goods change to an unknown, and yet I consume where my utility is the same maximum utility as before, can I conclude that the price of this new basket is the same as before?

Logically, I think it does. But on the other hand, I'm thinking about possibilities where price of good A increases, and price of good B decreases by the same amount, which leaves me stuck.


texts:
|

|     |Adv| ---------|N\A|

Adv| 300,300     | 900,0          |

N\A| 0,900     | 700,700           |

Player 1= Pepsi

Player 2= Coke

A) Solve for the pure strategy Nash equilibrium

B) Is this game a prisoner's Dilema?

C) Is there a cooperative equilibrium? If so, what is it?

D) Does coke have a dominant strategy? Does Pepsi?

My Attempt

|     |Adv| ---------|N\A|

Adv| (300),(300)     | (900),0          |

N\A| 0,(900)     | 700,700           |

A) Nash Equilibrium: (Adv, Adv)

B) Not sure how to answer this

C) Yes. If they both got in contact and made the option to not advertise

D)

I would appreciate some help!


texts: How to derive firm's cost function from production function?

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I recently learned how to solve the following type of problem using the method of Lagrangian multipliers:

Given a consumer with utility function $u(x,y)$, wealth $w$, prices $p =(p_x,p_y)$, budget constraint $w = xp_x + yp_y$. Find the demand function for $x$ and $y$. I also learned how to find cost functions by plugging these demand functions into my budget constraint and rewriting to give a cost function.

But those cases all involved having $w$ and somehow budgeting with respect to that budget.

Problem Setup:

Suppose a firm is a price-taker with market price for the good in question $p$. Suppose the firm has a production function $F(K,L)$. Derive the firms cost function.

My Question:

How should I approach this problem?

My Ideas / Thoughts Relevant for Solving Problem:

I am not given wealth $w$ although I suppose I could assume any firm who is purchasing has some budget. All previous problems I have done involved two goods, but this involves one. Perhaps I could therefore have a budget constraint $w = qp$ where $q$ is the quantity and $p$ is the price as given to the price-taking firm. But Lagrangian multplier problems I have seen involve two variables and this is just a function of one.

Remark:

The specific production function I am using is $F(K,L) = \sqrt{k} + \sqrt{l}$. I only include this in case it's relevant. I want to solve the problem myself.


texts: Find the standard deviation of a log-normal AR1-process with exponent

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I am trying to replicate a RBC model with technology shock

$\log(z_{t+1})=\rho \log(z_t)+\epsilon_{t+1} \ $ with $\epsilon_t \sim$ i.i.d.$ \mathcal{N}(0,\sigma^2)$ and $0 < \rho  < 1$

The original source states that:

  $\sigma$ is determined so that the innovation in $z^{1-\theta}$ has standard deviation 0.007

where $0 < \theta < 1$ Unfortunately, I don't know how to approach this problem  with a (non-integer) exponent and what exactly is meant by the innovation in $z^{1-\theta}$

How can I (analytically) find the value of $\sigma$?

Thanks for your help!

P.S. The source is Greenwood, Rogerson, Wright (1995), "Household Production in Real Business Cycle Theory", in Frontiers of Business Cycle Research, p.167


texts: Why is the production possibility set convex?

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I'm studying International Trade and came across this question: Suppose a specific factor model where the global production of something is given by $Q_{w}=Q_{1}(.) + Q_{2}(.)$, with $Q_{1}, Q_{2}$ strictly increasing on all arguments and also strictly concave. So $Q_{w}$ will also be concave. As so, the superior sets of the level curves should be convex. But what I see is that the inferior set in this case is convex.

What am I not understanding here?


texts: Asymptotic variance vs. conditional variance in calculating regression estimator standard errors

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I am given regression model $y_i=x_i^T\beta+\varepsilon_i$ with heteroscedasticity.
Let $Avar(b)=E[x_ix_i^T]^{-1}E[\varepsilon_i^2x_ix_i^T]E[x_ix_i^T]^{-1}$
Hayashi's book states that regression coefficients are asymptotically normal:
$\sqrt{n}(b-\beta) \rightarrow^{D} N(0, Avar(b))$ therefore $b\sim N(\beta, Avar(b)/n)$ asymptotically for sufficiently large n.
Further, Hayashi states that the standard error of $b_k$ is precisely $\sqrt{Avar(b)_{kk}/n}$ where  $Avar(b)_{kk}$ implies the kkth element of the diagonal.
Question:
Why do we use $\sqrt{Avar(b)_{kk}/n}$ as a measure of standard error rather than $\sqrt{V(b|X)_{kk}}$ where
$V(b|X)$ is the conditional variance of b?
I am confused because earlier in the book he mentioned that the conditional variance should be used. For example, he specified that in the finite sample case under conditional homoscedasticity the standard error of $b_k$ was precisely:
$\sqrt{V(b|X)_{kk}}=\sqrt{\sigma^2(X^TX)^{-1}}$ with $\sigma^2=E[\varepsilon_i^2|X]$


texts:
I'm looking for a textbook about econometrics, but I'd like to find one with the following features :

Short (350 pag. max)
Introductory
Clear on the math and stats used
With exercises

Do you know a book like this? Thanks!
My purpose is to be able to read it in not too much time and understand the subject without covering all aspects but just the essential.


texts: Is stock investment an example of demand curves that slope upwards?

texts:
The law of demand implies that when the price of a good rises, people buy less of it. This makes the demand curve slope monotonically downwards. A textbook exception is the so-called Giffen good that by definition behaves in the opposite way.

But take a stock on the rise; might there not at least be one tendency for people to buy more of it under some circumstances, because it looks promising, in spite of any opposite tendencies? Is or isn't this another case where a demand curve may slope upwards?


texts: Differences between Hicksian and Slutskian approaches

texts:
When deriving the substitution effect for both Slutskian and Hicksian definitions, a 'phantom' budget line is drawn.However, for a Slutskian definition, the 'phantom' budget line is drawn parallel to the new budget line(change in price) and through the point of tangency for the original budget line and indifference curve.

On the other hand, for a Hicksian definition, the phantom budget line is drawn parallel to the new budget line(change in price) and lies on the original indifference curve on a different point of tangency.

Is there any significance to this inherent difference between the Slutskian and Hicksian approaches when deriving the substitution effect?I'm familiar with the definition of the Slutskian and Hicksian approaches but am unable to reconcile the definitions of the approaches with the differences in drawing the phantom budget line, and subsequently deriving the substitution effect.

Any clarifications or attempts to enlighten me would be much appreciated.

Thanks!


texts: Payoffs in games with imperfect information can be different?

texts:
I know that a game has imperfect information if there is an nonsingleton information set, and that defines a situation on which a player can't distinguish between the nodes in the information set. However, I'm wondering if, conceptually, it makes sense that the payoffs can be different, and still the player at the nonsingleton information set can't distinguish between the nodes. For example, consider an extensive form game with imperfect information like the following:

Which appears in Game Theory Online. There is an information set with two nodes for player 1 after player 2 choses A or B. Why player 1 can't distinguish at which node she is by the payoffs of, say $l$? If she recognizes that the payoff of $(0,0)$ corresponds for $l$ after $A$ and $(2,4)$ for $l$ after $B$, doesn't this disambiguate the situation?


texts: How do countries create their own currencies (and give them meaningful value)?

texts:
Regardless of why they'd do it, what do countries do to make their own currency, replacing the old one, and give their new one value?

I sorta get how it works, but this kind of economics is still super confusing to me; thus I thought I'd ask. You know, I get the ideas of supply and demand and what-not, but beyond that I'm at a general loss.

Example, if the Ryukyu islands had an uprising and separated from Japan to form their own nation, what could they do to make their own currency? To replace their Japanese Yen? Again, regardless of why they'd want to.


texts: If the economy is not always on the Price setting curve, can the Central Bank target unemployment?

texts:
In the usual textbook model, in which there's imperfect competition, the economy is always on the Price-Setting(PS) curve, and to have a target unemployment level, above equilibrium unemployment, will cause an inflation bias.

First, is it possible for the economy to be on the wage-setting curve every time, but only in the PS curve in the medium-run? In this setting, would there be some leeway for a central bank to target also an unemployment level different from the equilibrium one, instead of just inflation, without causing inflation bias?

Any help would be appreciated.


texts: Opportunity cost of goods provided free of cost

texts:
If the government of a country decides to provide certain good free of cost to its citizens, what can one say about the opportunity cost?

Government is certainly using the revenues raised from the taxpaying public to provide this good. It could have decided to deploy those funds elsewhere. Had the money not changed hands from the taxpayers to the government, the taxpayers would have decided its deployment and thus decided opportunity cost.

Those who are getting the good free of cost don't have to make any decision about opportunity cost as free provision of good does not constrain them in deploying their money elsewhere.So could it be said that the opportunity cost is transferred from the consumers of good to the government or it is transferred to the taxpayers.


texts: fixed an marginal cost calculation issue

texts:
I'm trying to solve a question that is quite difficult for me. I did part of the question but, bit difficult to decide the exact answer for the below question.

After coming up with an innovative idea for a new product, you paid 4000
to an industrial designer to draw the blueprints and found a factory in China that agreed to produce the product for you for $3 per unit (the price includes the shipping cost from China to you).

Since this is a totally new and unique product, you have no idea how the demand for it would be. Therefore, before you start pricing the product and ordering large amounts from the Chinese factory, you decide to run an experiment (or a pilot study): you talk to Target and they allow you to sell your product at 11 different Target stores for 11 different prices (a different price at each store). These stores are located in areas whose residents have similar average income, so you can be certain that price (and not income) is the only factor varying among these stores.

After 2 weeks, Target sends you the sale numbers for your product.

Price   Quantity Demanded
4   221
5   210
6   185
7   162
8   144
9   122
10  102
11  81
12  61
13  46
14  25

What they are asking is to measure the total fixed cost and the marginal cost.

Can 4000 be decided as the fixed cost? If so how the marginal cost can be calculated? I believe the variable cost is 3$. This 4000 should be only the initial fixed cost. How can I calculate the marginal cost.


texts: Money creation in textbooks since McLeay et al

texts:
The paper "Money Creation in the Modern Economy" by McLeay et al was published in 2014 in the Bank of England Quarterly Bulletin and has had well over a thousand citations. The paper is damming about the description of the monetary system as given in many undergraduate level textbooks.
Here are some example quotes:

The reality of how money is created today differs from the description
found in some economics textbooks: • Rather than banks receiving
deposits when households save and then lending them out, bank lending
creates deposits. • In normal times, the central bank does not fix the
amount of money in circulation, nor is central bank money ‘multiplied
up’ into more loans and deposits.

rather than banks lending out deposits that are placed with them, the
act of lending creates deposits — the reverse of the sequence
typically described in textbooks

While the money multiplier theory can be a useful way of introducing
money and banking in economic textbooks, it is not an accurate
description of how money is created in reality

This description of the relationship between monetary policy and money
differs from the description in many introductory textbooks, where
central banks determine the quantity of broad money via a ‘money
multiplier’

And in contrast to descriptions found in some textbooks, the Bank of
England does not directly control the quantity of either base or broad
money

So my question now is - did the paper have any effect? Are the descriptions of the monetary systems in the latest editions of the popular textbooks (Mankiw and the like) any better? Are they now compatible with McLeay et al?
EDIT... I would suggest that there are two distinct issues that McLeay et al are complaining about:
A) Incorrectly suggesting that banks lend deposits rather than correctly stating that lending creates deposits.
B) Incorrectly suggesting that the money supply has a ceiling set by reserve requirements in practice.


texts: Arellano and Bond (1991) GMM estimation in R by using plm package

texts:
I am a last-year student at university, currently working on my Bachelor's (so still learning R), and I really hope that you would suggest a potential solution (even if to use Python).
So, the main model for my bachelor is as follows:

I need to estimate this model by using the GMM (preferably Arellano and Bond (1991)). I have been searching for the solution for almost 2 months, yet still not succeeded.
The data set could be found here:
https://drive.google.com/file/d/15NBcZ7TBfoJ7TnM3BYgtt5JW3T3CmqGJ/view?usp=sharing
My code is the following:
PDataA2 <- pdata.frame(DataA2, index = c("ID","Year"))

z1 <- pgmm(domegaACF_A ~ lag(domegaACF_A, 1) + ddebt + ff1 + ff1:ddebt + Age + ta + dsales | lag(domegaACF_A, 2),
           data = PDataA2, effect = "twoways", model = "twosteps", index = c("ID", "Year"), transformation = "ld")

summary(z1, robust = TRUE)

After I have created all the needed variables, I am trying to estimate coeffs by using pgmm function in plm package. And receive 2 errors:
In case I use transformation = "d", errors are as follows:

In case I use transformation = "ld", errors are as follows:

I would really appreciate any comments and suggestions provided because I do not know how to get away from this dead-end. Thank you in advance!)
UPD: I have created lags as separate variables, so here is a new correlation matrix:
                  domegaACF_A        ddebt          ff1          Age          ta       dsales lag1_domegaACF_A lag2_domegaACF_A
domegaACF_A       1.000000000 -0.014777102 -0.002600866 -0.019160423  0.02456158  0.256801279     -0.379350157     -0.027687422
ddebt            -0.014777102  1.000000000  0.128264730  0.004706522  0.03878795  0.057488971      0.018800962     -0.003222902
ff1              -0.002600866  0.128264730  1.000000000 -0.048072279 -0.02868682  0.008979745     -0.002808377      0.008062733
Age              -0.019160423  0.004706522 -0.048072279  1.000000000  0.27884112 -0.021440539     -0.051829392     -0.048162046
ta                0.024561579  0.038787947 -0.028686815  0.278841116  1.00000000  0.078247618      0.015304990      0.015539599
dsales            0.256801279  0.057488971  0.008979745 -0.021440539  0.07824762  1.000000000     -0.049518811     -0.004134281
lag1_domegaACF_A -0.379350157  0.018800962 -0.002808377 -0.051829392  0.01530499 -0.049518811      1.000000000     -0.358671174
lag2_domegaACF_A -0.027687422 -0.003222902  0.008062733 -0.048162046  0.01553960 -0.004134281     -0.358671174      1.000000000

And I believe that correlation is not much trouble.


texts: Terminology: _______ financing (meaning financed through the private sector)

texts:
I have encountered several similar terms on this notion, including:

private sector financing (very clear, but a bit wordy)
market financing (somewhat clear, usage seems infrequent)
alternative financing (not quite as clear, but seems fairly standard
in the literature)

Question

Are these terms interchangeable? And is there not a more succinct/elegant way to express the idea?


texts: Does quasi-concave utility function imply convex indifference curve?

texts:
It is well-known that convex indifference curve (i.e. the function is convex)/ preference would imply quasi-concave utility function. But does quasi-concave utility function imply convex indifference curve?

It seems that this answer give a brief sketch of the proof, but how can I show it in a more formal way?


texts: Why does the Dutch disease cause the value of the currency to increase?

texts: I was just reading about the Dutch Disease and it causes that the value of a country's currency increases when said country suddenly finds natural sources of oil. Why is that?


texts: I have seen that researchers use different utility function in demand systems estimation such as Stone Geary. What is the role of these utility functions? What are utility function other than stone Geary?


texts:
The demand for rail travel is $Q^d = 600 - 2P$ where quantity is thousands of train journeys per quarter and $P$ is in £ per journey. How much would the consumer surplus change if rising cost of electricity led the train companies to raise price from £70 to £100.

Calculating the choke price, $600 = 2P$. Thefore $P = 300$.

At £70, $Q^d = 460$. Therefore Consumer surplus is $(460-300)/2*460 = £36,800$

At £100, $Q^d = 400$. Therefore consumer surplus is $(400-300)/2*400 = £20,000$

Difference is $£16,800$.

I've got the answer wrong, but i'm sure where, any help is appreciated.


texts: Please help a layman distinguish among sorts of normal goods

texts:
I'm trying to organize my thinking about differences among types of normal goods, and I'm sure that someone smarter than me has already done the necessary work.
Here's one sort of distinction that I have in mind:
A is willing to spend more money for a better graphics card because it improves his experience watching movies. He is not spending more money to gain any sort of competitive advantage over other users, and his streaming services never change the demands that they place on users' computers.
B is willing to spend more money for a better graphics card because it improves his experience watching movies. He is not spending more money to gain any sort of competitive advantage over other users, but, because other users' purchases affect what sort of demands streaming services place on users' computers, he's in something of an arms race.
C is willing to spend more money for a better graphics card because it confers a competitive advantage playing MMOs. He cares only about the performance of his gaming rig relative to other gaming rigs; he is otherwise indifferent to performance.
Imagine that people like A constitute the entire market for graphics cards. Separately, imagine that people like B constitute the entire market for graphics cards. Imagine that people like C constitute the entire market for graphics cards. Would graphics cards be different sorts of goods in these three scenarios?
A related question: Are there other sorts of goods than these:

club

common-pool

complementary

durable

excludable

free

Giffen

inferior

intangible

luxury

normal

nondurable

nonexcludable

nonrivalrous

public

private

rivalrous

substitute

superior

tangible

Veblen


texts: How to test if variables are jointly determined?

texts:
If I wanted to test, for example, if consumption growth and credit growth are jointly determined, and therefore justifying the use of instrumental variables, how would I go about this? Would running a Hausman test work?

For instance if I assumed the structural equations

        Consumption= a + b * income+ c * Credit + e

        Credit growth= d + f * income + g * consumption + ... + v

How could a Hausman test be used?


texts: Stock return predictability. Why do papers continue to use Granger Causality tests

texts:
There is a long literature on stock return predicabtility.

When I read papers I see lots of authors still using granger causality tests. It is still prominently taught in undergrad and grad classess.

But we do we continue to persist with this when many have shown that they are often not robust to even a little bit of ambiguity. Whether this is persistent variables or in the presense of heteroskedasticity.

Why do people continue to use it?

Why is it so important?


texts: Calculating present value using Euler's number

texts:
So I was reading here where they calculate the expected value of an option at present given the expected value of the option in a year by calculating

$$C_0 = C_1 e^{(-r)}$$

where r is the interest rate. But where does e come from here? Shouldn't present value just be calculated using

$$C_0 = C_1 / (1 + r)$$

What am I missing?


texts: Whether a good is a Giffen good should be based on circumstance?

texts:
The textbook example of a Giffen good is the potato during the Irish Potato Famine. It is characterised by a positive income effect that is larger than the negative substitution effect when the price of the good increases. During the famine, the increased price of potatoes counterintuitively led to an increase in the quantity consumed of potatoes. This was because potatoes were likely one of the only available staples for the peasants and that alternatives may have been significantly more expensive. Hence, the increased consumption of potatoes and a diversion away from more expensive foods was observed during the famine. This makes sense in the context of the peasants having very low, limited incomes and that other staples or foods were either unavailable or far more expensive.

If the circumstances were changed and say, rice or noodles, were cheaper than potatoes, I am certain that there would be a drop in the quantity demanded for the potatoes given the increase in price. Hence, I would like to ask if it is possible to assert that a good can be considered a Giffen good only under the appropriate circumstances? That is, the income and substitution effects would play out differently given different circumstances and under certain circumstances, these effects would be opposite with the income effect being larger.

In fact, if you think about it, given a sufficiently large increase in the price of potatoes, the quantity demanded would have to decrease as it really becomes unaffordable and the peasants may have to resort to consuming less of it and find some other substitute. Hence, the Giffen good behaviour would only be observed for a particular price range and not below or above that.


texts: How long did it take before the Hawley–Smoot Tariffs reached their peak effect on US growth?

texts:
I understand that this may still be a contentious issue, but are there some estimates how long it took before the Hawley–Smoot Tariffs impacted US growth significantly and/or how long it took for them to have their maximum impact on US growth (of course relative to some counterfactual scenarios).

And if somehow the same source(s) estimate the [time lagged] effects of the earlier 1922 tariffs, which were also significant tariff-wise... that would be also interesting to know.


texts: Today's value of the Louisiana Purchase?

texts:
A video I watched claimed (at 6:50) that while only \$0.25B had been paid for the Louisiana Purchase, the current value was \$1200B (all in 2017 dollars).

I couldn't find any references, but assuming the latter number is correct, what might it refer to?

The current value of the land?

The estimated value of the land if all structures and roads were removed?

(It seems to me that these numbers would be vastly different, and comparing empty land to one with infrastructure is comparing apples and oranges)


texts: Additive multiattribute nonlinear utility functions

texts:
I am interested in the cases where a decision maker possesses a multiattribute utility function ($u$) of the form:

$u(x) = \sum\limits_{i=1}^{n} u_i(x)$, with $x=(x_1, \ldots, x_m)$, and where $u_{i \in [1, n]}$ is a multiattribute nonlinear utility function.

In particular, what is their relevance in microeconomics, utility theory, and decision-making in general? Are there any examples or references?

Thanks.


texts: Obj function yielding independent goods demand functions

texts:
I know that if the objective function (aka utility) is homothetic, demand functions will be linear in income. So for an homothetic demand function to give goods independent of prices other than their own, one has to have a Cobb-Douglas function as it also has to be homogeneous of degree zero.
My question: can someone supply an example of a class of preferences yielding price independent demand functions $x_i = g(\frac{y}{p_i})$? (no prices nor income in preferences, just quantities)

[Challenge to think, not to give long proofs please. Just sketch proofs with the important steps if feel it's important]


texts: Fisher Effect - inflation and stock return

texts:
This is my understanding:

Fisher effect posits that expected nominal returns on any asset would move one-for-one with expected inflation. That is, when expected inflation increase, the nominal return on stock would also increase, is this correct? Besides, based on the theory, inflation would also cause nominal interest rate (the rate which dividend is discounted to the present to obtain stock price -Present Value Model) to increase, which would decrease stock price.

My problem:
The two conclusion above contradicts and I'm confused. Can anyone point the mistake of my thoughts? or PVM and fisher effect cannot be viewed together?


texts: Why would foreign asset purchases by PBOC temper yuan appreciation?

texts: Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate? And why? It amounts to trading non-interest-bearing foreign assets for interest-bearing ones, but I am having trouble seeing whether or why it might cause the yuan to depreciate.


texts: How to compute Social Welfare in this model?

texts:
The first part of this scientific article analyzes reward-based crowdfunding. The assumptions are:

Seller is a monopolist
Unit mass of consumers
Unit demand
Two periods
Individuals are identified by $\theta$ and are uniformly distributed on [0,1].
Individuals in period 1 derive surplus $U_1 = \theta_1(1+\sigma) - P_1$
Individuals in period 2 derive surplus $U_2 = \theta_2 - P_2$
Individuals in period 1 derive extra benefits, so-called community benefits denoted by $\sigma > 0$

The entrepreneur has to maximize profits in both periods while also inducing self-selection between the two consumer groups. The entrepreneur has to achieve profits in period 1 greater than some development cost, $K$.

Overall profits (in the unconstrained case) are derived as: $\frac{(1+2\sigma)^2}{4+16\sigma} - K$

My question is: How would you derive consumer surplus and thereby also social welfare in this model?

Assuming the consumer's have been successfully separated in the two periods, the demand for period 1 consumers is: $Q_1 = 1 - P_1$, and the demand for period 2 consumers is: $Q_2 = \theta_1 - P_2$.

Inserting the equilibrium prices yields the following quantities: $Q_1^* = (1+4\sigma-4\sigma^2)/(2+8\sigma)$ and $Q_2^* = (1+2\sigma)/(2+8\sigma)$.

The equilibrium prices are such that $P_1^* > P_2^*$. While  $Q_1^* > Q_2^*$ if $\sigma < 1/2$ and $Q_1^* < Q_2^*$ if $\sigma > 1/2$.

Clearly, there is a mistake here. I believe that it might be due to the demand expressions. But I don't know what specifically there is wrong.

Any help is much appreciated.


texts: Does this conditional increase in income affect a budget line in the same way as an unconditional increase in income would?

texts:
It's been awhile since I've taken introductory microeconomics. I remember increases in income move budget line outward. What if the increases have some condition?

The problem:

  Jill has $I$ to spend on food and clothing. One unit of food costs $p_F$ while one unit of clothing costs $p_C$.

Budget line is

$$I=p_FF+p_CC$$

  Say Jill receives a $V voucher for food. What is the new budget line?

If the voucher was instead cash, we obviously have

$$I+V=p_FF+p_CC \tag{*}$$

If the voucher was really for food, we might not have $(*)$

However, I think we still have $(*)$ if:

$I > C' := (I+V)/p_C$ (the max that can be spent on clothing in $(*)$) because:

If the voucher is for food, then no more than $I$ is allowed to be spent on clothing.

However, such constraint is redundant if $I>C'$ because we know we won't exceed $C'$ and thus we won't exceed $I$.


texts: Why do low-budget films charge the same amount at the box office as super-high budget films?

texts:
In most occurrences, lower production costs translate into lower sales costs. Obviously there are other factors that influence price, including perceived value (affected by advertising), monopolies, and so on.

However there are many companies that produce films that vary greatly in budget. For instance, the Blair Witch Project came out in 1999 with a budget of \$60,000. The same year, Star Wars Episode 1 came out with a budget of \$115 million. That's almost 2000 times more expensive. Yet the two films sat side by side in the box office charging the same amount of money per viewing.

Why don't the makers of super-low-budget films undercut the big budget films?


texts: Difference between "Level" and "Flow" in the Z.1 Fed data

texts:
The Z.1 Fed data can be found in FRED.

I notices that many similar data sets are labelled "Flow" or "Level". For example,

Financial business; total liabilities, Flow
Federal government; total liabilities, Level
Financial business; total financial assets, Level

And sometimes, the Level version for a Flow series doesn't exist or vice verse.

What is the difference?


texts: Measuring effects of degree of (buyer) competition on price: references

texts:
I would like to examine the effect of degree of competition (market power?) among buyers on price of a product. I have data on product price, number of buyers with nonzero purchases and a couple more variables in multiple (around 400) different locations over multiple (around 70) consecutive times periods. I am not familiar with the literature on the topic and might be ignorant of some relevant keywords. I have found very few seemingly relevant papers, e.g. Digal & Ahmadi–Esfahani (2002), and I wonder if there are newer or more important ones that I have missed.
(Update: I do not think this paper offers any method that could be used given the type of data I have.)
Could you recommend a paper or a textbook chapter to bring me up to date with the relevant methodology?
References

Digal, L. N., & Ahmadi–Esfahani, F. Z. (2002). Market power analysis in the retail food industry: a survey of methods. Australian Journal of Agricultural and Resource Economics, 46(4), 559-584.


texts: Where do economists look for reliable commodity prices for dairy products?

texts: I would like to know the market commodity price of cream cheese.  I know you can look up the price of gold in the Wall Street Journal.  Where can I get info on dairy products like cream cheese?


texts: Why aren't house prices included in CPI?

texts:
Swedens central bank recently lowered their prime rate to -0.25% from -0.10% in an effort to avoid deflation.

At the same time, house and apartment prices are higher than ever, up 11% last 12 months, and up hundreds of percents the last 5-10 years. Measures are taken to avoid a housing bubble, like regulations on mortgage payments and so on, these are having an effect but the effects of a rapid rise in rate would be disastrous.

As I've understood, and I guess this might differ from country to country, the measure of inflation, CPI, includes prices for services and goods, but not for houses and apartments, why is that? In Sweden, rent for apartments and the bank rate are included in CPI, but the consumer isn't paying rate, they pay rate * house prices.

If house prices were included in CPI, we would definitely have inflation rather than deflation, so the right action would be to increase the prime rate, which would also lower house prices.


texts:
There are many arguments that socialism doesn't work. It's becoming an increasingly popular topic as congresspeople such as Bernie Sanders and Alexandria Ocasio-Cortez push for policies that are considered to be socialist.

However, the articles about why socialism fails generally cite multiple different reasons, and there seems to be no clear argument.

The only reason why something would fail practically when it should work theoretically is that it is making incorrect assumptions about the world.

What assumptions does socialism make in order to work theoretically, and why aren't those assumptions accurate reflections of the world?

(Please note that this question takes the standpoint that there are incorrect assumptions in the theoretical basis of socialism, and is trying to identify weak points in this theoretical basis. It may be true that socialism does work, or that there's a version of socialism that works - this question is specifically asking about what parts might not work. Similar questions may be asked about capitalism, or other economic theories.)


texts: New Keynesian IS curve: question about time dependence

texts:
A simple version of the new-Keynesian IS cuve is given as follows:
$$
\ln Y_{t} =\ln Y_{t+1} -\frac{1}{\theta} r_t.
$$
Here $r_t$ is the real interest rate and $1/\theta$ is the cross elasticity of consuming goods at different times. On the book I am reading (Advance Macroeconomics by David Romer, Chapter 6), the equation is derived based on consumption $C$ rather than income $Y$, by considering the marginal utility of comsuming right now vs saving and delaying consumption. Investment/net export is not a part of this model, so $C=Y.$
I have some doubt about this equation. The equation shows a direct relation between real interest rate $r_t$ and real GDP growth rate $\ln(Y_{t+1}/Y_t),$ which does not look quite right, as we often say that there is an inverse relation between GDP and real interest rate for an IS curve. Of course, it is the growth rate rather than the GDP $Y$ itself, but this direct relationship is still kind of hard to explain. Why is this the case?
If we keep $Y_{t+1}$ fixed, then there is an inverse relation between $r_t$ and $Y_t,$ as expected, but it seems unrealistic to hold the future $t+1$ as fixed and predetermined.
In summary, the additional term $\ln Y_{t+1}$ adds in some time-dependence, which makes this model difficult to understand in terms of an IS-LM diagram, which is a diagram at a fixed time.
How to explain the observations I make above about the interest rates?
Edit: It is easy to understand the above in terms of consumption $C,$ but it appears harder to believe when we replace $C$ by $Y,$ for the reasons above.


texts: Why is capital income taxed differently than wage income?

texts:
Why is income from capital gains taxed differently than wage income? There are perhaps historical, practical, and theoretical reasons. What are they?

(As far as historical reason go, I'm asking primarily about the United States. If anybody has any insight about this topic in other countries, I'd love to hear it as well.)


texts:
I am given a following dynamic programming problem;
$$
\sup_{k_{t+1}}\sum_{t=0}^{t=\infty}\delta^t(ak_t-\frac{b}{2}k_t^2-\frac{c}{2}(k_{t+1}-k_t)^2)
$$

where $f(k_t) = ak_t-\frac{b}{2}k_t^2$ is the production function of a firm and $\frac{c}{2}(k_{t+1}-k_t)^2$ is its cost function.

I am supposed to show that $\lim_{t\to\infty}\sum_{t=0}^{t=\infty}\delta^t(ak_t-\frac{b}{2}k_t^2-\frac{c}{2}(k_{t+1}-k_t)^2)$, exists by showing that $\lim_{t\to\infty}\sum_{t=0}^{t=\infty}\delta^t(ak_t-\frac{b}{2}k_t^2-\frac{c}{2}(k_{t+1}-k_t)^2) < \frac{1}{1-\delta}\frac{a^2}{2b}$

I have spent hours in trying to think about this problem but i remain clueless. Any hints on how to go about this problem?


texts:
Listening to the ARK Invest podcast, I've heard several times ETF managers saying that they have a positive impact on the economy because by choosing the most promising companies to invest in, they allow capital to be located to companies that deserve it. While I do get the argument for direct investment such as VC or PE, I don't see well how an ETF manager buying stocks in a company helps the company or some other element of the economy.
Do actively managed ETFs help the economy in any way, and if so, how?


texts: Real world examples of supply curve shapes

texts:
I get the basic intuition that at higher prices, produces would be willing to produce more, but I feel like theory can only take my understanding so far. I want to know what are the real world determining factors for supply curves. At the risk if making the question too broad, I would like to look at 3 common text book supply curves: flat line, upward sloping and exponential:

Example

Actually I'm not focused on any one particular industry, but to keep the scope within reason, let's assume the industry is a classic one: car production. Let's say there are three companies in this car industry and each company has a different supply curve, just like the ones pictured above.

Question

If we could peek under the hood of these car companies' inner workings (pardon the pun) what major differences would we find? That is to say, given each company has a differently shaped supply curve, what is likely to be different about the companies?

Note: I'm not after an exhaustive list; I think just a handful of well-articulated points would allow me to connect the dots. You can expand on whatever you think is most suitable (technology, distribution, government regulation, market segmentation, ect)


texts:
When I assume an one-factor Gaussian term structure model such as the Vasicek model

$dr_t = \kappa(\mu - r_t)dt + \sigma dW_t$

and specify a constant market price of risk of $dW$ to be $\lambda_t = \lambda_y$ a constant, use the usual change of measure

$d\widetilde{W}_t = dW_t + \lambda_y dt$

and solve for the drift term of the return of the zero coupon bond

$\frac{dP(t, \tau}{P(t, \tau)} = \mu_P(r_t, \tau) dt + \sigma_P(r_t, \tau) dW_t$

I get the bond risk premia to be

$\mu_P - r_t = -b(\tau)\sigma\lambda_y$

which is a CAPM-type equation.

However, if I apply CAPM to the zero-coupon bond, e.g. calculate the returns on the zero coupon bond and calculate its correlation $\rho_{r_B, r_M}$ with some global investible market $M$, I get the expected excess return on $\tau$-year zero coupon bond to be $\rho_{r_B, r_M} \sigma_{r_B} \lambda$ where $\lambda$ is the "global price of risk" calculated from the returns of the global investible market.

These two bond risk premia are both CAPM-type but I have trouble internalize them together. For example, in the Gaussian affine model case, there is not a term that looks like correlation, which appears in the CAPM solution. What is the connection between the bond risk premier from the Gaussian affine term structure model and the one from the good old CAPM?


texts:
Setup: Trine owns an apartment in Copenhagen. She is willing to rent
it out at any positive price. Peter and Simon
lives together and are both students. They will like to rent the apartment for less than 8000 kr. (danish valuta). If the rent is over 8000 kr., they will stay in their current apartment. Amalie just got a job at a bank.
She is willing to pay 12,000 kr. for the apartment. Besides Peter
and Simon doesn't know each other.

A)Ignore everyone else in the world: Which  allocation will the three parties reach? (hint: there are more!)

my answer

First of all, I'm not sure what a positive price is.

Case 1: Rent it to Simon and Peter.
Case 2: Rent it Amailie.
Case 3: None of them. (Trine does not get a positive price)

Question 1: I'm not sure why Trine would rent it to Simon and Peter if she can get more rent in she rented to Amailie.

B) Can you
argue that the allocation in A) is not optimal from one
society point of view (hint: there is no clear answer. Be
creative)?

My answer

Case 1 This will have some negative consequences for Trine (??).

Case 2 will not be optimal, because two student might not be in a optimal state and therefore might dropout.
Case 3: Only the richest or most desperate will pay this high price. What it will mean for the society I'm not sure.

This is my first economic problem. Feedback, improvement, alternatives solutions and reasoning, and pinpointing of mistakes will be appreciated.


texts: Kolmogorov-Forward-Equation with Entry and Exit

texts:
I'll try to ask this question in the most simplistic environment possible, so lets think about a household that can consume and save. After some cumbersome work, we have solved for the optimal savings policy, and know that the change of assets, given his assets $a$, is given by $s(a) = \dot a(a)$.

Denoting with $g(a, t)$ the density of households with assets at level $a$ given time $t$, I can compute the Kolmogorov Forward Equation for the distribution of assets:

$$ \partial_t g(a, t) = - \partial_a [s(a,t)g(a,t)]$$

Where I followed the methodology of Achdou et al, Appendix A3: First compute the CDF $G(a, t)$, and then use that $g(a,t) = \partial_t G(a,t)$.

However, now assume that we have birth and death of households. Most importantly, I don't want there to be a constant death rate, but let's make the death rate conditional on the asset level: $d(a,t)$ - and let's denote birth by $b(a,t)$. Intuitively, I'd think that the new KFE would be given by

$$ \partial_t g(a, t) = - \partial_a [s(a,t)g(a,t)] - d(a,t)g(a,t) + b(a,t)$$

Intuition aside, how can I derive the correct KFE that allows for death rates and birth from the scratch?


texts:
Each of two sellers, $1$ and $2$ owns one indivisible object that a buyer
would like to buy. The two objects are identical. The buyer´s valuation depends on
the number of objects he gets. The valuation of any of the two objects is $0.7$ while
the valuation of the two objects together is $1$. Seller $i$'s valuation of his object is $0$
($i$ = $1$, $2$).
Consider the following bargaining game. In period $1$, seller $1$ makes a take-it-or-leave-it (TIOLI) offer $s_{1}$  $\geq$ $0$ to the buyer. If the buyer accepts the offer, he gets the object and pays $s_{1}$. If the buyer rejects the offer, then there is no trade. Seller $2$ does not observe what happens in period $1$, In period $2$, seller 2 makes a TIOLI offer $s_{2}$.
The payoff of each seller is equal to the price that he receives from the buyer. The
buyer´s payoff is equal to the difference between the valuation of the objects that he
gets and the prices that he pays.
Find a perfect Bayesian equilibrium of this game.


texts: Evaluating the return of a trading strategy on forex markets

texts:
Which measure should I use to evaluate the returns generated with a trading strategy based on announcements of macro-economic news on forex markets.

I thought about the Sharpe-ratio, however I do not think I would be able to gather enough data to compute a significant standard deviation, as the period I am supposed to study starts with the finanical crisis in '07-'08.


texts: External Commercial Borrowings in Indian Context

texts:
I was trying to understand ECB recently and while browsing through the RBI official page I have found that ECBs cannot be used for
a) Real estate activities.
b) Investment in capital market.
c) Equity investment.
Reference Link
I am able to understand the help ECBs can bring to Indian entities by getting cheap credit when in need from High Income countries, but I am not able to understand what harm ECBs would do to the above three entities. What is the rationale ECBs are not allowed in these sectors?


texts: Finding the minimum # of items to be sold to meet a goal, based on likelihood

texts:
Let's say that I have a project and I need to earn some target to be successful, let's say $50,000

The way I earn is by one time donations at various levels.  1, 5, 7.5 (some discounted item), 10, 15, 20, and 25.

If i say that i want the least number of pledges, then it seems obvious that I would like to maximally sell as much $25 items as possible.

But in reality, there is some sort of distribution that tells me how likely it is that I'll be able to sell each type of items.  For example, if this were a kickstarter project, typically there are fewer higher tier bids and a lot more lower tier ones.  As to how to obtain this type of information, let's say I have found a model, or I can just draw out the histogram myself based on some reasonable guess about the relative potential of a person choosing a pledge level.

My question is, how do I figure out, given some likelihood about how people tend to pledge, how to reach this particular target?  Perhaps let's say I assume that the distribution is the same no matter how many people end up bidding.  So I guess I really am trying to find the minimum number of bids necessary, given the liklihood of certain bids actually being sold.

The reason I'm asking this is because I want to try to quantify in some way the importance of exposure.  The more people see something, there's some likelihood they'll be interested, and even if they are, they're going to pick the tier item that suits them, which is typically low.  I know it might be a bit silly to think about this without regard to the quality of the project itself, but I was wondering if thinking about this might provide some insight on how important it is to do proper marketing.

I'm also interested in a reverse question.  Let's say I can only reach about 5000 people, based on the fact maybe that similar projects to mine only got an average of that maybe people to back them.  Is there a way to figure out how to shape the distribution to reach the goal in a way that sticks to the goal? Or perhaps to start with my initial distribution, and see how to morph it as little as possible to reach the target?

Thanks


texts: What are good mathematics books to learn decision theory?

texts:
I am looking for a set of mathematics books to understand proofs in decision theory. Examples would be proofs of utility representations and social choice (im-)possibility results. I found many textbooks on both decision theory and social choice, some of which contain proofs which contain references to mathematical results.

However, I could not find a collection of mathematical results commonly used in these fields. Usual "Mathematics for Economists" textbooks fall short. What is the standard reference/textbook researchers use to find the results they employ?


texts: What's a "correct price" really? Does it exist?

texts:
Lately I've been thinking about the concept of price setting in market economy. There are various (perhaps naive) view on this such as:

The price is always the optimal for the buyer and the seller.

or

The prices reflect collective valuation of a particular resource/service/...

However, I find these unsatisfying due to the complexity of the concept of "value". Particularly how one's own choices relate to choices of others. Then, what's a "correct price" really? Is it "the price I paid" or some "communal price", "societal price"?


texts: Does Okun's law also work for nominal (not real) GDP growth?


texts: Why would China's housing be in a bubble?

texts:
This popular video on YouTube, "China's Reckoning: Housing Crisis", suggests that the housing market in China is in a bubble, because the vacancy rate is very high.
However, it also acknowledges that there is no credit bubble like there was in the US.
I don't understand this argument. As the video claims, the Chinese are culturally "obsessed" with real estate, and buy houses even though no one lives in them, which drives up the price of real estate.
However, isn't this exactly what we have with gold? Most gold is not being used for anything productive. It's our cultural obsession with gold that keeps up its price. No one suggests that gold is in a bubble because of this.


texts: Brücker et al. (2014) migrant labour supply shock

texts:
Brücker et al. (2014) write down a stylized model of wage-setting with a labour supply shock (migration), which I find hard to follow. Maybe somebody worked on it or is interested..
Labour force is given given by $ N_l = \overline{N}_l + \gamma_l M$
where $N_l$ is pre-migration labor force of each labor typ $l$, $M$ is total stock of migrants, $\gamma_l$ is share of workers of type in total immigrant flow. Production is given by $Y=F(L,K)$ with the usual assumptions. Wages are set based on unemployment $u_l=1-\frac{L_l}{N_l}$ and determined by $w_l=f_l(u_l)$. Firms demand labour by setting marginal product equal to wage $w_l=Y_L$. Using the wage and labour demand equation they write the condition
$$
\Omega_l(L,M) = Y_L(L,K(B(M))) - f_l(u_l(L_l,N_l(M))))=0
$$
And now I am lost. They say that they differentiate this equation implicitly with respect to a marginal labor supply shock and yield the following equation
$$
\frac{dL}{dM}= \left(\frac{\partial{Y_l}}{\partial{L}}-\frac{\partial{f}}{\partial{u}} \frac{\partial{u}}{\partial{L}}  \right)^{-1} \times
\left(\frac{\partial{f}}{\partial{u}}
\frac{\partial{u}}{\partial{N}}
\frac{dN}{dM}-
\frac{\partial{Y_L}}{\partial{K}}
\frac{\partial{K}}{\partial{N}}
\frac{dN}{dM}\right)
$$
And now I don't get how to get reproduce this. I don't understand why the derivative is taken from L in the denominator, then why the first partial derivative is inverse, and also how to get the second part (isn't this normally = 0 due envelope condition?). A lot of confusion..
Reference:
Brücker, H., Hauptmann, A., Jahn, E. J., & Upward, R. (2014). Migration and imperfect labor markets: Theory and cross-country evidence from Denmark, Germany and the UK. European Economic Review, 66, 205-225.


texts: How can I get total home values on Zillow?

texts: I am interested in getting aggregate dollar values for listings/sales on Zillow (for the whole country summed together, for example). Unfortunately, Zillow's data page seems to only show the "ZHVI", an index value, not a total dollar value. Is there any way to get the total dollar value?


texts: Link between Productivity and Labour Force?

texts:
In this article from VoxEU, the author states:

  By definition growth in output per capita equals growth in labour
  productivity times growth in hours per capita. The slowdown in
  productivity growth that began 40 years ago was partly offset between
  1972 to 1996 by an increase in the labour-force participation rate of
  0.4% per year, as females and baby-boom teenagers entered the labour force. In contrast during 2004-2014 the participation rate has
  declined at an annual rate of 0.5%, and over the shorter 2007-2014
  interval at an annual rate of 0.8%. This transition from a 0.4%
  increase to a 0.8% decline accounts for a 1.2% reduction in the growth
  of per-capita real GDP for any given growth rate of labour
  productivity.

I don't understand how the participation rate influences the growth of GDP per capita. Is it because in the per capita, besides the labour force, we also take into consideration the rest of the population? And what's the link between productivity and labour force?

Any help would be appreciated.


texts: Using a Logit model to predict unknown outcome

texts:
Usually when fitting a logit or probit model to data, one has a dependent binary outcome variable (say, university attendance = [0, 1]) and the usual set of independent variables (for the sake of it, say, parent income, gender and some measure of ability).

In my case, things are a bit different. To stay within the example, for my main data set I do not know whether people attended university. The only aspects I have information about are parent income, gender and other independent variables. However, I was able to obtain data on university attendance for a random subset of the data. Using this subset I fitted a logistic model, obtaining coefficients for all independent variables.

How can I use these coefficients to predict the probability of university attendance for everyone else?

[Please note that the education example is only made to simplify things.]


texts:
I am interested in key references on the economics of vouchers. In particular I am interested in asking, "Under what conditions are vouchers more or less useful?"

Tangentially related resources of a high quality are also welcome.

The kinds of references which I am looking for:

Papers and books
Informal works (eg a YouTube recording of a good talk)


texts: Constant elasticity proof for log-linear demand curve

texts:
From Perloff 2008e solved 2.2:

Q: Show that the elasticity of demand is a constant e if the demand function is log-linear, ln Q=ln A+e ln p.
A: Differentiating with respect to p, we find that (dQ/dp)/Q=e/p.

Where did 'dQ/dp' come from in the numerator?


texts: Economic Model: Incentive Compatible Market Economy that Satisfies Basic Needs

texts:
The capitalism system relies on a monetary system for exchange of goods and services. This appears to cause a large number of problems. For example, we shun those that don't have money.

Is there an economic model that embodies and actually encourages hard work while discouraging laziness and at the same time makes sure that everyone has what they need to live, to survive? Is there a model that marries the best of the other economic models into one that promotes motivation and community unity?

A model where your basic needs are cared for. Food, clothing, housing, education, and medicine is available to everyone. Yet everyone strives for more in their lives. There isn't a massive amount of laziness and instead people live for the things that make them happy and benefit society.

What would that entail? How would I embody such things into one model? Is it even possible?


texts: how Ballassa Samuelson affects real exchange rate?

texts: I get confused. How "Balassa Samuelson effect" influences real exchange rate?


texts: Reference Request - Dynamic Optimization with More Than One State Variable

texts:
I would like to understand how to solve dynamic optimization problems involving more than one state variable and state equation (to apply to long-term economic models with more than one capital good).  Searching the web I found this chapter which seems helpful.

Does anyone know which book the chapter is from (it seems unlikely that it's by Peter Thompson whose website it's on as he lists his specialisms as strategy and innovation)?

Any other recommendations on this topic would also be appreciated.


texts: Need examples for confusion about rent-seeking. Who is the seeker and what is the rent?

texts:
Please answer assuming I have no background in economics. I keep coming across this term in various articles (Example) but get more confused every time I look up what it means.
I have read about the concept of economic rent and how it is different from colloquial use of the word rent. But it still doesn't help because the definition of economic rent is too technical for me :(
Here's an example of rent-seeking from Wiki:
An example of rent-seeking in a modern economy is spending money on lobbying for government subsidies in order to be given wealth that has already been created.
Who is the rent-seeker in this example? And what is the rent - the money spent for lobbying or the subsidy availed?
It'd be great if someone can give a few more diverse examples (like where the State is rent-seeker or an individual businessman is rent-seeker). More importantly, please break down the example by who is the rent seeker and what is the rent. Thanks!


texts: Is there autocorrelation in stock prices?

texts:
I've heard that stock prices are random. But I know if the price is 15 at one tick, the next price has a range that hovers around 15 because it won't randomly hit 15,000,000 in the next tick.

Fist, how could I go about finding the answer to that question myself? I was thinking of downloading historical tick data on Apple Inc. and running this regression in Stata

reg price time

then doing a newey test. Would I need to include volume? And what lag is normally used for this?

Second, to find an answer about stocks in general, would I have to look at  every stock? Or is a random sample good enough?

I looked at some research from the top google results of "is there autocorrelation in stock prices". But it was a little over my head. What I managed to gather is that at least for stock returns yes, there is, in large diversified portfolios. Any further light and knowledge is appreciated.


texts: Can saddle path not go through the origin in Ramsey model?

texts:
In my case, the utility function is CEIS and discrete, the production fuction is $f(k_{t})=k_{t}^\alpha$, the budget constraint is $f(k_{t})+(1-\delta)k_{t}=c_{t} + k_{t+1}$. I use Jacobian matrix and Schur factorization to get the linearized policy function for consumption, therefore i can plot saddle path and unstable arms. In the end they look like below. However I read that saddle path must go through the origin, which is not right in my plot.

So my question is: does saddle path always go through the origin?


texts: Is Marx considered an important classical economist?

texts:
In a post on the politics stack exchange, I came across the following description of how Marxism fits into the history of economic thought:

  Most professional economists consider Marx' work on economic theory to be a substantial part of economic theory. Marx and Engels are included in the list of great classical economists, along with Adam Smith, Jeremy Bentham, David Ricardo, and Thomas Malthus. Marx pointed out that the long-term equilibrium for the "standard of living" is what a class insists upon before having, raising, and equipping enough children to replace itself. Several key concepts of economics (including "Cobb-Douglas production functions" and "value added") are designed to explain Marx' observations about the fraction of a factory's revenue that is not paid out for materials or proletarian labor.

The idea that "the long-term equilibrium for the 'standard of living' is what a class insists upon before having, raising, and equipping enough children to replace itself." seems foreign to me as an idea in economics and I am curious about the accuracy of the claims about Cobb Douglass and Value added, since they were not supported with references.

Is Marx commonly considered to be an influential classical economist, and if so, what is an example of an idea he added to economics as a discipline?


texts: Estimation of the future growth of real GDP per capita of the world

texts: From 60's to 70's, the real GDP growth per capita of the world fluctuated about 3%. Since then, it fluctuated about 1.8% or somewhere around. (I mean, the average would be about 1.8% since 1970.) I  found this trend from the data provided by Google public data. Is there a consensus among economists that the real GDP growth per capita of the world will be stable or gradually decrease in the future?


texts: Are trig functions not used in economics?

texts:
I noticed that many mathematics textbooks designed specifically for economics students like for example Essential Mathematics for Economic Analysis - Knut Sydsaeter / Peter Hammond / Arne Strom / Andrés Carvajal do not cover trigonometric functions their derivatives and so on.
Does this mean that in economics these functions are not used at all or only rarely? Are they some special topics in economics where they are important? I am trying to decide if I should still learn them or just ignore them.


texts: Structural Modelling of Expectations/Beliefs

texts:
I'm trying to build a structural model explaining the job search process by the job-seeker. One of the crucial component of job search, that i want to model, is the expectation about the employer. So things like a worker will not apply for job to the employer if he thinks/believe (correctly or incorrectly) that employer is racist, or if we thinks/believe that this job won't pay him well. I want to model these expectations and don't know where to start.

I will really appreciate if someone can help highlight few references in this regard and offer any useful suggestion that can help me build the structural model and eventually estimate parameters of interest.


texts: printing money after making the value by setting prices by law

texts: Why cant America set prices by law, which would establish the value of the dollar within its borders and then print money and give it to those who qualify.  Making deals with some of those who are over seas could be made with the people who import goods into the USA.


texts: What are the most liquid alternatives for EU-Government bonds?

texts:
I'm currently working on a dissertation for which I need data on EU-sovereign debt. As I need high-frequency data, I'm looking for ETFs or Funds with significant exposure to individual EU-member states, rather than for the government bond yields themselves. However, I only find a few ETFs that fit my purpose (as for instance the iShares Govt Bond ETFs). For some countries with lower credit quality like Greece or Portugal, I don't find any results at all. It seems to me like I'm missing something.
Therefore, do you know of any fixed-income ETFs or Funds which are primarily invested in specific EU-member states?
I'd greatly appreciate your help!


texts: Is human psychology really reflected into inflation?

texts:
I am a total noob in economics, but I'm trying to understand why do we have inflation. I can see that prices are increasing over time and, by definition, this means inflation. I'm fine with this definition, but I don't understand why we have it everywhere in the world.

Once, someone told me that this is caused by our psychology and that we kind of "get used" to something, and it doesn't have the same value like before, and I was wondering if this is right. Do money depreciate because we give it a less value over time or what is the fundamental reason for inflation? Or is it more complicated than my kindergarten understanding of it?

I can imagine that this is a stupid question for most people, but for me, it is very important to understand it at the fundamental level.


texts:
I have problems in distinguishing among terms in the Balance of Payment / the international balance sheet of a nation.

As far as I know, on Assets and Liabilities sides of BPM, there are Portfolio Equity, Portfolio Debt, FDI, Other Debts.

What is the difference between Portfolio Equity and Portfolio Debt? Is it true that Portfolio Equity is about stocks/shares, whereas Portfolio Debt is about Bonds?

Many thanks for your help.


texts: References for estimating lifetime earnings lost due to caregiving (health economics)

texts: I am working on a project on the productivity costs for caregivers of people with Disease X, a degenerative disease that affects mobility over time.  I am looking for references, either scholarly articles or textbooks, on estimating lifetime labor market earnings lost for caregivers of these patients.  What are some recommended or "essential" reading in this methodology?


texts: Moral hazard with linear effort and two possible outcomes

texts: Suppose you have a risk averse principal and a risk averse agent with utility functions $v(q_i - w_i)$ and $u(w_i)$, respectively, where $i = \{H,L\}$, and $q$ is output and $w$ is the wage. The probability that output is high is given by $p(e)$ with $p'(e) > 0 \geq p''(e)$ and effort is given by the linear function $e$. How do you prove that in the second-best case, the agent receives a larger (smaller) share of the profits when output is high (low) relative to the fist-best case? Bolton and Dewatripont (2005) mention this result but do not prove it.


texts: General Equilibrium - Mas Colell Problem 17.D.2

texts:
Taken from Chapter 17 of Mas Colell "Microeconomic Theory"

  Consider an exchange economy with two commodities and two consumers. Both consumers have homothetic preferences of the constant elasticity variety. Morover, the elasticity of substitution is the same for both consumers and is small (i.e. goods are close to perfect complements). Specifically

  $u_1(x_{11},x_{21})=(2x_{11}^{\rho}+x_{21}^{\rho})^{1/\rho}$ and $u_1(x_{12},x_{22})=(x_{12}^{\rho}+2x_{22}^{\rho})^{1/\rho}$

  And $\rho=-4$, The endowments are $w_1=(1,0)$ and $w_2=(0,1)$.
  Compute the excess demand function of the economy and verify that there are multiple equilibria.

My attempt

After applying fist-condition and normalizing prices as $\frac{P_1}{P2}=p$, I have that the demand functions are:

For the first consumer: $x_1=\frac{p}{p+(p/2)^{\frac{1}{1-\rho}}}$ and $x_2=\frac{p(p/2)^{\frac{1}{1-\rho}}}{p+(p/2)^{\frac{1}{1-\rho}}}$

For the second consumer: $x_1=\frac{1}{p+(2p)^{\frac{1}{1-\rho}}}$ and $x_2=\frac{(2p)^{\frac{1}{1-\rho}}}{p+(2p)^{\frac{1}{1-\rho}}}$

So the excess demand function would be:

$\begin{pmatrix}
z_1\\z_2
\end{pmatrix}=\begin{pmatrix}
\frac{p}{p+(p/2)^{\frac{1}{1-\rho}}}+\frac{1}{p+(2p)^{\frac{1}{1-\rho}}}-1
\\ \frac{p(p/2)^{\frac{1}{1-\rho}}}{p+(p/2)^{\frac{1}{1-\rho}}}+\frac{(2p)^{\frac{1}{1-\rho}}}{p+(2p)^{\frac{1}{1-\rho}}}-1
\end{pmatrix}$

The thing is that this is not the answer stated in Mas Colell's Solutions. Here it is:

I guess the elasticity of substitution has something to do here? But I don't get it anyway because if we had some corner solution, the answers would be $(x_1,x_2)=(1,0)$ for this consumer and $(x_1,x_2)=(0,1)$ for second consumer.

Any idea?


texts: Basic Fundamentals question on regression analysis based on economic theory:

texts:
In running any regression on demand based on parameters derived from theory, I'm having some confusion in some order of operations when the results come out inconsistent.

For instant in the case of multi-collinearity and having to drop parameters -- what is the case when parameters of equal importance to theory (like price's) have perfect collinearity? They can't be indexed or made into any ratio, so must be dropped.

My default is to discriminate between the parameters on their explanatory power -- R squared. But what about F-test of significance? If one is higher R than the other but may be nullified by the insignificant F test. Would the 'normal' protocol still be to include the parameter that results with that same higher R-squared despite the F-test being insignificant.
-- Or is it even not possible given the parameters are in the same model the F-test is being ran on?


texts: Utility function is given as $U = \sqrt{XY}$ find

texts:
Matthew has a utility function $U = \sqrt{XY}$ where X represents hot dogs and Y represents apples. He has an income of $20.

Hot dogs cost \$1.00 and apples cost \$1.25

Part (i) asks: Matthew's utility fucntion implies that the marginal utility of apples is $0.5 \sqrt{\frac{X}{Y}}$ and the marginal utility of hotdogs is $0.5 \sqrt{\frac{Y}{X}}$. How many apples will he buy? How many hot dogs will he buy?

Part (ii) asks: This year, the price of hot dogs rise to \$3 each while Mathew’s income is unchanged. Mathew’s father decides to help him by giving him a gift of \$20. Consider an indifference curve-budget line diagram with hot dogs on the x-axis and apples on the y-axis. After Mathew gets the \$20 gift, will his new budget line lie above, lie below, or pass through his initial optimum? Justify your choice. Will Mathew be better or worse off than he was last year?

What have I done?

I'm pretty stuck on this. There aren't really any similar examples from me to draw upon from our course literature.

Perhaps the formulas $\dfrac{MU_x}{MU_y} = \dfrac{P_x}{P_y}$ and $I = P_x \cdot x + P_y \cdot y$ might help.


texts: How does the Austrian School view land rents?

texts:
I have come across these publications:
The Spatial Market Process. Advances in Austrian Economics Vol. 16.

In “An Austrian Theory of Spatial Land,” Fred E. Foldvary addresses
the disregard of spatial issues in basic Austrian economic theory as
formulated by Carl Menger (1871) and elaborated upon by Ludwig von
Mises (1940). Foldvary shows that Johann Heinrich von Thünen (1826)
and Henry George (1879/1884), in particular, serve to fill these gaps
in the classical Austrian theory of the market process.

Henry George and the Austrian Economists (Oscar Johannsen, 2003)
This article states that Rothbard had a Lockean view of property in land:

every man has the absolute right of property in his own self and in
the previously unowned natural resources which he finds


texts: Should the "value function" be "utility function" in prospect theory?

texts:
I have a background in mathematics rather than economics, and currently reading Choices, Values, and Frames[1]. The paper defines a "hypothetical value function" (the s-shape that is concave for gains, convex for losses).
Given the definition of value to be descriptive, and utility to be normative, should it not be a "hypothetical utility function" instead?
The expected value of a risky decision is defined by the sum of all of weighted possible outcomes, from Wikipedia e.g.:
$${\displaystyle \operatorname {E} [X]=\sum _{i=1}^{k}x_{i}\,p_{i}=x_{1}p_{1}+x_{2}p_{2}+\cdots +x_{k}p_{k}}$$
The corresponding expected utility is then:
$${\displaystyle \operatorname {E} [u(x)]=\sum _{i=1}^{k}u(x_{i})\,p_{i}=u(x_{1})p_{1}+u(x_{2})p_{2}+\cdots +u(x_{k})p_{k}}$$
I understand (incorrectly?) one key difference between expected utility theory and prospect theory is in the way that $u$ is constructed - the former dependent on the total wealth, and the latter dependent on the gain/loss of the change itself. Nevertheless, they are both dealing with the "satisfaction" of a gamble, and not the expected value, which does not change - hence my question.
I feel that I'm missing a trick here. Any illumination would be greatly appreciated!
[1] Kahneman, D., Tversky, A., 1984. Choices, Values, and Frames. American Psychologist, Choices, Values, and Frames 39, 341–350.