texts: Can stock exchange workers go on strike?

texts:
Today, trade in the stock exchange of my country Israel (TASE) was cancelled due to a union dispute. So clearly, in Israel the answer to the question in the title is "yes". I can't say this comes as a surprise, as our country was founded on the bedrock of socialism, and those roots last until this day. But this is unfortunate as such disruptions surely concern foreign investors (and justly so).

However, I cannot imagine the same happening in the US, and indeed I couldn't find such an occurrence. Did I miss anything? Reading in Wikipedia, it looks like both NYSE and TASE are public (non-government) companies. So how come we see stock exchange strikes in Israel (this is not the first) and not in the US?

Is it because in the US there are multiple stock exchanges as opposed to Israel where TASE is a monopoly? Is it because unions in Israel are more powerful than in the US (and if so, how and why)? Perhaps US stock exchange workers are somehow classified as essential workers who aren't permitted to strike (e.g. by force of the Taylor Law)?


texts: Is there a "name" for price leadership oligopoly?

texts:
Oligopoly equilibrium in the static setup consists of cournout equilibrium and bertrand equilibrium (Nash Equilibria)while in sequential games we have stackelberg equilibrium and price leadership equilibrium (subgame perfect nash equilibria).

my question is why is there no name attributed to price leadership equilibrium? Is that just how it is?


texts: How does the fractional reserve banking system work?

texts:
I would like to understand better exactly how this works. I have heard a lot recently (particularly since the 2007-08 crash and Occupy movement) about money creation in particular (usually with a very negative bias). However, these descriptions often only go so far into it and I am curious whether it is really so bad once one has the full picture.

I'd like to go through a simple example and point out where I am unsure what is actually supposed to happen.

So, we have one Bank, with perhaps two customers. Alice and Bob. Alice has deposits at the Bank worth £500. Bob has £100 at this bank. A total of £600 of deposits, which the bank is liable make available to the customers at any time. The Bank has £5000 worth of its own capital. Totaling £5600 cash held (I realize that the banks' capital and the deposits are not the same - capital is an asset and deposits are a liability, for one - but this sum represents the full reserve amount, yes? The money which would be used if needed to serve depositors requests for withdrawal). We will say that the capital ratio is 10%. As I understand it, this makes the total lendable capital at the bank £5000 + £450 (Alice) + £90 (Bob) = £5540. I am pretty sure I am correct in my understanding so far.

So, Bob owes Alice a lot of money. He needs to pay her £1000. So, he takes out a loan at 5% interest. The Bank decreases its lendable capital by the amount of the loan, so it can now only loan a further £4540, however it still technically possesses the full £5540 as the £1000 loan is "new" money. Naturally, Alice now deposits Bob's £1000 payment in her account. The banks total deposits now sit at £1600, the amount it is holding is now £6600. Due to the new £1000 deposit on Alice's account, £900 is added to the lendable capital. Making it £5440. Is this correct? So far - besides the amount of lendable capital against which "new" money may be created - no deductions have been made. In addition, the £1000 loan is considered an asset that the bank owns.

So, now, the loan has eventually accumulated £80 interest and Bob manages to complete his payments to the bank. Bob pays the bank £1080 in total. Here is where I am most confused. What happens to this amount? I have heard people talk about "money destruction", implying that the bank quite literally throws away the £1000 originally lent to Bob. But somehow I find that hard to believe, and I am further confused because people mention removing it from circulation - presumably simply not making any use of it - as being the mechanism by which it is "destroyed". However, I do not believe it can be effectively removed completely from circulation, as the bank would surely either invest it or use it to make more loans, no? If indeed the money is not really destroyed, the bank has effectively just made £1080 out of nothng, right?

Perhaps I have gone wrong somewhere in my accounting. I have a Software Engineering background so a lot of this is very new/alien to me. I am just very interested in understanding it. I feel like if something is hard to believe (such as many of the claims made about money creation) it usually is for good reason, so I just wanted to understand the full picture for myself.


texts: How to choose between fixed and random effects using economic intuition?

texts:
In class, our professor said that when it comes to deciding between estimating panel regression with fixed and random effects we should not just blindly follow the Hausman test, but also think about how we expect the omitted variables to behave based on economic intuition.
But I don't understand how we are supposed to this. Are there any examples of situations where just from an economic perspective fixed effects are better than random effects or the other way around?


texts: How to solve a linear forward-looking equation $x_t = \beta E_t[x_{t+1}] + k$ where $\lim_{t \to \infty} x_t = 0$ and $0<\beta < 1$?

texts: How does one solve a linear forward-looking equation $x_t = \beta E_t[x_{t+1}] + k$ where $\lim_{t \to \infty} x_t = 0$ and constant $k,\beta \in \mathbb{R}$, $0<\beta <1$?


texts: How exactly does elasticity relate to slope?

texts:
My book (Goodwin's Microeconomics in Context, pg. 117) states the following about price-elasticity of demand:

  Given two demand curves that go through a specific point on graphs with the same scale, the flatter demand curve will represent the relatively more elastic demand and the stepper one the relatively less elastic demand.

I have actually two questions about this:

1) Will the flatter demand curve be more elastic at any given point (for any given value of $p$) or just at the point that both curves pass through?

2) How can we show this mathematically using the definition of elasticity as  $$\epsilon=\frac{dQ}{dp}\frac{p}{Q}$$?

Thanks very much in advance.


texts: One-Step estimators for non-linear regression

texts:
Let's suppose I have $\sqrt{N}$-consistent estimate, $\beta^{*}$(vector, but couldn't put it in bold), then doing the Gauss-Newton Regression, i.e. $\mathbf{y}-\mathbf{x}(\beta^{*})=D_\mathbf{x}(\beta^{*})\mathbf{b}+\mathbf{v}$.

Then we obtain the estimate $\mathbf{\hat b}=\left(D_\mathbf{x}(\beta^{*})^T D_\mathbf{x}(\beta^{*})\right)^{-1}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))$.

By adding this last estimate to $\beta^{*}$, we get the one-step estimator $\bar\beta=\beta^{*}+\mathbf{\hat b}$.

My first question is how the initial estimate is obtained? Do we use the usual method for estimations in this setting (Quasi-Newton methods, etc.)?

Second, how do we prove that this one-step estimator is asymptotically efficient?

I'm following Davidson and Mackinnon (2008) book, but the way they 'derive' it is not really a proof.

So, by trying to mimic their line of reasoning I've done the following:

From a Taylor Expansion/Mean-Value theorem,
$$n^{-1/2}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))=n^{-1/2}D_\mathbf{x}(\beta_0)^T(\mathbf{y}-\mathbf{x}(\beta_0))+\underbrace{\left(o_p(1)-n^{-1}D_\mathbf{x}(\beta)^TD_\mathbf{x}(\beta)\right)}_{\Delta(\beta)}n^{-1/2}(\beta^{*}-\beta_0)$$, where $\beta_0$ is the DGP value of beta, and we've done an abuse of notation by not specifying a different beta for each component of $\Delta(\beta)$. See the answers to this question, if you're interested in more details on this expansion.

Also, we know from the previous link, that for the Non-linear Least Squares estimator $\hat\beta$, we have $n^{-1/2}(\hat\beta-\beta_0)=-\Delta(\beta)^{-1}n^{-1/2}D_\mathbf{x}(\beta_0)^T\mathbf{u}$.

Hence we can conclude

$n^{-1/2}(\beta^{*}-\beta_0)=\Delta(\beta)^{-1}n^{-1/2}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))+n^{-1/2}(\hat\beta-\beta_0)$, implying that

$n^{-1/2}(\beta^{*}-\hat\beta)=\Delta(\beta)^{-1}n^{-1/2}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))$.

By definition, and some usual assumptions, we know that $plim \Delta(\beta)=S_{D_\mathbf{x}^TD_\mathbf{x}}$.

And I'm stuck here, because what the book does is not translatable when I try be formal in the derivation. So, what should I do to prove that the one-step estimator is efficient?


texts: When solving game theory problems, how can you "assume" that the equilibrium strategy will lead to something happening?

texts:
This is something that confuses me a bit when I see my book solve game theory problems.

When solving a model's equilibrium (like a subgame perfect nash equilibrium), the book will assume that a certain situation occurs in that equilibrium. For example, in a model with some firms setting prices and some consumers who have to make a decision to buy a product, it might assume that in equilibrium, all consumers buy.

Then it proceeds to solve for the actual equilibrium, while it always uses the assumption that they all buy.

When having solved for the equilibrium, it checks that it indeed holds in this equilibrium that all consumers buy, by e.g. showing that no consumers have an incentive to not buy.

Why is this acceptable? Isn't the derivation of the equilibrium flawed because you made an unwarranted assumption?


texts:
When you buy something, the merchant pays Visa a couple of percent. This is how Visa makes money. This is called the interchange fee.
But apparently, Chime gets part of this interchange fee which means in essence, Visa is paying Chime.
Does Visa do this for everyone? I cannot find out whether they do. Varo bank, another challenger bank, makes money on interst income. There are many more challenger banks in Europe but Chime and Varo are biggest in the US.
So assuming this is unique to Chime then what does Visa get in return? Could it be customer data unrelated to the transaction? There is no reason to believe that Visa would simple give Chime something for nothing.


texts: Why does an increase in GDP lead to an increase average incomes?

texts:
I am a high-school student...sorry if this is a very simple question.

Is it due to the fact that, as there is more money in the economy, firms can afford to pay higher wages/employ more people? But surely this effect is more or less cancelled out by the increases in average price level within an economy?

Thank you in advance.


texts: Finding Mixed-Strategy Subgame-Perfect Equilibrium

texts:
I'm trying to find the Mixed-Strategy Subgame-Perfect Equilibrium of the sequential-move Battle of the Sexes game.

I know how to find the mixed strategy Nash equilibrium of the battle of the sexes:

Let player 1 play $O$ with probability $p$ and $F$ with $1-p$. (and symmetric for player $2$).

So, finding the best response correspondences for each player:

$\partial\pi_1/\partial p=\partial(2pq+(1-p)(1-q))/\partial p=3q-1$

Symmetrical for player 2 is $3p-1$.

So I graph the best response correcspondence and find the Nash Equilibrium:

So, now that I found the mixed strategy Nash Equilibrium is $(p,q)=(2/3,1/3)$, what do I do next? What is the Subgame-Perfect Equilibrium?


texts:
I am a layman in economics. I am curious about the current devaluation of Australian Dollar in comparison with the US Dollar. Could someone please explain, in simplest words possible:

What causes currency devaluation? Is it a variety of factors or are there some common factors in all currency devaluations?
What does this devaluation mean for people living in Australia, people living in US, and people living in other countries, say China? I understand that one of the consequences for Australians is that their exports become cheaper, so foreign countries have more incentive to buy Australia products. For Australians, this could potentially mean more incentive to produce/work/innovate, and to decrease their imports. In other (naive) words, tighten their belts, rely more on themselves and less on the external world. This, logically, seems like a positive sign and should have good consequences. Does this interpretation have any element of truth in it? And is there another, completely opposite, possible outcome of this devaluation?
What are good (smart) ways for the Australian government and policy makers to respond to this?
How does devaluation translate in "standard of living". I was looking at the historical exchange rate of AUD and USD here since 2000. Interestingly, in March 2001, the AUD was almost half of USD, and in July 2011, it was more than 1 USD! Surely, it does not mean that the standard of living in Australia in March 2001 was twice as bad as it was in July 2011 (in comparison with US), does it?

I understand that forex rates involve an interconnection of many factors. But, I want to be educated about how much we know about it, and how much of what we know is actually useful for us.


texts: Utility maximization problem : free product vs priced product?

texts:
Here is the original question :

  The ESPN cable TV network runs a major sports information site at www.espn.com. Most of the content is free, but ESPN has a premium membership (see its "Insider") available for a monthly or an annual fee. Similar, but fee-free, sports content can be found at the Web sites of CNN Sports Illustrated, sportsillustrated.cnn.com, and CBS Sports Line,www.cbssports.com. Since ESPN has put a price tag on some of its sports content, it implies that the utility of a premium membership cannot be found at a no-fee site and is therefore worth the price. Is this the case? Use the utility-maximization rule to justify your subscribing or not subscribing to the premium membership.

Which product will yield maximum utility?
Let say if one content is available for free and the other is priced but a utility of that cannot be found anywhere else.
Applying the law of Utility-maximization I get this
( Marginal utility of fee-free content)/(price of fee-free content)   ≠ ( Marginal utility of premium content)/(price of premium content )

So , I am thinking regardless of the price of a premium content the fee-free content’s marginal utility over price will never equal the marginal utility of premium content over the price of premium membership. So, why will one buy a premium product?
Am I correct on this?


texts: Value function iteration with stochastic productivity's standard deviation

texts:
Hello I would like to know how would you discretize the AR(1) process of technology in a standart RBC model when there is stochastic productivity's standard deviation. Namely I have:
Technology $Z_t$ follows a log-normal AR(1) process with stochastic volatility $\sigma_{t}^{Z}$ :
$$
\begin{aligned}
\log Z_{t} &=\rho^{Z} \log Z_{t-1}+\sigma_{t}^{Z} \varepsilon_{t}^{Z} \\
\varepsilon_{t}^{Z} & \sim \mathcal{N}(0,1)
\end{aligned}
$$
with stochastic volatility $\sigma_{t}^{Z}$ also following a log-normal process
$$
\begin{aligned}
\log \sigma_{t}^{Z} &=\left(1-\rho^{S V}\right) \log \bar{\sigma}+\rho^{S V} \log \sigma_{t-1}^{Z}+\varepsilon_{t}^{S V} \\
\varepsilon_{t}^{S V} & \sim \mathcal{N}\left(0, \sigma^{S V}\right)
\end{aligned}
$$
To discretize $Z_t$ I usually use the Tauchen-Hussey procedure, but since  $\sigma_{t}^{Z}$ is now stochastic I don't know how to do it anymore.
Thank you


texts: Difference in Regression Discontinuity Estimates

texts:
Suppose I run a regression discontinuity design (RDD) for two different samples - say, separately for regions A and B of the same country. I get RDD estimates that are statistically significant in each separate test. Now, I would like to show that these estimates are indeed different from each other.

What is the most appropriate way of showing that the RDD coefficients of the two regions are indeed different?
Is it sufficient to just take the difference in the estimates of the two samples and use some appropriate standard error - in this case, which one should I choose?


texts: Mixed Strategies in Bayes Nash Equilibrium (Bayesian Battle of the Sexes). Shouldn't it depend on $p$?

texts:
I have a question about calculating mixed strategies in a Bayes Nash Equilibrium in a simple 2-player bimatrix game. To demonstrate the issue, consider ``Bayesian Battle of the Sexes.'' Suppose P1 faces a P2 whose type is unknown with probability $p$. An example is below in which $p=.5$.

Here's what's surprising to me. If you calculate the mixing strategy for P1 by making sure that P2 is indifferent, you wind up with P1 mixing strategies that don't depend at all on $p$. This seems strange to me.
If P2's type is more clear, shouldn't the optimal mixed strategy shift to anticipate this?
End of question. Addendum: The game above apparently has two mixed strategy EQMs:

P1 mixes $(\frac{1}{3},\frac{2}{3})$, P2 left mixes (0,1), P2 right ($\frac{2}{3},\frac{1}{3}$).
P1 mixes $(\frac{2}{3},\frac{1}{3})$, P2 left mixes ($\frac{2}{3},\frac{1}{3}$), P2 right (0,1).

Like I said, this doesn't seem to depend on $p$ (the probability of facing the first type).
Also: Shouldn't this game have an odd # of EQM? I thought this was a rule of thumb. I am contemplating the idea that there's a third equilibrium that mixes the two above.


texts: How does total money in the economy changes?

texts: I don't understand why total money in economy increases. Where does this money come from?


texts: How to calculate payback period of the project?

texts:
In order to finish a technological product, it was spent 50000 dollars (for materials, salary). 500 dollars per month is needed for support of the project (will be spend for servers). This product automated some process that required manual work for 10000 dollars per month. So, how to calculate payback period of the project?

My solution would be 50000:10000 = 5 month, but I don't know what to do with the cost of support per month.


texts: Unemployment and the Minimum Wage---what are the main counter-arguments to Card and Krueger?

texts:
Card and Krueger's paper (AER 1994, "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania") uses a difference-in-difference identification strategy to identify the causal effect of a minimum wage increase on unemployment. (A summary can be found here.) The main finding was that the increase in the minimum wage had a negligible or even non-existent effect of employment. There have been several criticisms to the paper---including criticizing the quality of the data or the fact that employers might have anticipated the change.

My question is, what are the main economic explanations for why employment did not significantly fall? What other evidence could be used to test these explanations?


texts: What are the most used approximations in economics?

texts:
As I progress in my self-study, I'm tired of having to search for several different approximations techniques used in economic textbooks. Sometimes the authors don't even tell the reader they are using an approximation, they just assume the reader is already familiarised with the approximation.

Because of this, and to try to help me, and my fellow students of economics, I ask the following. What are the most used/useful approximations (and techniques) used in economics?

My wish is that anyone whether studying alone or not, can come to this question, as they'll be sure that it will have at least some approximation related to what they want. Any help would be appreciated.

Here's an example:

I've read today that «$\frac{\Delta m_{t+1}}{m_t}=\frac{\Delta M_{t+1}}{M_t}-\frac{\Delta P_{t+1}}{P_t}$.»

Well this is not an equality but an approximation, for if $z=\frac{x}{y}$, then $\frac{\Delta z}{z}\approx \frac{\Delta x}{x}-\frac{\Delta y}{y}$


texts: Unique competitive equilibrium in an exchange economy

texts:
I was working on the following excercise:
In an exchange economy $\varepsilon$ with two goods and strictly monotone, continous and strict concave utility functions, suppose all demand functions are differentiable. (This means that the aggregate excess demand map $z(1,p_2):\mathbb{R}\rightarrow\mathbb{R^2_{++}}$ is differentiable)
I need to prove that at a competitive equilibrium, say $((1,\overline{p_2 }),(\overline{x_i})_{i\in I})$, if this equilibrium is unique, we have
$$ \frac{\delta z_2}{\delta p_2} (1, \overline{p_2}) \le0$$
I would appreciate any hint! Thank you.


texts: Reference request: Gender wage gap / Minority wage gap

texts:
Disclaimer: I am neither a social scientist nor an economist. I hope the ESE is the right place to ask this question.

Disclaimer 2: I do not intend to spark an ideologically driven discussion here. Please keep any non-professional opinions to yourself.

Recently I have been exposed to discussions about the "gender wage gap" and similar concepts (such as race wage gaps), mostly through popular media. As always with scientific topics in popular media, and especially in this particularly politicized case, people tend to throw about contradicting studies, misinterpret studies, claim the other side's studies are false due to not adjusting for one variable or another.. you know what I'm talking about. Reporting on the subject tends to be poor, probably due to ideological reasons (e.g. here and here).

I want to look at the facts myself. Luckily I am a mathematician, so I believe to be able to handle the statistics and methodology questions in such papers. Also I don't really have a horse in this particular political race, so I think I can look at it from a reasonably neutral position.

Could you please provide links to the more relevant literature regarding this issue, or that is in some way relevant to the issue? Preferably papers that are particularly transparent regarding their ways of data collection and interpretation, and if possible even provide their raw data (is that common in economics / social sciences?).

If you have an opinion on the issue, which you probably do, please try to provide literature supporting your opinion, as well as the best literature you know of that attempts to refute your opinion. If you are not a cargo cult scientist, which I assume you are not, then this should be possible. Do feel free to indicate where you think that literature went wrong.

Edit
X-post, because I didn't know where to post (sorry).


texts: How does lowering a corporate tax rate benefit a nation?

texts:
When governments talk about about lowering corporate tax rates they claim there is benefit in one form or another. The problem is the mechanism of how the benefit can work is never explained.

The closest I've seen is that it will result in more investment but often the corporate tax is only after an organisation has made a profit.

Some sort of worked example of how this may affect decision processes or some analysis of changes that have occurred when companies have lowered corporate tax rates will also be nice.


texts: What causes the US media obsession with tariffs; The EU and others have charged tariffs on US stuff forever?

texts: The EU has about a 50% tariff on US beef and higher tariffs on US liquor (typical EU bureaucracy has many categories and quotas, so a single number is impossible). So why is a relatively low US tariff on 2 materials, (the EU has tariffs on about 100 materials from the US) make so much news time?


texts:
Can anyone explain why this isn't an example of price discrimination:

The same golf club selling for $100 at Sports Authority and 80 on Amazon.
I believe that consumer's demand elasticity to price at Amazon would be higher than the consumer at certain Sports Authority. May be the idea of an Sports Authority which I've is wrong?

I came across this in a quiz in the Standford online course for Economics.


texts: How to deal with Prescott's formulation of time to build in his original RBC model?

texts:
So I was replicating the results obtained in section 4 of Prescott's original paper, which derives optimality conditions in steady state without shock. I hope to solve the social planner's maximization problem by using the method of Lagrange.

An important feature in Prescott's model is that capital is built in multiple periods and each project costs resources, i.e., a fraction of output, in each intermediate period. My question is that how to formulate this constraint into the Lagrangian so I can solve the system of equations of FOC? Here is what I have now:
\begin{multline}
 \mathcal{L}=\sum_{t=0}^\infty\beta^tu(c_t,\alpha(L)l_t) -\sum_{t=0}^\infty\lambda_{1t} \left( k_{t+1} - (1-\delta)k_t-s_{1t}\right)
 -\sum_{t=0}^\infty\lambda_{2t}\left(i_t-\sum_{j=1}^J \varphi_j s_{jt}+y_{t+1}-y_{t}\right) \\
 -\sum_{t=0}^\infty\lambda_{3t}\left(c_t+i_t- f(\lambda_t,k_t,n_t,y_t)\right)
 -\sum_{t=0}^\infty\sum_{j=1}^{J-1}\left[\lambda_{j+3,t}\left(\sum_{t=0}^\infty s_{j,t+1}-s_{j+1,t}\right)\right]\\
\end{multline}
where $s_{j,t}$ is the investment project that takes $j$ more periods to complete as of time $t$ and $y_t$ is the stock of inventory at time $t$. For the purpose of this question, let's ignore the lag polynomial $\alpha(L)$ and assume it to be have effect on $l_t$. Note that $l_t$ is leisure and $1-l_t=n_t$ is labor input where time is normalized to 1. In addition, output goes to inventory, consumption, and capital projects. I have tried to use the following substitutions:
\begin{align}
 k_{t+1} &= (1-\delta)k_t + s_{J,t-(J-1)}\\
 i_t&=\left(\sum_{j=1}^J \varphi_j s_{J,t-(J-j)}\right)+y_{t+1}-y_{t}
\end{align}
which allows me to get rid to the last term in $\mathcal{L}$. However, I still do not seem to be making any progress. It will be great if you can give me suggestions on formulation of my lagrangian and what FOCs will give me the steady state consumption, capital stock.

EDIT: I tried many online lecture notes, but none of them seem to want to deal with Prescott's time to build formulation and alike...


texts: Why is the Marginal Utility of losses deminishing in Prospect Theory?

texts:
This is Kahneman's value-plot on prospect theory:

QUESTION: Why is the Marginal Utility of losses deminishing?

CONTEXT:

I fully understand that the Marginal Utility of gains deminishes: 100 dollar gains has less utility to me when I am rich than when I am poor.
But to me it is different with losses: If I can choose to lose 100 dollar for sure or a 50% chance to lose 200 dollar I would definately not go for the bet! Why would I risk losing even more? After all, like most people, I am risk-averse. My reference point would be that I already lost 100 euro's.
Furthermore: If all I own should be 200 dollar I might regret losing 100 dollar very much, but I will regret losing a second 100 dollar even more because then I would be left with nothing and I can't buy any food...
In other words: I guess my reference point is always zero and compared to that I will always be risk-averse... but isn't that what most people do or should do?

UPDATE: This article shows that the Value-curve can also be shaped differently, for example under time-pressure: https://www.sciencedirect.com/science/article/pii/S0749597815000722


texts: Which countries impose family income taxation?

texts: I'm looking for a comprehensive overview of international income tax systems (OECD countries would be sufficient), showing which countries apply some sort of family taxation, i.e. married partners undergo some sort of Income Splitting. The Wikipedia Article mentions Germany, U.S. and Canada. France also applies splitting. What are the remaining ones?


texts:
Suppose I have the following relationship between output $y$, capital stock $k$ and total factor productivity $tfp$,

$$\frac{\partial y}{\partial t}=\frac{\partial k}{\partial tfp}*\frac{\partial tfp}{\partial t}$$

Then taking the logs,

$$ln\bigg(\frac{\partial y}{\partial t}\bigg)=ln\bigg(\frac{\partial k}{\partial tfp}*\frac{\partial tfp}{\partial t}\bigg)$$

$$ \iff \%\Delta y= \%\Delta k_{tfp}+\%\Delta tfp_t$$

Where the last equation is the percentage change in $y$ as the sum of the elasticity of $k$ to $tfp$ and the change in $tfp$ over time. Am I evaluating these logs correctly?


texts: Delay in the transmission of knowledge to poorer countries

texts:
Assume the world consists of two regions, the North and South with the following production functions and technology lags in the south by $\tau$ years:
$$ Y_N = A_N (t) (1-a_L) L_N; \; \; \dot{A}_N = a_L L_N A_N (t)$$
$$ Y_S = A_S (t) L_S  ; \; \; A_S = A_N (t - \tau) $$
The growth rate of output per worker in the North is $3 \% \; year^{-1}$ and if $a_L \simeq 0$, what $\tau$ must be for output per worker in the North to exceed that in the South by a factor of 10?

For output per worker in the north to exceed that in the south by a factor of ten:
$$ 10 = \frac{Y_N/L_N}{Y_S/L_S} = \frac{A_N(t)(1-a_L)}{A_S(t)} $$
with $a_L \simeq 0$ this goes to
$$ \to \frac{A_N (t)}{A_N (t-\tau)}$$
My book says this is equal to $e^{0.03 \tau}$
Could someone explain where this last result comes from please?


texts:
Two firms are in a market together. They produce a product.

Total revenue from sales is $y=K+L$

K is the amount of capital

L is the amount of labor

These two firms each specialized in supplying one of inputs and the cost of the input supplied is incurred by the person providing it.

For capital, the cost is $K^2/2$ and for  labor, the cost is $L^2/2$

And they share revenue from their business equally.

I need to find firstly that if eac is interested in maximizing his own profit, then how much of each input will they use, and how much profit will each make. And secondly, I need to find the profit maximizing level of inputs for whole business.

As a result, I need to compare what I have found in both parts.

———-

my solution

For firm 1,

$$max [1/2(K+L)-K^2/2]$$

FOCs:

$1/2-K=0$

So $K=1/2$. He use 1/2 unit of capital.

And his profit is $\pi= 1/2*(1/2+L)-1/4=1/2*L\ge 0$ for $L>0$

Similarly,

For firm 2,

$$max [1/2(K+L)-L^2/2]$$

FOCs:

$1/2-L=0$

So $L=1/2$. He use 1/2 unit of labor.

And his profit is $\pi= 1/2*(1/2+K)-1/4\ge 0$ for $L\ge 0$

=======

And I have tried to find the profit maximization for entire business

$$max[(K+L)- K^2/2-L^2/2]$$

FOCs;

$1-K=0$ so K=1

and

$1-L=0$ so L=1

And profit $= (1+1)-(1/2+1/2)=1>0$

Now, all parts of my solution are correct?


texts: Arrow’s Impossibility & Validity of Social Welfare and Pareto Improvement Analysis

texts:
Arrow’s Impossibility states it is impossible to formulate a social ordering (Social Welfare Function) without violating some desirable conditions ( one of the “No dictatorship”, “ Pareto Efficiency”,  “Independence of Irrelevant Alternatives”, “Unrestricted Domain” and “Social Ordering”). However, there are many (prestigious) academic papers assuming some (utilitarian) Social Welfare Function,the most popular Welfare Function in related literature, to draw some conclusions, For example “Redistribution through Markets” and "Monetary Policy with Heterogeneous Agents:
Insights from TANK models".
I'm wondering, having Arrow impossibility in mind (There is no valid Social Welfare Function), how one can wholeheartedly believe social welfare improvement claims? and why famous economists and Journal referees think that such analysis are justifiable?
Would you mind helping me? Maybe I did not get implications of Arrow impossibility Theorem.


texts: When finding targets in a trade war, does the goods balance or trade balance matter more?

texts: By most measures, most people who look at trade balance, but it might include a good chunk of services imports/exports who might not be as readily subjected to tariffs.


texts: What happens to undated government stocks when interest rates dip below the coupon rate?

texts: What happens to undated government stocks (debt— known as "bonds" in the US) which pay a coupon and have an embedded call option, when interest rates dip below the coupon rate? Will the market value of the bond exceed its par value, or is the risk that the bond will be redeemed at any time liable to depress the price?


texts:
I'm interested in familiarizing myself with some of the intra-debates that have occurred over the years, having to do with Mankiw, Romer, Weil (1992) and Klenow, Rodriguez-Clare (1997). Some argue that TFP growth can sufficiently account for cross-country variations in output per capita. Others argue that we need a model of Human Capital.
I am just interested in reading about, and catching up with the literature on this.
Are there any papers or books that you guys can recommend?
Thanks


texts: Bellman equation for this dynamic programming problem

texts:
For the following problem
  \begin{equation}\max_{(\tilde{c}_t,\tilde{a}_{t+1+s})}\sum_{s=0}^{\infty}\beta ^su(\tilde{c}_{t+s})\end{equation}

  s.t. the following restrictions

  $\begin{equation}
\begin{split}
\tilde{c}_t&=(1-\delta )Y_t+a_t-\frac{\tilde{a}_{t+1}}{R_t}\\
\tilde{c}_{t+1+s}&=(1-\delta )Y_{t+1+s}^{e}+\tilde{a}_{t+1+s}-\frac{\tilde{a}_{t+2+s}}{R_{t+1+s}}, \forall s \geq 0
\end{split}
\end{equation}$

  where:

  $\tilde{c}_t$: Consumption at time $t$

  $\tilde{a}_t$: Financial wealth at time $t$

  $Y_t$: Income at time $t$

  $R_t$: Nominal interest rate at time $t$

  $Y_t^e$: Expected income at time $t$

  Consider that $u(\tilde{c}_{t+s})$ is defined by the isoelastic utility function: $u(\tilde{c}_{t+s})=\frac{\tilde{c}_{t+s}^{1-\frac{1}{\sigma}}-1}{1-\frac{1}{\sigma}}$

  Find the optimal policy function for $\tilde{c}_t$.

I don't know how to write the Bellman equation because I have two restrictions. What would be the optimal procedure to solve this problem?


texts: If regional subsidiaries bypass trade restrictions, why are FTAs needed?

texts:
One of the ways corporations trade transnationally in the face of local restrictions on market access is to set up subsidiary companies or regional offices from which trade is conducted.

If such subsidiaries bypass the restrictions, what is the remaining purpose of FTAs?

Is it that the subsidiary model is itself inefficient, or that it distorts the market to favour larger market incumbents who can afford such subsidiary creation, or that there are additional restrictions that this model does not mollify? Or something else?


texts: How does the money supply grow in the long term?

texts: For inflation to happen at roughly 2%/yr and for people to trade the same (or higher) volumes of goods, people must be trading more money. For such a trend to exist in the long term, there must be more actual units of currency that exist (right?) which means actual currency must be being created by the central bank (right?). When does the central bank create this money (or am I wrong in inferring the central bank must be creating cash...)?


texts:
Why is the container-shipping industry in a downturn?

  Investments in container-shipping, oil production and drilling—sectors suffering severe, concurrent downturns—are no longer the safe bets they once seemed.

The Economist Espresso: Diversifying: American conglomerates


texts: Intuition for the CES consumption index in New-Keynesian DSGE models

texts:
I don’t understand, from an intuitive point of view, the CES aggregator in the context of a New Keynsian DSGE model. I understand that the consumption index Ct is the sum of all consumption goods and we conceive of a continuum of goods over the interval (0,1) and, as such, have;

I understand that we are making assumptions here about the imperfect substitutability of goods and that this is what gives firms market power in the monopolistic setting of the DSGE models in question.

What I do not understand is the intuition of how levels of consumption of all different goods maps onto the expression for Ct above. How can we represent this using an integral over a range? I do not understand the intuition, and nowhere seems to provide a decent explanation. I would be very grateful if one of you could possibly explain it to me?

Many thanks in advance.


texts: Examples of Covariance Stationary Time Series

texts:
I seem to be having trouble in comprehending what it means for a time series to be covariance stationary. Specifically, with the third condition that for any $t,h$ the $cov(x_t,x_{t+h})$ only depends on $h$ and not $t$.

Would anyone have any examples of how a time series might be covariance stationary or any examples of non-covariance stationary time series?


texts: Which database language and database management system should an economics student learn? (Provided that one has to be learned)

texts:
I will have to pick essentially any DBS, learn how to use it and use it during a period of 2-3 month. I do not possess any noteworthy background knowledge, so I will be starting from scratch independent of my choice.
Since I am hoping to become an academic economist, I was wondering whether a particular language or specific DBS is particularly widely used in economic research or is otherwise especially useful for economic research.
Since I could not find any articles/statistics on this topic otherwise, I thought I would ask here.


texts: How do interest rates affect the distribution of wealth?

texts: How do interest rates, on local and global scales of an economy, affect the distribution of wealth?


texts: By what mechanism do large economies affect world price with tariffs?

texts:
Large economies can affect world prices by applying import tariffs.

Is this because they definitionally comprise a substantial portion of global consumption, and hence by shifting production domestically they can shift the world price equilibrium?

What is the mechanism of action?

For example, if the USA comprises 25% of auto consumption, if they apply a tariff t to autos, that will presumably lower the quantity demanded outside of the US as US consumers are incentivised to buy locally.

What effect on global price might this have?


texts:
Two commodities, X and Y, are produced with identical technology and are
sold in competitive markets. One unit of labour can produce one unit of each of
the two commodities. Labour is the only factor of production; and labour is
perfectly mobile between the two sectors. The representative consumer has the
utility function: U = XY ; and his income is Rs. 100/-. If 10 units of labour are
available, find out the equilibrium wage in the competitive labour market.

Please tell me if I am going wrong.

My attempt: Solving the consumer's utility maximization problem, I have the demands $$x(p_x)=\frac{50}{p_x},\ y(p_y)=\frac{50}{p_y}.$$ The firm has same production functions for both X and Y: $x=y=f(l)$. Since one unit of labour produces one unit each of X and Y, we consider $f(l)=l.$ Therefore the firm operates with a profit function $$\pi=P_xl+P_yl-wl,$$ producing $l$ units of X and Y respectively. Here, $w$ is the wage in the competitive labour market and $P_x, P_y$ are the respective equilibrium market prices. Since $(l,P_x)$ and $(l,P_y)$ must lie on the respective demand curves, we get $l=\frac{50}{P_x}=\frac{50}{P_y}$. Since the competitive firm makes zero profits, $\pi=100-wl=0.$ If 10 units of labour are available, the equilibrium wage is $w=100/10=10.$ The equilibrium market prices for X and Y are $P_x=P_y=5$.


texts: Why does Venezuela have such a high Big Mac Index?

texts:
Venezuela is ranked #2 in the 2014 Big Mac Index at \$7.15 per Big Mac. You can see the graph here.  However, Venezuela is not a very rich country, having a gross domestic product of \$11,789 per capita.

There are at least 20 McDonalds in Caracas, so there is a fairly large supply. With a small gross domestic product the quantity demanded should be smaller by high prices. Even if the market for Big Mac-like products is a monopoly in Venezuela, I still think the price shouldn't be that high.

Another thing that is remarkable is that after 2014, the price had a rapid decrease. Maybe the transformation from a monopoly market to a monopolistic competition market caused it rapid decrease in price in June 2015?

In short the questions:

How could the price of a Big Mac be so high?
What caused it rapid decrease in price?


texts: Monopoly/Monopolistic Competition Productively Efficient or Inefficient?

texts:
I know both market structures are allocatively inefficient as P > MC. But,

Since monopolistic competitive firms produce on the downward sloping part of their AC curves, there is excess capacity which implies productive inefficiency. To achieve productive efficiency, they have to produce on the lowest point of their ATC curve. Since monopolies also do not operate on this lowest point of their AC, they are also productively inefficient.

However, the total cost curve shows the least cost method of producing each output level as it is derived from the tangent of the isocost to isoquant, which implies that all points on the total cost curve is productively efficient since cost is minimised. Since AC = TC/Q, it also implies that all points on the AC curve is productively efficient - all points on the LRAC are productively efficient.

Since all points on the total cost curve and average cost curves are productively efficient, monopolies and monopolistic competitions, who operate on their AC curves, are productively efficient.

Both of this concepts contradict one another. One claims both are inefficient while the other says they are efficient. Am i confused or is one of them wrong?

If productive efficiency is achieved when goods are produced at the lowest cost possible, are all points on the LRAC are productively efficient since the LRAC shows the lowest cost of producing at each output?

Productively efficiency is only achieved on the lowest point of LRAC/SRAC?


texts:
I was going through this paper by Aghion et al. I wanted some clarification on some of the computations. I understood the process uptil the normalization on page 22. Then we can get some policy rules for the economy based on those variables and equations.

I don't precisely know how to proceed from here and it seems like an indication that I am not clear on what I am doing. After they get their policy rules, they go ahead and get optimal long run taxes. I am not sure how I should use my policy rules to get to that result.

Before reading the methodology I would've thought that all we would do was to calculate the steady states of the transformed equations, get some societal welfare function in terms of the transformed stationary equations, and iterate over taxes in the steady state and see what gave us the highest welfare. But the paper seems to want to transform the variables to the untransformed versions before that.

Any help/references would be great. I am using Dynare to solve a very similar problem, but I don't know exactly what to do after I have solved for the policy rules of the transformed variables.

Thanks


texts: Unemployment and Labor Force MacroEconomics

texts: Suppose that the total population on the 1st of January 2001 was 40 million people, of which 30 million were above age 16. Suppose that among the latter, 12 million people were not working or actively looking for work, and 2 million were unemployed. 800,000 people are expected to turn 16 during 2001 and half of them are expected to keep studying and not to seek a job, while the other half is expected to seek a job and be ready to start working immediately. How many people have to find a job during 2001 for the unemployment rate to be 8 %.


texts: Car prices haven't changed in 20 years, no inflation?

texts:
I notice that there seems to be little or no change in car prices over the last 20 years and they seem to be unaffected by inflation.

For example, a Toyota Camry sold for about \$23,000 +/- \$2,000 (MSRP) around 1999-2000, and currently it sells for about the same.

Why is this?


texts: Why does the United States' national debt matter?

texts:
This might sound like a naive question, but I mean it quite honestly (please be aware that I am merely a high school student): Why does the United States' government debt matter? To be sure, based on political affiliation there are different degrees of opinion as to how urgent the problem is, but few seem to contest that the ballooning national debt is at least somewhat a concern.

I must confess, I don't quite get it. Given that the United States is so powerful, can't the government just keep borrowing from other countries? (And then just pay off the debt to Country A with more borrowing from Country B, etc., etc.?) Why can't the United States do that forever? Is there really a legitimate danger that other countries will get scared to lend us money (I'm assuming that's the concern about large debt)?

I know other people have asked questions about government debt on this site before, but I haven't been able to find an answer that squarely addresses my present concern, so I thought I'd share this question with you all. Any help is greatly appreciated.


texts: Can you please help me find this topic in Mechanism design/Rational choice theory?

texts:
When I was in university, I remember studying some kind of topic in adv microeconomics where someone gives you three options, where one is obviously worse and is put there just to deceive you so that you don't pick the one with greater utility. Could you please help me remember the name of this fallacy/dilemma/theorem and what is the best strategy to solve this problem?
Thanks a lot


texts: Estimation of investment adjustment costs

texts:
Hi I am working on a problem set in my macroeconomics course. I have a hard time figuring out how to get started on one of the problems.

The set-up is the following. A price-taking firm maximizes:

$\max_{L_{t},K_{t},I_{t}} E_{0} [\sum_{t=0}^{\infty}\prod_{s=0}^{t}(1+r_{s})^{-1}\{(1-\tau)K_{t}^{\alpha}L_{t}^{1-\alpha}-w_{t}L_{t}-I_{t}(1+a(I_{t}/K_{t}-\delta)) \}]$

subject to:

$K_{t} = (1-\delta)K_{t-1}+I_{t-1}$.

$K_{0}$ is given, $w_{t},r_{t}$ are stochastic, $\delta$ is the rate of capital depriciation, $I$ is the gross investment.

The question is the following:
Let $q$   be  the  Lagrange  multiplier  on  the  constraint  (it’s  also  Tobin’s  Q).  Derive  the  first  order conditions for optimization with respect to $L, I$ and $K$. Given $q$, what information is needed  to  establish  optimal  level  of  investment?  Log-linearize  the  FOC  for  investment.  Suppose  we  observe  $I, K$,  and  $q$. How  would  you  estimate  the  parameter  $a$ using  this  equation?  How  would  you  interpret  the  error  term  in  this  regression?  What  are  the  properties  of  the  error  term  given  your  interpretation  (e.g.,  serial  correlation,  correlation  with other variables, etc.)?

I have set up the Lagrangian setting $\prod_{s=0}^{t}(1+r_{s})^{-1}=R_{t}$:

$       \mathcal{L} =  E_{0} \big\{ \sum_{t=0}^{\infty} R_{t} \left[ (1-\tau)K_{t}^{\alpha}L_{t}^{1-\alpha} -w_{t}L_{t} -I_{t}(1+a(\frac{I_{t}}{K_{t}}-\delta)) + q_{t}(-K_{t}+(1-\delta)K_{t-1}+I_{t-1}) \right]\big\}$

and derived the following FOCs:

$        \frac{\partial \mathcal{L}}{\partial L_{t}} = R_{t} \left[ (1-\tau)(1-\alpha)K_{t}^{\alpha}L_{t}^{-\alpha}-w_{t} \right]  = 0 \Leftrightarrow W_{t} = MPL_{t},\\
        \frac{\partial \mathcal{L}}{\partial I_{t}} = R_{t} \left[ -1 -2a \frac{I_{t}}{K_{t}} + a\delta \right]  +E_{t}[R_{t+1}q_{t+1}]  = 0  \Leftrightarrow 1 +2a \frac{I_{t}}{K_{t}} - a\delta  = E_{t}[(1+r_{t+1})^{-1} q_{t+1}],\\
        \frac{\partial \mathcal{L}}{\partial K_{t}} = R_{t} \left[ (1-\tau) \alpha K_{t}^{\alpha-1}L_{t}^{1-\alpha} + a \left( \frac{I_{t}}{K_{t}} \right)^{2} - q_{t} \right]  +E_{t}[R_{t+1}q_{t+1}(1-\delta)]  = 0, \\
         \Leftrightarrow  (1-\delta)^{-1}(q_{t}-(1-\tau) \alpha K_{t}^{\alpha-1}L_{t}^{1-\alpha} - a \left( \frac{I_{t}}{K_{t}} \right)^{2})  = E_{t}[(1+r_{t+1})^{-1} q_{t+1}].$

But I have a hard time seeing how I would log-linearize $1 +2a \frac{I_{t}}{K_{t}} - a\delta  = E_{t}[(1+r_{t+1})^{-1} q_{t+1}]$ to something useful in terms of a regression. I hope somebody can help explain how I should go from here? or if I have made a misstake in my derivations.


texts: How does a bank create new money when it pays its own staff?

texts:
I am reading Ryan-Collins et al. (2013, Where Does Money Come From? A Guide to the UK Monetary and Banking System). I think I understand how banks create new money whenever they make a loan.

Using their example in 4.2, when a bank loans say £10,000 to Robert, their assets increase by the £10,000 loan and their liabilities also increase by £10,000 in the form of a deposit into Robert's new account. The latter deposit is the new money created by the bank.

However, I do not understand how:

  the bank creates new money when it ... pays its staff salaries or bonuses.

Say the bank pays its own staff Jane £5,000. What happens to the bank's balance sheet?

I think a deposit of £5,000 is made into Jane's bank account -- this is the new money created and is recorded under the bank's liabilities. But is there any corresponding change in assets?


texts: Why in maximization in OLG model with 1 generations we assume that both consumptions are positive?

texts:
I have an OLG model with constant level of technology and population. The utility of agent who is born in period t is:

U() = c1,t + 1/1+pC2,t+1

My textbook asks me to write the maximization problem and FOC for the agent  who is born in period t with the assumption that agent can not refuse the consumption in any of the periods.

I know how to write maximization problem

U() = c1,t + 1/1+pC2,t+1 -  max c1,t ≥0 С2,t+1 ≥0
c1t + st = wt
c2,t+1 = (1 + r,t+1)st

The only thing which I do not get is why we need the assumtion that agent can not refuse the consumption in any of the periods. What does it give us?

I am sorry of the question is obvious, I am just studying OLG model on my own and do not get everything.


texts:
I'm studying game thoery and i'm on extensive form games. One thing I don't understand in my textbook is the following:

I would like to clarify exactly what does an information set mean by the example I drew in the first picture.

So, by what I understand, red player (second player), has 3 information sets. So, on each information set, he has 2 actions. So in total, he has 6 strategies (not $2\times 2 \times 2 =8$). Would this be right? Did I understand the definition of information set right?

Also, if there was no dotted line, i.e the red player knows what the blue player did, would there be a difference in what is the information set? As in the red player would have 1 information set instead of 3? So this would mean he has 2 strategies.

If someone could clarify these concepts for me that would be great as I have trouble understanding these


texts: What is the difference between an Ordinary Demand equation and an Engel curve equation?

texts: I mean, an Ordinary Demand Equation measures changes in quantity of X due to changes in price Px.  Engel Curve measures changes in quantity of X due to changes in income M.  But ODE has M in it's equation, and is simply just an algebraic variant of the Engel curve!


texts: Why currency purchasing power is linked to confidence in central banks

texts:
From the New Statesman, http://www.newstatesman.com/politics/economy/2016/02/coming-storm,

  "Ever since the collapse of the Bretton Woods system of pegged exchange rates in 1971, the sole guarantee that currencies will maintain their purchasing power, both domestically and abroad, has been confidence in central banks’ discretionary policies. A loss of faith in the consensus model of monetary policy would pitch us into the anchorless world that the architects of the Bretton Woods system always feared."

I cannot understand the reasoning behind why confidence in central banks' discretionary policies would help currencies maintain their purchasing power.

Moreover, what would be the possible consequences of markets losing their faith in modern central banking?


texts:
How does government spending on imported goods affect GDP?

Is it first counted as government spending and then subtracted as imports?

For instance, if the US government buy a new accounting system from overseas, how would this affect the US GDP?


texts: Why do anti-trust regulators in China need to approve NXP's takeover?

texts:
Qualcomm is currently awaiting Chinese regulatory approval for its acquisition of rival NXP.

Both companies aren't based in China. I'd understand that vehicles like tariffs can be used by countries to exercise control over certain trade inbalances, but how could government block a takeover taking place outside of its sovereignity? Are anti-trust laws of international nature, in some case?

Is the rationale behind this case the same as US technology companies operating in the European Union, with regards to anti-monopoly policy? No long ago, I recall Google being fined by the European Commission on monopoly charges with regards to some of its services in the EU. The case of NXP's takeover seems of an entirely different nature.


texts: If an endogenous explanatory variable is serially correlated does it mean that its lags are also endogenous?

texts: in panel data when examining economic growth determinants lags are often used to account for endogeneity of explanatory variables. However if the explanatory variable is serially correlated, does it mean that its lags are also endogenous and therefore should not be used as proxies or instruments?


texts:
I'm coming at this from a scientific point of view, having had no formal training in economics - most of what I know about it was from self-studying an undergraduate economics textbook.

My question is, why do economists disagree so much? This doesn't happen in the sciences. For example, for the question "will a driver in a car with these safeguards survive a collision at 100km/h", most scientists will agree on an answer. It might be conditional on various things (e.g. age of the driver), but most scientists will come to the same conclusion.

However in economics, it's different. Faced with a question such as "should we provide more fiscal stimulus for the economy", it's possible that one big group of economists says "yes", and then another big group says "no". To some extent this might be because of personal interpretation of what is desirable. However I would expect that economists should still be able to say something like "if you provide fiscal stimulus, this will happen, and it's up to you to judge whether the consequences are desirable", and yet it seems there's no consensus on what will actually happen. It doesn't help that when I see economics debated in the media, both sides advance what looks like reasonable arguments.

Does economics have predictive power? If so, why can't economists simply tell policymakers what to do? If not, what's the point of economics (it might as well be astrology)?


texts: Why is price dispersion from Inflation called relative price “distortion”?

texts:
I know what relative price is and that it fluctuates more frequently in times of Inflation. But what I don’t understand is why it is called “distortion” when relative price dispersion is caused by inflation.

According to various textbooks such as Mankiw’s, relative price is what enables rational consumer decisions and effective resource allocation, but inflation leads to its “distortion” which results in resource misallocation.

Now “distortion” usually means a phenomenon that misleads people into making wrong decisions. But where does distortion exist in relative price fluctuations? isn’t it natural for people to buy more goods that increase in terms of relative price, and buy less that decrease in relative price?

I don’t understand what bad decisions people are making here, and why it leads to resource “misallocation”.

Even if there isn’t inflation, relative price fluctuation exists all the time, and consumers always make decisions based on that. We don’t really call THAT a distortion - it’s a perfectly normal thing that causes a substitution effect which makes us buy more things that are relatively cheaper. So wouldn’t decisions based on relative price usually actually lead to better resource allocation?

So my question is, what “distortion” is happening when relative price fluctuations happen from inflation, and why does that lead to “resource misallocation”? Is there an excess supply or excess demand that results from people taking action based on relative price fluctuations? If there isn’t, why is it resource misallocation?

I would really appreciate it if someone could give me a good explanation on this. I’ve tried to solve this curiousity for days searching the internet and stuff but I’ve been unable to find satisfying answers. Detailed examples would be extremely helpful :)


texts: General model of economics, economics as mathematical structure

texts:
Contrary to the common view, the physics is all about models, there are no such thing as law of nature, because every physical law has its applicability range and therefore all of laws as models. But any physical law derives from one principle - https://en.wikipedia.org/wiki/Principle_of_least_action - any particle theroy (there are hundreds of them) is written as the model Lagrangian and then variational principle is applied to arrive at dynamical equations and observable quantities that can be corroborated in experiments.

My question is - is there similar approaches, theories, most general models in economics from which every other model or economic law can be applied. If there are such models, then the automation of economics can be achieved (assuming that the automation of mathematics will be completed, e.g. with project http://ai4reason.org/).

I have heard definition - the economics is a tuple <...> but I can not remember the book or article or the content of this tuple. Usually such tuples contain t]general mathematical objects: sets of agents with preference functions, set of interaction mechanisms (market system, competition patterns (monopoly etc.)), sets of external shocks (endogeneous factors) and so on...

I am seeking more for literature references, trends, keywords, not exhaustive answer. I can further research question by my own, but I should be informed from where to start my efforts.

Macroeconomics can (and should) be derived from the microeconomics, therefore I am seeking the model that states first principles - general microeconomic model (from which the general macro models could also be derived in the best case).


texts: Which is more economical with resources, an e-tick or a paper ticket?

texts:
I always get an e-ticket on my mobile, to save the environment and so on.

But then I thought well, am I really saving trees? I have to give my phone a full charge in order that it doesn't run out just when the conductor asks for my ticket. Which means that it needs electricity and a powerstation is burning some fosil fuels somewhere no doubt.

So that got me wondering, which would be better for the environment, if everyone got e-tickets on their phones. Or everyone got a paper ticket.

We shall assume:

We don't count manufacture of phone. (We assume we will have one
anyway).
When phone is not used for buying tickets it is not charged up.
One ticket per day.
Paper ticket is on A4 paper with ink.
E-ticket needs a full battery charge for the day.

My intuition is that an e-ticket is worse because to get the energy needed to power a phone a would think it wold require burning many hundreds of paper tickets. Is this intutition correct?


texts: Could debt cause inflation instead of deflation?

texts:
It is well known that debt can cause deflation, especially during crisis: to repay their debts agents sell their goods which causes a fall in prices.

But if there is no crisis and agents "have the time" to repay their debt, would it be possible to have the opposite mechanism, inflation: to repay their debts (and make their investments profitable) agents would sell their products for an higher price causing a raise in prices?

In the general case it seems difficult because this could destroy market shares if there is competition.

But in some cases I wonder if it could:

monopolys (especially state monopolys, and this would be a kind of hidden tax),
competition but with all competitors in debt so that all have to sell at higher prices to survive,
...


texts: Is free-trade beneficial if living costs are unequal between countries?

texts:
Free trade, it is said by those who support it, makes the whole world richer. Yet it seems, that if things like minimum wage, taxes, or living costs are unqual between countries then free trade would only be advantageous to the poor countries and to the upper echelons of the rich societies.

For example, a factory in Antarctica would have higher living costs for the workers than a factory in China. Hence if the Antarctic peoples were formerly self sufficient, the upper classes would soon transfer all labour to the cheaper countries and the working classes would starve, and most likely freeze to death.

This seems like what happened in the EU where there was free trade but because the taxes were different in each country, it lead to a disaster.

How is it possible to make free trade work for the benefit of all people?


texts:
Ricardian equivalence is a result regarding the ineffectiveness of government due to consumption smoothing behavior of consumers. A primary reason why it fails is due to population turnover (i.e people have finite lives).
In spite of these issues why is Ricardian equivalence important to know about in terms of its use as actionable information.


texts: Origin of "enforcement is only effective in the presence of the enforcer?"

texts:
If this question is off-topic, my apologies. It seems borderline to me.

I have had several people tell me (without reference) this idea that:

  Enforcement is ineffective because enforcement will only change behavior in the presence of the enforcer.

I have asked them for their source but I never get any. I also do not see it in my preliminary searches.

So, I am wondering if anyone here knows the origin of this statement or any research which supports such a claim.


texts:
Real estate sales sometimes occur at an official auction.  But sometimes a seller who does not take their house to auction may find themselves entertaining multiple bids for the house.  In this case, the articles on real estate always seem to talk about managing a "bidding war".  What is the difference between a bidding war and an auction?  Are there regulatory issues that prevent a seller from converting their bidding war into a straight-up auction?

(For instance, a seller with multiple bids could simply notify all bidders of the current highest bid, set a minimum bidding increment, and see if anyone bids higher, and repeat until one bidder is left.)


texts: Show that the elasticity of substitution is σ

texts:
How do I show that elasticity of substitution is equal to σ from a CES utility function. I have derived the following:

$\frac{q(\omega)}{q(\omega ')}=\left(\frac{p(\omega)}{p(\omega ')}\right)^{-\sigma}$

And then I can use the following to show that the elasticity of substitution is equal to σ:

$\frac{\partial \ln\frac{q(\omega)}{q(\omega ')}}{\partial \ln\frac{p(\omega)}{p(\omega ')}}=-\sigma $

But how do I find: $\partial \ln\frac{q(\omega)}{q(\omega ')}$? What should I differentiate with respect to?


texts:
I have a confusion.
Marginal utility is always decreasing and people will not be happy to pay 2 times of price for 2 times of a coffe but I guess the price of producing 2 times of coffe will be the same as producing one unit.
So in this case why this does not cause companies to have less profit from that particular product? Why companies still try to sell as much product as possible while they cannot charge you same amount. (In this case double the price vs double the coffe)


texts: Should the seed be set in forecasting returns in a MCMC

texts:
Suppose we are estimating a linear model utilizing a Markov Chain Monte Carlo technique such as a Gibbs sampler, drawing from the posteriors in a Bayes framework.  Suppose the full sample of data we have is from time $t = 1, \dots,\tau\dots, T$, and we want to forecast returns one period ahead using a recursive window starting at time $t = \tau$ until time $t = T$. We have trained the model from time $t=1$ to time $t=\tau$, then we want to forecast returns out of sample at time $t=\tau+1$:

\begin{equation} y_{\tau +1} = \beta' \mathbf{x}_\tau + \sigma \varepsilon_{\tau + 1}, \; \; \varepsilon_{\tau + 1} \sim \mathcal{N}(0,1) \end{equation}

When I tried this without setting the seed at each period the error term $\varepsilon_{\tau+1}$ was so stochastic across the $I$ iterations of the MCMC algorithm that $y_{\tau+1}$ was essentially a random walk.  When I set the seed at each period such that the $I$ iterations in the Gibbs sampler used the same $\varepsilon_{\tau+1}$ I found much better results in terms of RMSFE.

Should we set the seed in the random number generator in each period $\tau$, such that all $I$ iterations of evaluating $y_{\tau+1}$ use the same error term $\varepsilon_{\tau+1}$ when computing this forecast?


texts: Multiple equilibria: which one to select?

texts:
There are two agents $i=1,2$. Consider the following programm
\begin{align}
&V_1(x_0) := \max_u \int^\infty_0 e^{-\rho t}F_1(x(t),u(t),v(t))dt\\
&V_2(x_0) := \max_v \int^\infty_0 e^{-\rho t}F_2(x(t),u(t),v(t))dt\\
s.t.~&\dot x(t)=f(x(t),u(t),v(t))\\
&x(0) = x_0
\end{align}
where $\rho > 0$ denotes time preference, $V_i(\cdot)$ is the value and $F_i(\cdot)$ an objective function. $x\in X = [0,2]$ is the state variable and $u\in U=[0,1]$ the control of agent 1 and $v\in V=[0,1]$ the control of agent 2 respectively. The state is governed by $f(\cdot)$. The Hamilton-Jacobi-Bellman equation for each agent is given by
\begin{align}
\rho V_1(x)=\max_u [F(x,u,v^*) + V_1'(x)f(x,u,v^*)],\quad \forall t\in[0,\infty)\\
\rho V_2(x)=\max_v [F(x,u^*,v) + V_2'(x)f(x,u^*,v)],\quad \forall t\in[0,\infty)\\
\end{align}

given the respective maximizers
\begin{align}
u^* &= \max_u [F(x,u,v^*) + V_1'(x)f(x,u,v^*)]\\
v^* &=\max_v [F(x,u^*,v) + V_2'(x)f(x,u^*,v)]
\end{align}

such that the HJBs become
\begin{align}
\rho V_1(x)=F(x,u^*,v^*) + V_1'(x)f(x,u^*,v^*)\\
\rho V_2(x)=F(x,u^*,v^*) + V_2'(x)f(x,u^*,v^*)
\end{align}

Symmetric equilibirum

A symmetric equilibirum is given at $\dot x = 0 \Leftrightarrow f(\tilde x,\tilde u,\tilde v) = 0$ with $\tilde x = 1$ and $\tilde u=\tilde v$ and $V_1(\tilde x) = V_2(\tilde x) =: V(\tilde x)$.

Problem

The equilibirum controls $\tilde u$ and $\tilde v$ can't be determinend with the information at hand. The equation
\begin{align}
\rho V(\tilde x)=F(\tilde x,\tilde u, \tilde v) + V'(\tilde x)\underbrace{f(\tilde x,\tilde u, \tilde v)}_{=0}
\end{align}
 is true for every $\{(u,v)\in[0,1]\times[0,1]:u=v\}$. That is, we have multiple equilibria.

Select Equilibrium

My idea is (I made this up, haven't read anything about it) that I select the equilibrium associated with the highest value. We can determine $V(\tilde x)$ for all $\{(u,v)\in[0,1]\times[0,1]:u=v\}$.
Say  $V(\tilde x)$ is monoton increasing in $u$ and $v$, i.e.
\begin{align}
\lim_{u=v\to 0} V(\tilde x) < \lim_{u=v\to 1} V(\tilde x)
\end{align}

Perosnal I would choose the fixed point $(k = 1, u = 1, v = 1)$. I'd like to know if I can motivate it formally as the unique solution.

Do I select the equilibrium associated with the highest value, by definition of the value function?
Can you point me to some literature concerning this point?

Motivating example

Let $F_1(x,u,v) = xu^2$ and $F_2(x,u,v) = (2-x)v^2$ with $f(x,u,v) = v-u$. The HJBs read (with $\rho=1$)
\begin{align}
V_1(x)&=\max_u [xu^2 + V_1'(x)(v^*-u)]\\
V_2(x)&=\max_v [(2-x)v^2 + V_2'(x)(v-u^*)]
\end{align}

Maximizers are
\begin{align}
u^*&= \frac{V'_1(x)}{2x}\in[0,1]\\[2mm]
v^*&=\frac{V'_2(x)}{2(2-x)}\in[0,1]
\end{align}

In symmetric equilibrium we have $\tilde x = 1$ and $\tilde v = \tilde u \Leftrightarrow \dot x = 0$ which gives
\begin{align}
V'_1(1) = -V'_2(1)
\end{align}

The HJb simplifies to
\begin{align}
V_1(1)=\left(\frac{V'_1(1)}{2}\right)^2 = \left(\frac{-V'_2(1)}{2}\right)^2 = V_2(1)
\end{align}

Since both vlaues are equal in equilibirum we proceed with 1. We know from the control space that
\begin{align}
0\leq V'_1(x) \leq 2x
\end{align}

Which is in equilibirum
\begin{align}
0\leq V'_1(1) \leq 2
\end{align}

We can evaluate $V(1)$ for all $V'_1(1)\in[0,2]$ or since $\tilde u=V'_1(1)/2$ for all $\tilde u \in[0,1]$. In the picture I highlighted two possible equilibria $E^A$ and $E^B$. Since the payoff is inreasing with the control we have a higher value associated with equilibirum $E^A$, i.e. $V^A(1) > V^B(1)$.


texts: Commercial bank balance sheet after Fed purchases $10 million in Treasury Bonds

texts: Suppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets – reserves 30, bonds 50, and loans 50; Liabilities – deposits 300 and equity 30.


texts: What are the possible consequences of the Thomas Cook collapse regarding the world economy?

texts:
As reported by the media, Thomas Cook financially collapsed last week. Since then, hotels in tourist countries like greece or spain also collapsed, leaving several hundred to thousand people unemployed. This results in far more people can't meet their obligations due to this circumstances.

So my questions are:

which following branches will be affected directly and indirectly?

what does that mean for the world economy?

Since greece and spain are part of the european currency zone I think that will also impact all other members of the complete european currency zone?


texts: Question about Social Welfare Function and Social Profile

texts: What are the meanings of a social welfare function and social profile? How are they related?


texts: Solow model: Partial derivative of y with respect to n

texts:
I am trying to find the derivative of $y$ with respect to $n$. All I need to do is take the partial derivative $\frac{\partial y}{\partial n}$ of the function: $sf(k) = (n+g+\delta)k$  Here is what I get using the chain rule, but it's wrong:

$$sf'(k)  \frac{\partial k}{\partial n} = (n+g+\delta)\frac{\partial k}{\partial n}$$

To solve $\frac{\partial y}{\partial n}$ some more steps are required, but as far as I know the equation is already wrong. From what I have seen the right side should be augmented by k and then it would be right. Any ideas where the derivation went wrong?


texts: Is there a change over the business cycle in how much of economic activity is market-based?

texts:
Out of the total production in an economy, a big part is market-based, as when you make something and sell it. But a big part is not, as when you make something and don't sell it, but exchange it or use it in some way. Examples of this are home production, cooking, washing, etc, as well as gifts to friends, social service, etc.

More over, the fraction of production that is market-based probably changes over the business cycle.  For example, suppose that, in a recession, I agree to cook for my neighbor every other day because we are both unemployed. He cooks for me every other day. In a boom, instead I get a newly created job which pays me 50 dollars a day, and I by a 10 dollar a day meal from my neighbor who now sells me the food he cooks. The economy is only producing 50 dollars more since we used to produce two meals a day and now we are producing the same two meals a day plus 50 dollars. However, because I pay for the 10 in food, it seems the economy is producing 60 dollars more instead of just 50.

Other things that happen in recessions that don't count as output: when you are unemployed, you fix your house, you make art, etc. Maybe businesses give away more goods and services because they have the installed capacity, but not the demand...

Is there a way to measure the size of this effect?


texts: What are the differences between "Crawling peg" and "Crawl-like arrangement"?

texts:
The IMF AREAER 2019 classifies 3 countries as "crawling" and 18 as "crawl-like". It's not clear to me though how these classifications were made and why they couldn't be switched around. For example, why is Botswana "crawling" while Burundi is "crawl-like"?
"Crawling peg":

Classification as a crawling peg involves the confirmation of the country authorities’ de jure exchange rate arrangement. The currency is adjusted in small amounts at a fixed rate or in response to changes in selected quantitative indicators, such as past inflation differentials vis-à-vis major trading partners or differentials between the inflation target and expected inflation in major trading partners. The rate of crawl can be set to generate inflation-adjusted changes in the exchange rate (backward looking) or set at a predetermined fixed rate and/or below the projected inflation differentials (forward looking). The rules and parameters of the arrangement are public or notified to the IMF.

"Crawl-like arrangement":

For classification as a crawl-like arrangement, the exchange rate must remain within a narrow margin of 2% relative to a statistically identified trend for six months or more (with the exception of a specified number of outliers) and the exchange rate arrangement cannot be considered as floating. Normally, a minimum rate of change greater than allowed under a stabilized (peg-like) arrangement is required. However, an arrangement will be considered crawl-like with an annualized rate of change of at least 1%, provided that the exchange rate appreciates or depreciates in a sufficiently monotonic and continuous manner.


texts: Both the Life Cycle Hypothesis and Permanent Income Hypothesis concludes the same that permanent income, not the current income, is the primary determinant of consumption. If that is true, then how these two models can be distinguished?


texts: Consequences of a positive uncovered interest rate parity (UIP) spread for an emerging market economy

texts:
Empirically we observe that the uncovered interest rate parity (UIP) does not hold; in fact the exchange rate adjusted return on an emerging market bond is higher than the return on US bonds; I know that the risk premium may account for this empirical observation and that a recent theoretical literature has emphasized the role of financially constrained international investors (Gabaix, and Maggiori, 2015).

My question is: Does the receiving (emerging market) economy benefits from (or has an interest in maintaining) a positive UIP spread? Capital flows (especially short term capital flows, such as bond and portfolio flows) have been at the center-stage of a literature that emphasizes the negative effects (asset prices booms, sudden stops, conflict with the emerging market inflation targeting regime etc). To the extent that it is plausible to think that a positive UIP spread "encourages" these types of flows, why wouldn't the emerging market central bank try to compress the spread as much as possible?

In theory the emerging market central bank of a very small economy could engage in foreign exchange interventions aimed at compressing the UIP spread, so to rephrase my question: what are the possible reasons that would instead justify maintaining (and maybe even contributing to maintain) a positive spread.

What I can think of as of now:
Consider a positive UIP spread: $ (1+i_t) - \mathbb{E}_t\Big[(1+i_t^*)\frac{e_{t+1}}{e_{t}}\Big] >0$, where $i_t^*$ is the US interest rate at time $t$, $i_t$ is the domestic interest rate in the emerging market economy at time $t$, $e_{t+1}$ is the exchange rate at time $t+1$ (expressed in terms of units of domestic currency per unit of foreign (dollar) currency) and $e_t$ is the exchange rate at time $t$.

It is certainly possible for a central bank to use foreign exchange interventions (possibly) together with interest rate policy in order to achieve a zero UIP gap; for instance the central bank could increase the domestic interest rate or sell foreign exchange reserves with the objective of appreciating the period $t$ exchange rate, or a combination of the two.

A higher domestic interest rate is however contractionary and an appreciated domestic currency (for a given domestic policy rate, $i_t$) would certainly reduce exports (which generally represent an important segment of emerging market economies). In relation to the latter point it is unclear to me whether this is however going to have a negative impact on domestic welfare -- households in the emerging market economy could be actually better off since their currency is now stronger, and they can therefore substitute part of their consumption basket with imported goods while at the same time reducing their (welfare reducing) labor supply to the domestic firms. This outcome can indeed arise when there is a terms of trade externality (see for example De Paoli, 2009).

Any other ideas?

Sources:

De Paoli, Bianca. "Monetary policy and welfare in a small open economy." Journal of international Economics 77.1 (2009): 11-22.

Gabaix, Xavier, and Matteo Maggiori. "International liquidity and exchange rate dynamics." The Quarterly Journal of Economics 130.3 (2015): 1369-1420.


texts: World as a society of interlinked multiplayer individuals

texts:
If you were to take a game-theoretic model of a world in which each individual tried to optimize their utility function / goals then how would you go about designing a computer simulation of the people's interactions as they try to optimize their goals.
In particular, how can I model the way goals interact?
I guess the model could get arbitrarily complex, but cannot imagine anything nontrivial as given in standard game theory books. Thanks.


texts: How much is the amount insured for retirement plans in the USA?

texts:
The bank accounts are insured for up to $250,000 per account - link

But how much is the amount insured for retirement plans? Say for example that one person payed one million $US in total to the retirement fund for his future retirement. In case the pension fund is going bankrupt, then how much money that person will be compensated?


texts: What determines if a variable is exogenous or endogenous in a model?

texts: Question above, I have a very rudimentary understanding of econometrics.


texts:
Can anyone point me to a source of monthly GDP? So far I only find yearly and quarterly. I need it for the period of Jan/1999-Jan/2015 for USA, Japan, the Eurozone and UK.

Thank you!


texts: A question regarding eurodollar futures rate

texts:
I am reading a paper, and cannot understand this part. In the second line, it is said that
the pay off on this futures contract equals one minus the current annualized 3 month LIBOR rate in the contract expiration month.
Right after the sentence, however, the equation is using a policy rate of the central bank. Shouldn't r_t+n be a LIBOR rate instead of policy rate?
Please explain why if anybody knows about this.


texts: Internalising an externality for a free merit good

texts:
I am researching vaccinations as a merit good and I am focusing on an article which discusses how some people are rejecting one of the COVID vaccines because of misinformation about how it may be less effective than the other vaccine. Can this externality be internalised since the vaccine is free to those receiving it because for example, with the flu vaccine the externality can be internalised by providing people with a voucher to receive a free vaccine however the COVID vaccines are already free. If not, is there any other way in which I can discuss how this can be done?
Article Link - https://www.theguardian.com/world/2021/feb/25/acceptance-problem-as-most-oxford-covid-jabs-delivered-to-eu-not-yet-used
Thanks


texts: Monopolist engaging in international trade

texts:
A  monopolist faces a demand curve given by $P=60-2Q$ and has total costs given by $TC=Q^2$. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $10. What is the firm's profit-maximizing output level?

My attempt:

$P=60-2Q$

$P=10\implies 10=60-2Q\implies 2Q=50\implies Q=25$

Unfortunately, this isn't the right answer. How do I solve this problem?


texts: Question about IM/LS model and aggregate demand/supply

texts:
IS curve assumes aggregate demand equals production. Together with LM curve, for a particular price and other exogenous variables, we have one set of production and interest rate that balances both markets.

The picture above shows the aggregate demand and supply curves. Aggregate demand curve comes from varying the price variable and printing all the different balance productions out into the graph. Aggregate supply is exogenous.

For a given price, it can be seen in the graph that the aggregate demand (equal to production as is the premise of the IS curve) is not equal to aggregate supply. Hence I can only assume that aggregate supply and production are different things. What is the difference? If they are the same, what am I missing, and can someone clarify my gaps in understanding?

Thanks in advance.


texts: Why is fractional reserve banking allowed?

texts:
I learned about banks' fractional reserves and that revolted me. How is that not considered to be fraud?

The idea doesn't seem too sophisticated, on the contrary, it sounds very simple: the bank just loans money they don't even have and charges an interest rate (which is not low at all) on that virtual money. When I go to a bank to take out a loan, they will just type the amount of money in my account (but the money does not exist) and I will introduce the money into the economy (when I use that money to buy something).

Why are fractional reserves not considered fraud?


texts: Is it customary for sellers to pay the commission in brokered transactions?

texts:
This question focuses on brokered transactions where 1) the intermediaries act as brokers (agents), not dealers, and 2) where both sides have an agent.
In the U.S., in buying/selling houses, it is customary for the seller to bear the commission cost.
The question is: is this general pattern (seller pays more of the brokerage fee) true in other brokered transactions? For instance, in brokered M&A deals?


texts: When is an OLS parameter unchanged on a subsample?

texts:
There is a sample of $n$ observations, each element has a numeric $Y$ and $X$ characteristic. There is an OLS regression over the sample
$$
Y = b_0 + b_1 X + \textbf{u},
$$
$\textbf{u}$ being the vector of residuals. Suppose we remove observation $i$ from the sample, restricting it to $n-1$ observations, and run an OLS regression again, yielding
$$
Y_{-i} = b_0' + b_1' X_{-i} + \textbf{u}'.
$$
Subscript $_{-i}$ denotes that $Y$ and $X$ are not the same vectors as before, as observation $i$ is missing.

Seems to me that if the observation $i$ we removed is on the original sample's 'regression line', that is if
$$
Y_i = b_0 + b_1 X_i,
$$
then $b_0 = b_0'$ and $b_1 = b_1'$.

Example: (in R code)

x = c(5,3,4,5,4,4)
y = c(20,15,14,21,10,25)

plot(x,y)
abline(coef(reg))

plot(x[-1],y[-1])

reg1 = lm(y[-1] ~ x[-1])
abline(coef(reg1))

My questions are:

1) Is this true, and if yes, what is the proof?
[I figured this one out in the meantime, but feel free to give a nicer solution.]

2) Is it possible that after removing an observation (not on the 'regression line') we have

($b_0 = b_0'$ and $b_1 \neq b_1'$)  or ($b_0 \neq b_0'$ and $b_1 = b_1'$)?


texts: How can I control for trade between UK and Australia in my difference-in-difference trade model?

texts: I am doing a report on whether environmental regulation has an impact on trade, using a difference-in-difference model and seeing whether the EU Industrial Emissions Directive had an effect on UK trade. The UK is my treatment group and Australia is my control group. However, what is the best way to control for bilateral trade between the two? Would I need bilateral trade data on UK and Australia trade or can I just use a dummy variable? If I am using a dummy variable, how can I use it? Thanks!


texts: Are opportunity costs synonymous with economic costs?

texts:
I was working on a question that asked the opportunity costs of going to college per year given that college tuition is $ x $ and the salary per year is $ y $. The answer given is $ x + y $.

I thought that economic costs is given by: $$ \text{Economic costs} = \text{Accounting costs} + \text{Opportunity Costs} $$

Here, the accounting costs would be the explicit cost of tuition, while the opportunity cost would be the implicit cost of wages foregone.

Is my conclusion correct? Or is economic costs synonymous with opportunity costs?  (Which makes opportunity cost equal to the total cost, explicit + implicit)?


texts: ECB bond buying from national banks, what are the national banks expected to do?

texts:
The European Central Bank announced plans to buy government bonds from national banks. Quantitative Easing, 60 billion euros a month. Although ultimately I am trying to make a decision on what this will likely do to the exchange rate, I am currently at the point where I don't know what the national banks will do with all of the financing.

What does the ECB expect will happen to national bank bond yields with their buying? How abnormal in amounts would their buying be than from investors buying the government bonds?

What does the ECB expect the national banks will do with all of the new "demand" for their bonds? Do more commercial lending to spur the economy? I also didn't get the impression that there is any actual new productivity taking place to really grow any of the individual country's economy no matter how much additional lending takes place. Opening up the potential to a wave of defaults, presupposing that more commercial lending would take place.

If anyone could shed some light on this, that would be great. Ideally not really opinion based, but more so in line with something official or some school of thoughts.

For analogies' sake, I really couldn't see the US Federal Reserve buying Montana bonds to spur commercial lending in Montana and thinking this would help the economy in Montana.


texts: Corelation between money growth and inflation

texts:
I am looking for some thorough papers on relation between money supply and inflation in short and long run i.e. how and why money supply affect prices in short and long run?

I was trying to find some interesting papers on that topic, however i was unsuccessful thus i would be glad if you would help me with the task of find informations regarding this particular topic.


texts: list of math intense graduate level microeconomics books?

texts:
List of math intense graduate level microeconomics books?

Except Reny's book, krep's books, varian's book and mas-collell's book

books from subfields are acceptable, however by math intense i mean most of the books pages contain some level of math

Please categorize the book


texts: How to calculate standard deviation of a portfolio?

texts:
So i have this information:

Suppose that 60% of your portfolio is invested in Johnson & Johnson (JNJ) and the remainder is invested in Ford. You expect that over the coming year JNJ will give a return of 8% and Ford, 18.8%.

Then I know that expected return on the portfolio is simply a weighted average of the expected returns on the individual stocks:

Expected portfolio return = (.60 × 8) + (.40 × 18.8) = 12.3%

However, then the book says:

We said earlier that if the two stocks were perfectly correlated, the standard deviation of the portfolio would lie 40% of the way between the standard deviations of the two stocks.

There have been no other calculations on the book and only after this statement should i start the calculations in order to understand the portfolio risk.

Can somebody please tell me where this 40% is coming from ? Thanks!


texts: Can we add well-being into macro model as an endogenous variable?

texts:
People talk a lot about well-being as an objective of macro policy (together with gdp growth). So if well-being is an objective, i'm wondering if we can add well-being into macro model as an endogenous variable? and we can see the response of this variable to a shock just as we did for other endogenous variables?
Thank you for all your help.


texts:
Notation: Throughout I will let $\Delta X$ denote the set of probability distributions over the set $X$.

I have been studying expected utility theory, and especially Savage Acts and Anscombe-Aumann Acts. However I am new to it and am not sure if I have the terminology correct.

Let $S$ be the finite set of possible states, let $Z$ be the set of possible outcomes. An Anscombe-Aumann act is defined as a function $f:S \to \Delta Z$. Let the space of acts be denoted $X$. Preferences are defined over acts.

If preferences have a state independent expected utility representation (SIEU) we have that there is a function $u: Z \to \mathbb{R}$ and a distribution over states $p \in \Delta S$ such that for any two acts $f,g \in X$,  $$f \precsim g \iff  \sum_{s \in S} p(s) \sum_{z \in Z} u(z) f(s,z) \leq \sum_{s \in S} p(s) \sum_{z \in Z} u(z) g(s,z)$$

Suppose I want to define a lottery $L \in \Delta Z$ in this situation. For simplicity, suppose $L$ is the lottery that assigns probability $1$ to outcome $z^{*}$ and probability $0$ to all other outcomes.

My Question is: Is this lottery (or any lottery for that matter) a compound lottery first over states ($p$) and then over anscombe -aumann acts ($f$)? Or how is a lottery defined in this situation?

Let me know if any clarification is required.


texts:
The Wikipedia defines potencial GDP as "the total capacity of a nation to produce goods and services". If this definition is correct than the potential GDP can only occur when the unemployment rate is 0, all the land is exploited for the purposes of production (agriculture, factories, roads so on.) and the infrastructure is not outdated.

Speaking primitively and according to the definition provided above, if country A still has some part of it covered by forests (i.e. not factories and roads) and part of the population (say 4 percent) are out of work, then potential output can not be reached i.e. output gap is negative. This hypothetical example describes basically all countries present in the real world.

However, OECD indicates (the link below) that number of countries (Belgium, Denmark, Czech Republic just to name a few) had their real GDPs above the potential. In non of the cases the unemployment rate is O or the land is fully exploited.

https://stats.oecd.org/index.aspx?queryid=51655

Are my assumptions wrong? How should I look to the potencial GDP?


texts: Do policy functions exist for Finite Horizon Dynamic programming problems?

texts:
I've been looking at the cake eating problem over a finite horizion and have been trying to figure out if we can derive a policy function for such a problem. My work is written below.

sequence form of such a problem is:

$$\max _{c_t,x_{t+1}}U(c_t)=\sum_{i=0}^T\beta^tu(c_t),\ \ \ \ \ \ 1>\beta>0$$
$$s.t. x_{t+1}=x_{t}-c_t$$

supposing that the instantaneous utility function for such preferences are $u(c_t)=\ln(c_t)$ it follows that the function equation for such a problem is:

$$v(x_{t+1})=\max_{x_{t+1}}\{\ln(x_t-x_{t+1})+\beta v(x_{t+1})\}$$

In this case im supposing $T=2$ (we have three periods starting from period zero) and suppose $x_0>0$. Solving the problem from backwards induction we know.
$$v(x_2)=\ln(x_2)$$
it follows from this result that for the previous periods value function we have:
$$v(x_1)=\max_{x_2}\{\ln(x_1-x_2)+\beta v(x_2)\}$$
$$v(x_1)=\max_{x_2}\{\ln(x_1-x_2)+\beta \ln(x_2)\}$$

after taking the first order condition for this result and solving for $x_2$ we get:
$$x^* _2=\frac{\beta x_1}{1+\beta}$$

we know now our value function is properly defined as:

$$v(x_1)=\ln\left(x_1-\frac{\beta x_1}{1+\beta}\right)+\beta \ln\left(\frac{\beta x_1}{1+\beta} \right)$$

Simplifying:
$$v(x_1)=\ln\left(\frac{ x_1}{1+\beta}\right)+\beta \ln\left(\frac{\beta x_1}{1+\beta}\right) $$

For our $v(x_0)$ we follow the same procedure before

$$v(x_0)=\max_{x_1}\{\ln(x_0-x_1)+\beta v(x_1)\}$$
$$v(x_0)=\max_{x_1} \left \{\ln(x_0-x_1)+\beta \left[\ln\left(\frac{ x_1}{1+\beta}\right)+\beta \ln\left(\frac{\beta x_1}{1+\beta}\right) \right]\right\}$$

upon solving such an optimization problem we find:

$$x_1^*=\frac{(\beta+\beta^2)x_0}{1+\beta+\beta^2}$$

From this work that I've done above we can see that the policy functions change each period.

Given the solving above do time invariant policy functions exist?


texts: Hotelling’s Continuous Model - game theory

texts:
Hotelling’s Continuous Model: Consider Hotelling’s model, in which citizens are a continuum of voters on the interval $A = [−a, a]$, with uniform
distribution $U (a)$.

Show that for a general distribution $F (\cdot )$ over $[−a, a]$ the unique Nash
equilibrium is where each candidate chooses the policy associated with
the median voter.

I know that the median is $a^m=0$ but I don't understand what does a general distribution mean and what does "associated with median voter" means exactly. If somebody could clarify what this exercise asks me to do that would be great!


texts: How much physical currency does the Fed transfer to banks per year?

texts: I just wonder since money has to enter the system somehow. Currently the Fed will supply whatever banks ask to meet their capital needs. But how much physical currency does the Fed, treasury, and mint transfer to banks per year? And which banks?


texts:
Suppose Person 1 is working in Denmark and has the utility function,
$$u(c,l)=c-\frac{\eta}{\eta+1}(24-l)^{\frac{\eta+1}{\eta}}$$
His wage after tax is $w(1-t)$, where tax, t, $0<t<1$.
A second person, Person 2, lives in Wales and has the same utility function. Her utility, $\bar u$, that she has in Wales is greater than the utility Person 1 has in Denmark, where he is taxated with the optimal tax, $t^{\star}=\frac{1}{1+\eta}$.
$$\bar{u}>\frac{1}{\eta+1}\left(\frac{\eta}{1+\eta}\frac{\bar{w}}{p}\right)^{\eta+1}$$
Now, if Person 2 is offered a job in Denmark, she will only move if she is offered a taxation that yields a utility greater than $\bar u$.
How would you go about showing that a differentiated tax in Denmark (where Person 1 and 2 is taxated at differented rates) is better than a uniform tax if the government want to maximize tax-revenue?
My intuition says that at a differentiated tax rate, the optimal tax rate for Person 2 is seemingly lower than the tax rate for Person  1 given the inequality. At a uniform tax rate the government would have to lower the income tax rate on Person 1, as increasing it for Person 2 would make her move back to Wales. The only way I can think of showing this is through a drawing - not very mathematical per se.


texts: How to prove that a function is a positive montone transformation

texts:
Consider the utility function

$$
U(x_1,x_2) = x_1^\alpha x_2^\beta
$$
for $0 < \alpha, \beta < 1$. How do I then show that
$$
V(x_1,x_2) = F(U(x_1,x_2)) = \frac{\alpha}{\beta} \ln(x_1) + \ln(x_2)
$$
is a positive, monotone transformation of $U(x_1,x_2)$. I thought about showing that MRS for both functions is the same. Is this approach alright? I also thought about taking $\ln(x)$ on $U(x_1,x_2)$ and see what happens:

$$\ln(x_1^\alpha x_2^\beta) = a \ln(x_1) + \beta \ln(x_2)$$
but I am not sure here if I am allowed to divide with $\frac{1}{\beta}$ now to get the desired result?

Thanks for your help in advance.


texts: Does Visitor Export Include Airline Tickets?

texts: Does visitor export include the purchase of airline tickets? If so, I would assume that it only counts airline businesses that are established in the country of question.


texts: Is it possible for shareholders to get a companies assets in place of currency?

texts: To my knowledge being a shareholder is owning a portion of a company. Then by that logic shouldn't a shareholder be able to request a companies assets instead of money? As an example, if I own 100 dollars worth of shares in XYZ company would I be able to get 100 dollars worth of their assets (chairs, tables, laptops)?


texts: What term/theory describes more efficient utilization of a resource?

texts:
I may be asking the wrong question here, but I wonder if there is a term/theory that describes/studies the evolution of an economy that continually improves the utilization and allocation of certain resource? The resource here can be different things, e.g. physical goods, human labor, financial capital. In fact, I am more interested in the former two than the latter.

For example, living space used to be mostly utilized by the its owner or long-term occupier, and many were under-utilized in terms of both the utility of having people living in them and the monetary value extracted from them. Now some significant portion of these spaces is better utilized by services like Airbnb. A similar case is car-sharing services like Uber and Lyft, where both cars and human labor are arguably better utilized and allocated.

To clarify, I am not specifically interested in the so-called 'share economy' concept though the two examples above are closely related to it. Actually it'd be better if you can identify other examples in different contexts. Pointers to any related term/concept/theory is welcome and appreciated.


texts: How is GDP counted between different countries?

texts:
Sorry if this question is dumb, but I did not manage to find the answer on the web. The questions is as follows:

As far as I understand, GDP is the total value of a country's production. It includes all the output, and thus it represents the cost of all the wages and primary ressources used to produce this output. But how is this cost passed from one country on other countries, considering a globalized economy?

For example, let's say that country A as a 3 000 $ GDP. And country B as a 2 000 GDP.
But country A's economy consists only in producing computers, which are built with processors built by country B: For one computer, cost = 3, two processors (each cost = 1) are needed.
So in the end, when country A sells 1 000 computers which gives 3 000 GDP, 2 000 of this GDP is buying the GDP of country 's B (2 00 processors = 2 000 of GDP).

In the end, A's GDP is higher than B's GDP but A's income is lower than B's income. And somehow, A's GDP is (B's GDP + A's working value) with A's working value being only 1 000, while B's GDP is (B's working value) with B's working value being higher (2 000) than A's.

Is all this analysis true in the real world?
And example in the real world: China has a big GDP but it consists mainly of B2B sellings to other countries: are those sellings, sold again in other countries (let's say USA), counted as GDP for USA?