texts:
Consider the following cost function:

$$c(e_1, e_2) = (\beta_1e_1 + \beta_2e_2)^2$$

The value function is:

$$v = v_0 - [l_1(1-e_1) + l_2(1-e_2)]$$

How do I compute the optimum efforts $e_1$ and $e_2$, with $e_{i} \in [0,1]$ ? I seem to be ending up in an inconsistency.

If I look at $v - c = v_0 - [l_1(1-e_1) + l_2(1-e_2)] -  (\beta_1e_1 + \beta_2e_2)^2$, and then I take the partial derivative with respect to $e_1$ and $e_2$ respectively, I obtain:

$$\beta_1e_1^* + \beta_2e_2^* = \dfrac{l_1}{2\beta_1} = \dfrac{l_2}{2\beta_2}$$

What am I missing? Does the inconsistency simply mean that the optimal efforts are corner points?


texts: What are the linearised equations for the flexible economy in Smets and Wouters (2007)?

texts:
To solve the Smets and Wouters (2007) model, we need the linearised equation for the economy when wages and prices are flexible (monetary policy rule depends on the potential output).

However, in their scientific article they do not provide those equations.

What are they?


texts: What is the reason of devaluation in Turkish Lira?

texts:
I guess there is a some fundamental issues in the economy but I wonder the apparent reason of the recent devaluation in Turkish Lira?

Does Turkey need to pay debt in very short term? How much is it? What is the reason of the debt?


texts:
I have game table posted below:

$$\begin{matrix} &\#2 \\ \#1 &
\begin{array}{c|c|c|c}
&D &E &F \\ \hline
A &4,4 &6,6 &2,6 \\ \hline
B &6,4 &2,2 &0,4 \\ \hline
C &2,6 &8,4 &0,0
\end{array}
\end{matrix}
$$

Are there any Nash equilibrium where the agent 1 mixes between

(i) A & B

(ii) A and C

(iii) B & c?

What I did is that

For example I did first one

I calculate its expected utilities

$$u1(A, p2)= 4p_D+ 6 p_E+ 2+(1-p_D-p_E)$$

$$u1(B,p)=6p_D+2p_E$$

Since first payoff is higher than the second payoff, there is no such a mixed Nash equilibrium.

I think this approach to such a question seems wrong. Therefore I ask this question. What is your idea about the solution?


texts: Advanced economies tend to slide down to zero interest rates and stay there. Why?

texts: Advanced economies (e.g., Japan, USA, Europe) tend to slide down to zero interest rates and stay there. Why? Are there any theories which explain this tendency?


texts: A sharp regression discontinuity design requires all of the treated to be compliers, never takers or always takers


texts: Paper where an integral in the constraint of an optimization problem is treated as infinite sum

texts:
I am looking for a paper (or textbook, or even lecture notes example) where there is a problem such as
$$
\max f(x) \\
\text{ s.t. } \int g(x) \leq \int c
$$
and there is at least some exposition/explanation about solving it. I believe that these are sometimes (often? always?) treated as infinite sum, but I may be wrong.

In words, I am looking for an example and solution (or at least a discussion of solution) of a problem where the constraint contains an integral. It is okay (and probably will be the case) that $f(x)$ contains an integral too.

I believe such optimization problems occur in macroeconomics. I'm specifically thinking of integrals over possible states, but the integral doesn't necessarily have to be over states.

Or, if someone could explain solving such problems to me, that would be okay as well.

Thanks.


texts: Could lexicographic preferences on N^2 be represented by a utility function u: $N^2$ to $Z$?

texts:
I got this question on a homework:
Could lexicographic preferences on $N^2$ be represented by a utility function u: $N^2$ to $Z$?
I've heard countless times that lexicographic preferences can't be represented by a utility function. But would anything change if u: $N^2$ to $Z$?


texts: What are the constituents of a country's inflation

texts:
If we assume a country where only demand pull inflation holds, that is no imports cost inflation or currency fluctuations are a risk, then we can assume that inflation is determined by:

Consumer spending (for example for the US this should be the most important part of the economy)
Government spending

Are retail sales and house sales included in the consumer spending figure?

Aside from that, are there other economic indicators (that are neither consumer spending nor government spending) that influence a country's inflation?


texts: Systematic measurement error in explanatory variable

texts:
In the classical errors-in-variables problem, we are looking at the effect of $x^*_i$ on $y$, but $x^*_i$ is misreported. We have observations $x_i = x^*_i +u_i$, where $u_i$ has zero mean mean, variance $\sigma^2_u$, and is independent from $y_i$ and $x^*_i$. In this case, OLS produce biased and inconsistent estimates of the coefficients.

A common solution is to obtain a second measurement $z_i = x^*_i +v_i$, where $v_i$ has zero mean, variance $\sigma^2_v$ and is independent from $y_i, x^*_i, $ and $u_i$ and then use $z_i$ as an instrumental variable for $x_i$ to obtain consistent estimates of the coefficients.

My question is, what if there is a biased measurement error; for example what if $x_i = \gamma x^*_i +u_i$ where $\gamma>0$ and we still have $z_i = x^*_i +v_i$. Is there an estimation procedure that would give a consistent estimator of the coefficients? What about bias?

Thanks.


texts: I am currently doing a research work on quantitative easing and can't find any example of it occurring in Africa. Have any African central banks ever used QE?


texts: Do any social welfare functionals, other than maximin, meet all of Arrow's conditions plus invariance regarding ordinal level comparability?

texts:
In the literature on social welfare functionals, the only example I've seen of a functional which meets all of Arrow's conditions–––or at least utility analogues of Arrow's conditions–––plus invariance regarding ordinal level comparability is Rawls' maximin. E.g. Sen in On Weights and Measures (1977, p. 1544) cites maximin as his case of a functional meeting all of these conditions. Maximin orders the alternatives by the welfare of individual who is worst off. I assume that the inverse of maximin–––i.e.  the alternatives are ordered by the welfare of individual who is best off–––would also meet these conditions.

Is there any work on other social welfare functionals which meet all these conditions? (I'm aware that if we tweak these conditions slightly we can derive other functionals, but I'm interested in the case in which we keep them unaltered.)

If not, is this evidence that maximin, and its inverse, are the only normatively sensible social welfare functionals that meets all these conditions? Or is it just evidence that people aren't so interested in this set of conditions? (If there is a clear reason why this set of conditions is uninteresting, I'd love to hear it).

Thanks for any help!

Utility analogues of Arrow’s conditions:

Utility analogues of Arrow’s conditions are Arrow’s conditions redefined for Sen’s welfare functional framework.  Instead of taking a profile of orderings as input, Sen's functional takes a profile of utility functions as input: $U \ = \ <u_{i_1}(X), \ u_{i_2}(X), \ \dots \ , \ u_{i_n}(X)>$. $U$ is defined on $X \times N$; each individual, $i \in N $, is paired with each alternative, $x \in X$, and the result of each pairing is the utility derived by $i$ from $x$. $\mathcal{U} \ = \ \{U^1, \ U^2, \ \dots \ , \ U^n \}$ is the set of all possible utility profiles. $\mathcal{U^*}$ is the set of all utility profiles which meet a particular domain restriction. $\mathcal{R}$ is the set of all possible orderings of $X$. A social welfare functional can then be defined as: $f: \ \mathcal{U^*} \longrightarrow \mathcal{R}$. The final ordering given by profile $U^1$, $f(U^1)$, is denoted: $R_{U^1}$. We can then define utility analogues of Arrow's conditions:

Unrestricted Domain$’$: The domain of $f$ is the set of all possible utility profiles: $\mathcal{U}^* \ = \ \mathcal{U}$.

Weak Pareto$’$: $\forall x, y \in X$, $\forall i \in N$: $( \ u_i(x) \ > \ u_i(y) \ ) \ \Longrightarrow \ (xPy)$.

Non-Dictatorship$’$: $f$ does not single out one individual $i \in N$ such that, $\forall U \in \mathcal{U^*}, \ \forall x, y \in X$: $( \ u_i(x) \ > \ u_i(y) \ ) \ \Longrightarrow \ (xPy)$.

Independence of Irrelevant Utilities: $\forall U^1$ and $U^2$ $\in \mathcal{U^*}, \ \forall x, y \in X$: $(\forall i \in N \ (( \ u^1_i(x) = u^2_i(x) \ ) \land ( \ u^1_i(y) = u^2_i(y) \ )) \ \Longrightarrow \ (( \ x R_{U^1} y \ ) \ \Longleftrightarrow \ ( \ x R_{U^2} y \ ))$.


texts: How much of new debt in Italy is due covid?

texts:
The debt to GDP of Italy ballooned in 2021 to 158.5% (https://www.reuters.com/article/us-italy-budget-debt-idUSKBN29L0PP). That is almost 20% increase from 2019.  I wonder how much of that is just covid and how much regular increase (government debt here was increasing years before) and how much it is due to fight with covid. Is there any way to know how much of this increase is just due to covid?
Thank you.


texts: A market correction for an industry which has had long-run negative externalities

texts:
Take a market where there have been long-run negative externalities. That is to say, the negative externalities have been in place long enough to have played a part in the investment decisions for all extant fixed capital.

Capital costs are a significant part of total costs.

The proposal now is to correct this market inefficiency, efficiently and quickly. Pricing in the negative externality should eventually, in the long term, correct this efficiently. However, as all the extant capital is a sunk cost, and can continue to operate at low operating cost, it can hinder and crowd out new entrants.

So the ongoing costs by the incumbents are low: their fixed capital was built and initially operated in a world of negative externalities, and those capital costs are both (a) sunk costs and (b) fully written off by now. Merely pricing in the negative externalities from their ongoing activities won't change the effective subsidy they've received that allowed them to build up their incumbency in the first place; so they'll have no incentive to leave the market.

What else can be done, in addition to simply pricing in the negative externality, to ensure prompt replacement of fixed capital which only exists because it was built in a time when it did not need to bear its full cost? Differential taxation for incumbents versus new entrants, or something else? How can this be done with economic efficiency?

The market in this case is fossil fuels for transport, heat and electricity generation; so the long-term is of the order of decades, whereas the need is for faster capital replacement. Additionally, several large suppliers exert oligopolistic influence, and there is a global cartel operating (OPEC), and has been for over 50 years.


texts: How do Marxist economists solve the Diamond-Water Paradox?

texts:
For class surveying different economic systems, I read a book on Marxism and its core beliefs.  As I read, I came to learn that the Marxist view of economics depends heavily on the Labor Theory of Value since Marx believed that the value of a good was determined by the amount of labor.
But, from what I understand, the economic community no longer accepts the Labor Theory of Value due to its inability to explain the Diamond-Water Paradox.
How is it then, that certain economists still adhere to the Marxist view of economics?  How do they have Marxism explain the Diamond-Water Paradox?


texts:
This question is from here
What does "Real Effective Exchange Rates Based on Manufacturing Consumer Price Index for India " this mean? Does it mean the value of exports adjusted for inflation?


texts:
This is a homework question.

Suppose a consumer has preferences over two goods that can be represented by the utility function $U(x,y) = 2\sqrt{x} + y$

The marginal rate of substitution of $x$ for $y$ in this case is $\frac{1}{ 2\sqrt{x}}$, which is the negative of the slope of the indifference curve. It's well defined only for $x > 0$

The question asks to plot the indifference curve with $x$ on the horizontal axis and y on the vertical axis, and indicate if the graph of indifference curve will intersect either or both axes.

I was thinking that since slope of the indifference curve tends to infinity as $x$ approaches $0$, therefore the indifference curve should not intersect the y-axis. However, the solution provided by the lecturer says "since it's possible to have positive utility when either $x$ or $y$ is zero, the indifference curve intersects both axes", and I kinda agree this statement as well...

So what should be the answer?


texts:
You often hear economists (proudly) say that they don't take stated preferences seriously, but instead rely on observed preferences. Correct?

To me both are problematic if you want to understand preferences, since people often do things they don't want to do. Example: I prefer to go to bed at 22:00 but I observe that I very often get caught up and don't do this.

Decision making of individuals is complicated and I think everyone should be careful interpreting observerd preferences?

My question is: Can anyone provide further points thinking about this issue and/or articles about the interpretability of observed preferences?

I am aware there exists micro-models with "Hyperbolic discounting" making preferences time-inconsistent. I am looking for some more general discussion and frameworks.


texts: Concave production function implies convex cost function

texts:
Let's assume we have an increasing production function $f:\mathbb{R^+} \to \mathbb{R^+}$

Now, assume this production function is concave and that the price of input z is fixed (this is a single-input and single output case). I want to show this implies the corresponding cost function $C^f(w,q)$ is convex.

My thoughts:

let $z,z' \in \mathbb{R^+}$ where W.L.O.G $z'>z$ and let $f(z)=q$ and $f(z')=q$

Since $f$ is concave, we take $\alpha \in [0,1]$  $s.t$:

$$f(\alpha z +(1- \alpha)z') \geq \alpha f(z) +(1- \alpha)f(z')$$

let $\alpha z +(1- \alpha)z'=z''\in \mathbb{R^+}$ where by necessity $z\leq z'' \leq z'$

Since cost of $z=w$ is fixed at some $w \in \mathbb{R^+}$

we can rewrite our cost function as $C^f(q)$ which is convex if for $\alpha \in [0,1]$:

$$C(\alpha q +(1- \alpha)q') \leq \alpha c(q) +(1- \alpha)c(q')$$

Now, since $f$ is concave, it cannot be the case that $f$ experiences increasing returns to scale. Then $f$ has constant returns to scale or diminishing returns to scale.

Then:

Since $z''$ is clearly feasible then we have that:

$$C(w,q'') \leq w*z''$$
$$=\alpha w*z + (1- \alpha) w*z'$$
$$= \alpha c(w,q) + (1- \alpha) c(w,q')$$

Does this look correct?


texts: Utility function used to indicate bliss point

texts: How does one create a utility function to indicate existence of a bliss point? what do the goods marshillian demands look like in such a situation?


texts: Correlation over time, panel data variable

texts:
I think my question seems to be quite simple, but I cannot figure out a solution. I have panel data with about 1000 different people over 10 years. Standard panel regression is not the problem, but I am searching for a method to measure the correlation or effect of the independent variable on itself over time for the whole dataset (not for every single year).
Is the answer a time-series method?

Thanks!
Best
Tom


texts: Expected payment in a second price auction with affiliation

texts:
The symmetric bidding strategy in a second-price auction with affiliation is given by $\beta(x)=v(x,x)$, where $v(x,y)=E[V_1|X_1=x,Y_1=y]$ (here $Y_1$ is the highest ordered statistic among the remaining $n-1$ bidders, and bidder 1 is assumed to be the winner).

Given this, the expected payment by the bidder is given as $E[v(Y_1,Y_1)|X_1=x,Y_1<x]$. This, I suppose, should be equal to $\int_0^x v(y,y)g_{Y|X}(y|x) dy$. The same expression is given in Introduction To Auction Theory by Menezes and Monteiro. However, Vijay Krishna in his book writes $E[v(Y_1,Y_1)|X_1=x,Y_1<x]=\int_0^x v(y,y)dK(y|x)$, where $K(y|x)=\cfrac{ G_{Y|X}(y|x)}{G_{Y|X}(x|x)}$.

My question is, are the two expressions same?

Note: There is a notational difference in the two books, while Vijay Krishna uses $g(.),G(.)$ for the density and the distribution, Menezes and Monteiro use $f(.),F(.)$, respectively.


texts: Is the mainstream against agent based modelling?

texts: I have heard it said that mainstream economists disapprove of agent based modelling and some of the most prestigious economics journals will not accept papers that employ them. Is this true? And if so, why?


texts: Eaton & Kortum - Technology, Geography, and Trade - How theta impacts geographical barrier

texts:
The paper says:

  Smaller $\theta$ implies more heterogeneity, and thus larger
  comparative advantage, and hence stronger force for trade relative to
  resistance $d_{ni}$.

Would it be correct to therefore infer that geographical barriers are less important when $\theta$ is smaller? Or is this "technically incorrect"?


texts: Condorcet's paradox: Is the majority rule transitive?

texts:
From this wikipedia link I would say that the majority rule is not transitive. Also I'm not sure I understand exactly what is transitivity in this situation... With a usual preference relation $x\succsim y$ and $y\succsim z$ then $x\succsim z$.

However, from the wikipedia, we could get a paradox ?


texts: What keeps minimum wage rates in balance?

texts:
I would posit that the minimum wage is determined more on a political than an economic basis.  The fact is that there are more wage earners than business owners and, generally speaking, the wage earners prefer an increase while the business owners prefer a minimum wage decrease (perhaps even to 0).  There are more wage earners to vote than business owners, and this makes it politically expedient, on the balance, to vote for a minimum wage increase.

First, is this true?

Second, if you find it to be true, why doesn't the minimum wage increase substantially more than it has over the years (focusing on the US)?  What is the counter balancing force that causes minimum wages to seek equilibrium at some something between "poverty" and "living wage" level (again, in the US)?  Or is even that assumption false?


texts:
Why is it not possible to prevent sudden unemployment of thousands of people?
Often one can observe, for example in news, that suddenly from one day to the other thousands of people of a company get unemployed. Why is it not possible to prevent this or why do companies not downsize slowly instead of above stated? Of course those companies should know this earlier and they could downsize slowly, but they don't. Why?
I would really appreciate any solutions and ideas


texts: When we are talking about the least squares assumptions, one of the assumpions is that (X,Y) are i.i.d. What bothers me is that if we take an example population and research distributions of age and salaries and lets imagine that distribution of salaries (Y) in the population looks somewhat like chi squared distribution with df=10 and distribution of age (X) resembles exponential distribution. So how can we have an i.i.d. variable when sampling?


texts:
Is there a link between the level of the labor share and growth?

In standard models growth is the rate of (labor augmenting) technical progress and labor force. So does that mean if the labor share was .7 in one economy and .3 in an otherwise equivalent economy that there would be no difference in equilibrium growth rates?

I ask because there is a lot of literature of the link between inequality and growth (although not always steady state growth) but not a link between labor share and growth, despite the fact that the correlation between inequality (the Gini) and the labor share is presumably very high.


texts: How does one deal with trending variables in Linear Regression?

texts:
I have a linear regression model with two independent variables that takes the form:
$$y_{it} = \beta_{0} + \beta_{1}x_{it} + \beta_{2}z_{it} + u_{it}$$
where $u_{it}$ is the error structure.

I want to know if I have data on all of $y,x,z$ how it would effect my estimation of the parameters if they were all increasing over time?

Context: I am running a panel regression analysis using a Fixed Effects model. All of my variables are trending all upwards. I am concerned that I will have biased results but not sure how this would enter into my model or if there are ways to account for this.


texts: Modern Portfolio Theory Vs Marginal Utility Theory

texts:
I'm currently trying to wrap my head around modern portfolio theory and would love a simple explanation on how it differs from a marginal utility model (if at all).

As I am understanding it, MPT allows you to create a portfolio of assets in optimal quantities at a given risk factor.  However, isn't this basically the same as judging the marginal risk return of each asset and then funding each to its relative "risk return" (e.g. fund Asset A until marginal return is less than asset B, then fund asset B, fund asset B until marginal return is less than C, then fund C).


texts: List of EU banks that received state aid

texts: Is there a list of EU banks that got state aid / bailed out since 2008 crisis? I know EU state aid commission approves the fundings to banks, but does anyone keep track of which banks are tapping into these aids?


texts: Are some laws "Progressive" for businesses?

texts:
(United States Based)
I'm not sure if this is the right exchange to ask this in. You know how there are progressive tax laws where lower income individuals are taxed a smaller percent of their income. Is this usually done with respect to companies and their profit margin?  Are laws often written so that regulations and stipulations are lesser for "smaller" businesses? If not, why? Also, are there any laws where businesses trying to enter markets with high barriers to entry are subsidized in order to encourage competition in said market?


texts:
Although the tax incidence is generally dependent on the nature of the elasticity of the demand or supply, in special scenarios can the producer take up the complete burden of the tax so that the price paid by the consumers does not change?
If this is possible does this mean that the supply curve is shifted in order to change the tax incidence?


texts: How to deal with challenging exam questions and truly understand concepts?

texts:
In my university, as well as many others around the world, undergraduate Economics exams can often be quite challenging – necessarily so, given that this is higher education. My question is – how can I meet this challenge?

A common source of frustration after exams is that “these questions were so different from what we did in class!” Over the past few semesters, I’ve come to realise that a difficult Economics exam question is difficult because it challenges the assumptions with which we learnt the central concepts and/or introduces external conditions which makes it difficult to directly apply how we learnt it in class.

For instance, just as a very simple example, in intermediate microeconomics, while we may have learnt how to solve for the optimal basket for a consumer who has a Cobb-Douglas utility function, in exams we could be “suddenly” thrown a scenario where the consumer’s utility function is now a minimum (min) function when we have not seen a min function before. Given the necessary scaffolding so that we know how a min function works, we are expected to solve for the optimal basket.

Another example: in introductory Econometrics, the topic on "estimation" focused on estimating mean, variance etc...(typical stuff). In exams, we were asked to estimate a cumulative distribution function i.e. P(X<=x). While we had learnt distribution functions quite extensively, we were never asked to estimate it in class.

In some ways the above examples are over-simplified, but the point is to illustrate a few ways “typical” questions could be tweaked to be challenging.

So my question is – how do I study Economics more skilfully so that I can be able to face up to these sorts of questions during the exam? Alternatively, how do I truly understand the concepts so that I can answer the question no matter how it’s tweaked – in a realistic amount of time under exam conditions. I can’t possibly compile a list of all permutations and combinations of how the question might deviate from the typical examples – that would be too inefficient, especially since the “assumption challenging condition” could come totally unexpectedly. Students are often advised to “truly understand” the concepts – but I have not heard enough on how this can be achieved. How can I do this?


texts:
Real exchange rate formula is the exchange rate multiplied by the ratio of two prices.

what does this ratio actually imply? What is the rationale behind taking the ratio?


texts: How do you use a Log-linear model when you have negative Xs?

texts: I am trying to us a Log-linear model to derive an elasticity. However, some of my Xs are negative numbers. Being as the model relies on the natural log of the Ys and the Xs, how can this model work when the natural log can only be taken of X>0?


texts: Is there a name for this type of problem?

texts:
I am having trouble formulating the concept I am thinking about. It has to do with looking at observed behavior of the sales of a particular product during each hour of the day, and trying to adjust prices accordingly.

If you have a time series of 24 pairs of values, $(x_1,y_1), (x_2,y_2), \ldots, (x_{24},y_{24})$, where $(x_t,y_t)$ represents the data at time $t$ o'clock: $x_t$ is the number of sales and $y_t$ is the average price paid (both at time $t$).

Given this information, is there anything that can be deduced about how the product should be priced? What about by the hour?

My background is not in economics, so I don't know if there is a framework for this type of problem.


texts: Why do commercial banks buy government bonds at negative interest rates instead of keeping cash?

texts:
I know commercial banks need to meet liquidity requirements, but why would they choose to invest their money in an instrument that is guaranteed to give them a negative return, instead of just keeping their clients' money in "cash"?

Is there some legislation forcing them to use government bonds?


texts: Question on estimating elasticity and cross elasticity with log-log regression model

texts:
For a regression model: Y = B0 + B1.X + B2.X2 + U, B1 and B2 is the marginal effect on Y wrt X and X2.
Now, for a log - log regression model, log() = 0+ 1.log() + 2.log(2) + , B1 and B2 is the elasticity Y wrt X and X2.
In my case, I'd like to estimate elasticity Y wrt X, when X2 is not constant. i.e cross elasticity effect.
In my case, Y is units sold and X is price and X2 is available substitutes. The standard interpretation doesn't apply here because there is cross-elasticity effect of X2, number of available substitutes on Y.
How would I interpret elasticities and cross-elasticities in this case?
ps. I realize price is endogenous and need to add an instrument to deal with problem.


texts: Covariance between regression coefficient and residual

texts:
Given regression equation Y=Xβ + ε which satisfies all classical assumptions including those of homoscadasticity

Estimated regression equation using OLS is the following -

Y=Xb + e

Where, b is the OLS estimator for β and e is the estimated residual term for equation where E(e|x) =0

Note: b=(X'X)$^{-1}$X'Y

We can find,
Cov(b,e|x) = E(b.e|x) - E(b).E(e|x)

=E(b.e|x) = E((X'X)$^{-1}$X'Y.e|x)=E((X'X)$^{-1}$X'(Xβ + ε).e|x)

=E((β.e + (X'X)$^{-1}$X'ε.e)|x)

=(X'X)$^{-1}$X'E(ε.e)

Solving for E(ε.e) gives σ²(n-k) [I wrote e= Y-Xb, substituting for b and some manipulation gave me e= ε + X(X'X)$^{-1}$X'ε]

This gives Cov(b,e|x)=(X'X)$^{-1}$X'σ²(n-k)

I think in this expression - (X'X)$^{-1}$X' - I shouldn't have X' in the right (as the formula of var(b) suggests). What am I missing?


texts:
I have been asked by my professor for Decisions Theory to refer to David M. Kreps' Notes on Theory of Choice for the proof of the vNM theorem of expected utility. Before the proof of the theorem actully starts, there are two Lemmas stated which are used in the proof of the theorem. I am unable to understand the proof of one part of one of the Lemmas. Specifically, the proof for part (c) of the below Lemma. I understand the intuition behind it. Its basically the indpendence axiom but with equivalence relation, however I do not get the proof at all. Any help is much apprciated.

And this is the proof for part (c). When the author talks about applying (5.2), he is referring to the independence axiom and when he talks about applying (5.3) he is referring to the Archemedean or the continuity axiom.


texts: Why do non-binding price ceilings have no effect?

texts: My question seems trivial but I have a particular issue I don't understand. If there's a price ceiling above the price equilibrium, the customers can still use the ceiling as leverage when negotiating, and thus negotiate a lower price. Then the ceiling does have an effect.


texts: Can the theory of the second best mathematically justify labor unions in some scenarios?

texts:
An EPI page says:

Some economists and policymakers might express unease at the view that the downsides of one deviation from “competitive” markets (either labor market frictions or market concentration or some other source of employer power) should be countered by introducing another market imperfection (e.g., unions or a binding minimum wage). But this unease is unwarranted. The “theory of the second best” clearly argues that once markets depart at all from perfect competition, efficiency may well be increased by further departures. For example, in the case of monopsony power in low-wage labor markets, legislated minimum wage increases can potentially move wages closer to efficient levels and increase employment.

However, looking at the theory of 2nd best... it's actually not that clear cut that one can simply infer that "doing anything to counter" a distortion is actually going to be 2nd best. In a 50-year retrospective Lipsey himself seems to have nothing to say about labor markets and his theory.
Further, as explained "for dummies" in an article in the Economist (which actually quotes from the above paper, but I'll just quote the more accessible, "dumbed down" explanation from the magazine itself):

Suppose that I told you that in the absence of the necessary conditions for teleportation, the next best thing is to forget all about the conditions for teleportation and instead fly at near the speed of light. Would you find this helpful if what you actually had was a Toyota and a half-tank of gas? Many "second-best" policy recommendations are a bit like that: the ideal market is a fantasy, so here is an ideal government to fix things. Obviously, this is not very helpful. [...]
The upshot is that in practical situations, as opposed to theoretical models, we do not know the necessary and sufficient conditions for achieving an economy-wide, first-best allocation of resources. Achieving an economy-wide second-best optimum allocation looks even more difficult than achieving the first best. Without a model of the economy’s general equilibrium that contains most let alone all of the above sources, we cannot specify the existing situation formally and so cannot calculate the second-best optimum setting for any one source that is subject to policy change. This is an important point since much of the literature that is critical of second-best theory assumes that economists know a distortion when they see one and know that the ideal policy is to remove the distortion directly, something that is necessarily welfare-improving only in the imaginary one-distortion world.

Lipsey himself says:

Are there general policy rules for piecemeal improvements?
My answer to the question in the [above] heading is "no".

So is the EPI "shooting from the hip" here when it claims that 2nd best justifies minimum wage (and possibly even labor unions, although they're not as explicit about that entailment.) Is there any theoretical work that proves that labor unions achieve a 2nd best in some scenario?


texts: What is meant by miscellaneous liability?

texts: "What is meant by Suspense account balances showing the amount due to other banks or public, participation certificates issued to other banks, cash collaterals etc." These are all taken as miscellaneous liability.


texts:
In "That Which Is Seen, and That Which Is Not Seen", Bastiat (1850) writes:

What will you say, Moniteur Industriel? what will you say, disciples of good M.F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?

What were M.F. Chamans's calculations about how much trade would gain by the burning of Paris? (Also, who was M.F. Chamans?)


texts: What are the widescale economic ramifications of people holding onto their money instead of spending it?

texts:
Pretty simple question: people get rich by saving more money than they spend. What are the implications of people holding onto their money instead of spending it?

Do rich people save more money (ratio-wise) than less rich people?


texts: Was there any use of scoring rules in economics or finance before Hanson published about LMSR?

texts:
Scoring rules arose in the field of meteorology, with the seminal paper published in 1950, but I can't find any references to their using in economics or finance until Hanson published in 2002. Half a century is a long time, so it seems unlikely that Hanson was the first to use scoring rules.

Is the problem just with my Google-fu or was Hanson actually the first? I'm betting on the former.


texts: Why does Figure 2.F.1(b) (MWG page 30) satisfy the WARP (Definition 2.F.1)?

texts:
I can see that Figure 2.F.1(a) satisfies the WARP (Definition 2.F.1) in MWG (page 30).

However, as the choice $x(p',w')$ is only feasible under the price-income level $(p',w')$ and $x(p'',w'')$ is only feasible under $(p'',w'')$ in Figure 2.F.1(b), why does it still satisfy the WARP definition which requires that a choice (say, $x(p',w')$) should be feasible under two different price-income levels (say, $(p',w')$ and $(p'',w'')$)?


texts: Credit Frictions as the source of Business Cycles

texts:
Many papers look at the impact of credit frictions onto business cycles, and they almost unambiguously find that credit frictions work as an amplification mechanism of other shocks.

For example, given a stronger negative total factor productivity shock, the existence of borrowing frictions will lead to higher firm death, devaluation of capital and in general stronger impact on the real economy.

A lot of these models (in the tradition of Kiyotaki and Moore) have finite periods and just illustrate the amplification mechanisms. Have there been attempts that actually tries to look at credit frictions themselves as the source of business cycles?


texts:
If a consumer follows the rationality axiom of continuity (i.e. no jumps in his preferences), the indifference curves of a utility function are said to be thin.

Why does continuity ($x \succeq y \Rightarrow \exists \space z=x+\epsilon$ such that $|z|\ge y \space \forall \epsilon > 0$) imply thin indifference curves?


texts: Problem with interpretation of exchange rate

texts:
I found an article in which one of explanatory variable is "neer". From this article "The rise (decline) in this variable points to the appreciation
(depreciation) in excess of the appreciation of the Swiss franc."

Further we have "The positive sign of the coefficient means that the appreciation of domestic currencies vis-à-vis those of their trading partners relative (rise in neer) leads to higher price levels ceteris paribus."

So, I have several questions. Is neer local currency/swiss franc? How will look like the interpretation when we have swiss franc/local currency? Will in this situation the negative sign of the coefficient be?


texts: Share of domestic and foreign monetary flows between sectors of a country

texts:
In multiregional input-output analysis, monetary flows between or within economic sectors are given in a transaction matrix T. Both, the rows and the columns, have the same index (Region 1 Sector 1, Region 1 Sector 2, ... Region 2 Sector 1, Region 2 Sector 2, ... ). The diagonal of the T matrix contains the intra-sectoral monetary flows. Analagously, the diagonal of the "regional blocks" (all sectors from one region) contains the intra-regional monetary flows between sectors.
I figured that in the database with which I am working, the share of intra-regional monetary flows (all flows belong to region 1) compared to all monetary flows of a region (all flows from region 1 to region 2 or vice versa) are rather low. Let's say around 20% on average. To me (non-expert), this seems plausible. However, I would like to crosscheck my findings with "real world data".
Question: Is there an indicator which compares intra-regional monetary flows with total extra-regional monetary flows? ... in other words: How much monetary flows between sectors take place within a country and how much monetary flows between sectors of a country take place with sectors from other countries?
I came across "Trade (% of GDP)" (https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS). However, 1) in input-output analysis I understand GDP to be given by the final demand vector/matrix and 2) the given figures of about 50 to 60% are completly different to my findings of around 20%.


texts: Im new to economics and want to understand the AIDS/QAIDs model of Angus Deaton. Can anyone suggest possible readings for the same as a background knowledge??


texts: Is wealth created when money is transferred from a wealthy country to a less wealthy country?

texts:
Imagine a person based in India is working for a client in the USA. The client pays the person 100 USD. The currency is converted into INR, which turns out to be 100 * 74 = 7400 INR.
But if we convert the currency according to Purchasing Power Parity rate, then it should have been 100 * 21.21 = 2121 INR.
So, the USA man is spending money which could have bought him 2121 INR worth of goods and services, but the Indian man is receiving money which can buy him 7400 INR worth of goods and services. So does that mean that 7400 - 2121 = 5279 INR worth of purchasing power is created out of thin air?


texts: Why is airbnb more expensive than priceline?

texts:
Some might say I have an addiction to Priceline Name Your Own Price, however, what I can tell you is that NYOP rates for 2.5* and 3* hotels are always better than the room options offered through airbnb.

What I cannot understand is why do so many people believe otherwise, claiming that going with airbnb is cheaper?

Likewise, why the landlords are asking for such high rates all the while NYOP and even published Express Deals are often half the price, yet include gyms / pools / breakfasts for the whole family.


texts:
I've been reviewing my microeconomics notes and have found a point that I still don't quite understand. this being Gorman Polar Form

Gorman form of the indirect utility function is  as defined by Varian is:

$$v(p,m)=a_i(p)+b(p)m$$

where $a_i(p)$ differs from each consumer and $b(p)m$ is the same for every consumer.

How does one estimate $b(p)m$?


texts: Inflation index and longevity of modern household appliances

texts:
The cost of household appliances and TVs are part of the Inflation Index.
It is well known fact that modern appliances and TVs last 1/3 -1/2 time as comparing to 10-20 years ago and every time we buy new item the government collects the taxes.
Should we prorate the price of the item to it's durability and longevity?
 For example, if the stove price has not changed and is about \$1000, but it lasts only 1/3 of the time it used to work in the past, then its real price for the purpose of calculating the inflation index must be \$3000. Would you agree?


texts: Is the value of a product measured in money a reliable measure of the economic value of this product?

texts: This could rather be a philosophical question but would be curious to know the economist's POV and how these two (value of the product, total economic value of the product) correlate.


texts:
Imagine we have already built our linear regression model, with a certain dataset.

Which order of tests would you follow to be sure that whatever conclusions you may want to extract are correct. For example:

In the beginning we may want to test for non-linearities not present in
our model, but present in reality (model misspecification). For this objective, we could use RESET. What others can we use and why?
Now we could want to test for heteroskedasticity(Breusch-Pagan and White's tests
Endogeneity (Durbin-Wu-Hausman test)
...

Which 'game plan' do you use and why?


texts: Decision to make one side of a multisided platform the subsidy side

texts:
I'm reading Matchmakers: The New Economics of Multisided Platforms by economists David S. Evans and Richard Schmalensee.

They describe how businesses often make a rational choice to allow one side of their "matchmaking" business to be the "subsidy side", i.e. the side paying a negative price, and the other side to be the "money side", as in the side that pays fees to the business. Here "matchmaking" means serving as an intermediary that lowers the transaction cost of connecting 2 or more populations, such as Visa connecting shoppers and retailers.

For example, PayPal pays (or used to pay) consumers for signing up for the service, so they're the subsidy side. Businesses typically pay the fees and are thus the "money side".

Is there an equation, formula, or inequality that describes how the business chooses which side to treat as the subsidy or money side?


texts: Solving a HJB with a probability to transit to a new state

texts:
I am trying to solve the problem of a firm facing the possibility of a future tax, in continuous time.
The firm maximizes $V(k)=\int_{t=0}^{\infty}e^{-rt} \pi_t dt$ with $\pi_t=f(k_t)-i_t$ and $\dot{k}=i_t-\delta k_t$. There is a probability $\rho$ per unit of time to transit to a new state where a tax is imposed, and where the profit becomes $f(k_t)-i_t-\tau k_t$. This is a partial equilibrium problem and we assume that $r$, $\delta$ and $\rho$ are exogenous.
I am trying to solve this problem using Hamiltonian-Jacobi-Bellman (HJB) functions:
$$\begin{align*}
rV_1 &= \max_{i} \{f(k_t)-i_t+\rho (V_2-V_1)+\dot{V}_1\} \\
rV_2 &= \max_{i} \{f(k_t)-i-\tau k_{t}+\dot{V}_2\}
\end{align*}$$
I know how to solve the second equation, following the method of Walde 2012 using dynamic programming. First, rewrite $$f(k_t)-i_t-\tau k_t + V'_2(k_t)\dot{k_t}=f(k_t)-i_t-\tau k_t+ V'_2(k_t)(i_t-\delta k_t)$$ Then, take the FOC with respect to $i_t$, which yields
$$V'_2(k_t)=1$$
Then, use the envelope condition to find
\begin{align*}
rV'_2=f'(k_t)-\tau+V''_2(k_t)(i_t-\delta k_t)-\delta V'_2(k_t)
\end{align*}
This can be simplified, using the FOC, as$$\begin{align*}
f'(k_t)=r+\delta+\tau
\end{align*}$$
which yields the same solution as a simple Hamiltonian would.
However, I am unsure how to proceed next and how to solve for the solution before the tax is imposed and the uncertainty resolved.
Additionally, if you have some references regarding dynamic control in continuous time, I would be very interested, especially if they treat the case of HJB with additional constraints.
Thank you in advance for your help!
EDIT: for clarification, once we reach the new state where the tax is imposed, there is no possibility to go back to the previous state. The only uncertainty is about when the tax will be imposed, i.e, when the uncertainty will be resolved.


texts:
I'm reading the book "Economics of natural ressources and the environment" written by D. Pearce and R. Turner. They explain that the competitive equilibrium is not a Pareto optimum in case of (positive or negative) externalities. The example they use is a firm that has an activity Q and this activity creates some pollution. They illustrate it in figure 4.1 (figure below). MNPB stands for "marginal net private benefits" and MEC "marginal external cost". MEC is thus the extra damage done by pollution arising from the activity measured by Q.

The firm will try to maximize its benefit, i.e. reach an activity of Q$^\pi$. Q$^*$ is the level of activity to have a social optimum. I understand the reasoning so far.

What I do not understand is why Q$^\pi$ is not Pareto optimum. If we had to reach Q$^*$ from Q$^\pi$, the firm would loose some of its utility so Q$^\pi$ should be Pareto optimal.

I feel like I do not understand the exact meaning behind the notion of the Pareto optimality.

Source of image: "Economics of natural ressources and the environment", D. Pearce and R. Turner, Harvester, New York, 1990.


texts: In the long run, would a production-possibility curve expand outward if the country preferred more consumer goods than capital goods?

texts:
PPC will not expand outward if the country preferred more consumer
  goods than capital goods.

  The total amount of resources in an economy at any given point of time
  is fixed. If a country preferred more consumer goods, more resource
  has to be allocated to produce the consumer goods. It will lead to a
  sacrifice of the production of capital goods. In a long run, the
  production of consumer goods is difficult to expand since the capital
  goods’ restriction.

This is my answer to the question. But I'm not sure if it's good enough. Any suggestion would be appreciated.


texts: Let me introduce my question with an example. There is a company producing cars. $20$ cars are produced, with a value market of $20000u$.  $\textrm{GDP} = 20\cdot20000u = 400000u$. Assume that the company doesn't purchase any intermediate good, so all the income, $400000u$ goes for the company, and you can compute (income approach) $\textrm{GDP} = \textrm{S} + \textrm{B}$, where $\textrm{S}$ stands for salaries and $\textrm{B}$ for benefit. But we are somehow assuming that the company will get $400000u$ for selling the cars. What would happen if they only sell 15 cars? They will only get $15\cdot20000u = 300000u$, so $\textrm{S} + \textrm{B} \neq \textrm{GDP}$. I have read that this is written down as if the company buys the $5$ remaining cars, but there is no money transfer here, so they can't distribute the $100000u$ worth of cars between $\textrm{S}$ and $\textrm{B}$. Why would the income approach for GDP hold in general?


texts: Quasilinear utility: if $x \succeq y - ae_1$, does it mean $x + ae_1 \succeq y$?

texts:
Quasilinear preference is defined to be:

$x \sim y \Rightarrow x+ae_1 \sim y+ae_1$ and $x + ae_1 \succ x$ with $e_1 = (1,0,0,...)$,

Given a quasilinear preference, if f $x  \succeq y - ae_1$, does it mean $x + ae_1 \succeq y$?

I know that $x + ae_1 \succ x$ but how do I compare $x+ae_1$ with $y$? Drawing a diagram makes me see it but I can't prove it rigorously.

EDIT: Included the definition for quasilinear preference.


texts: Why does the gold standard require countries to keep exchange rates fixed?

texts:
The gold standard required countries to use monetary policy to keep
exchange rates fixed and thus to allow prices, output, and employment
to vary as required by the movements of gold and the country’s
exchange rate.  (A history of the Federal Reserve, volume 1, 1913–1951.  Allan H. Meltzer, 2003, The University of Chicago Press. ISBN 0-226-51999-6.  Introduction, page 5.)

What established fact is being invoked here?  Can you cite a reference
that provides instruction about this result?  Thank you.


texts: The economics of continually selling a product for under its market value?

texts:
What are the economic principles behind a company continually selling a product for well under its market value. Continually here expressing that it does not appear to be some short term method to bankrupt competitors.

I am talking about companies that sell products that can be routinely resold on the second hand market for many times their initial cost.

I recently watched a documentary on Nike, where it describes their humongous Limited Edition department and how they sell shoes for a few hundred dollars a pop to client base willing to wait in line for weeks and pay thousands of dollars for any one of their limited editions shoes.

It describes Nike underselling their shoes by 1000% in both quantity and price. But Nike is hardly the only example, a few years ago, anyone who wanted to buy a Nintendo Wii could be certain of making a profit reselling it.


texts: How is it possible that all currency exchange rates are fixed w.r.t. to each other?

texts:
I wondered if it would be beneficial to exchange a currency through one or more "in-between" currencies.

For example: instead of trading Russian Ruble (RUB) to Euro's (EUR), one would trade from RUB to US Dollars (USD) and then to EUR.

Neglecting exchange costs, I expected that there would be some difference in the resulting amount of money.

I tried this out in an Excel sheet, using data from Floatrates.

I first imported an xml of all the RUB exchange rates (column C in the Excel).
Then I imported an xml of all the EUR exchange rates (column G in the Excel).
By inverting the latter I found how much EUR every currency was worth (column H in the Excel).
Then I multiplied the column C with column H to find the resulting value.

What I found is that the resulting amount of money stayed the same, regardless of which currency I went through.

How can this be? Is my method of calculating the resulting amount of money perhaps incorrect?


texts: Conditional variance vs. unconditional variance in ARCH model

texts:
I am in the process of working through some problem sets. I have studied some time series, but my knowledge of ARCH models is pretty basic. I am given the following information:

$Y_t = a_0 + a_1 Y_{t-1} + \epsilon_t$

where $\epsilon_t | I_{t-1} \sim N(0,h_t)$ and $h_t = \alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \alpha_2  \epsilon_{t-2}^2$

I solved for the following,

Conditional variance:

$E(Y_t | I_{t-1}) = a_0 + a_1 Y_{t-1}= \mu$

then

$Var(Y_t)=E[(Y_t- \mu)^2] = E(E_t^2) = ht = \alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \alpha_2  \epsilon_{t-2}^2$

Unconditional Variance:

At this point I think we can create a new series for $Y_t$ since we are not conditioning, so I wrote,

$Y_t = a_0 + a_1 (a_0 + a_1 Y_{t-2} + \epsilon_{t-1}) + \epsilon_t$, repeat this infinitely many times and get

$Y_t = \frac{a_0}{1-a_1} + \sum_{j=0}^\infty a_1^j \epsilon_{t-j}$

$E(Y_t) = \frac{a_0}{1-a_1}$ and

$Var(Y_t) = E[(Y_t - \mu )^2] = \sum_{j=0}^\infty a_1^{2j} \epsilon_{t-j}^2 = (\alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \alpha_2  \epsilon_{t-2}^2) + a_1^2 (\alpha_0 + \alpha_1 \epsilon_{t-2}^2 + \alpha_2  \epsilon_{t-3}^2) + a_1^4(\alpha_0 + \alpha_1 \epsilon_{t-3}^2 + \alpha_2  \epsilon_{t-4}^2) + \dots$

I am not sure if this cleans up nicely, but what does this say for the variance? it seems like the unconditional is just going to blow up infinitely (given I could have made a mistake in the derivation of this question). I am also not sure if I should state some stability conditions in this question similar to AR(1) processes (e.g., $\alpha_1 < 1$ and $\alpha_2 < 1$), since these are variances do those conditions apply?

If I was to conclude a statement, is it acceptable to stay the model captures volatility clustering via 2 period lags?


texts: Do assets without rental income streams appreciate relative to assets with rental income streams?

texts:
In his book "The Armchair Economist", economist Steve Landsburg critiques an op-ed concerning the relative value of stocks and real estate:

  James K. Glassman wrote a piece in The New Republic to prove that stocks are better investments than real estate. He calculates that "if you bought a 200,000 dollar home in Foggy Bottom [a neighborhood in Washington, D.C.] in 1979, it would have been worth 316,000 dollars [ten years later]. But if you bought 200,000 dollars worth of stock in 1979, it would be worth 556,000 dollars [ten years later]—and you'd have another 68,000 dollars in dividend income."
  Well, yes, but if you'd bought the house you would have had a place to live for those ten years, whereas if you'd bought the stock you'd have been making rental payments to a landlord. This renders Glassman's comparison meaningless. All he shows is that if you compare all of the benefits of owning stock to some of the benefits of owning real estate, then the stock comes out ahead. Big deal.

  Glassman's piece has a place of honor in my Sound and Fury File because his conclusion is so exactly the opposite of the truth. He explains that "stocks appreciate faster than real estate; they always have and they always will. The reason is that a share of stock is a piece of a company in which minds are producing value. Real estate just sits there." The truth is that stocks appreciate faster than houses precisely because a house does not just sit there; it provides shelter, warmth, and closet space every single day that you own it. Stocks need to appreciate faster to compensate for the fact that they don't provide any comparable stream of services. If stocks and real estate appreciated at the same rate, nobody would own stocks.

My question is, what are the mathematical details of Landsburg's claim in bold?  If A is an asset that produces a stream of rental income, and B is an asset that does not produce a stream of rental income, then must the relative price of B with respect to A be constantly increasing?  Is there a model that shows this?  And what exactly causes this relative price change?


texts: When and why women left the labour market?

texts:
It is well documented that women in now developed countries entered the labour market all thoughout the 20th century. As such, female labour participation have consistently increased. For example, this is a table from Godin (1977):

Here is a graph from a more  recent report:

However, I have the impression that the feudal, or pre-capitalist societies, which were mainly agrarian and textile based, relied heavily on female labour. We can probably all picture housewives working in the field or sawing textiles.

So, the question is, when and why women left the labour market? Is this because of a transition from feudalism toward a capitalistic mode of production? Or the shift from agriculture to industry?


texts: How is sending money out of a country draining its economy?

texts:
From this article:

  Every year, Mexicans working in the U.S. send at least $20 billion back to Mexico in the form of remittances, placing a huge drain on our economy.

But I don't see what negative effects it could have on the US economy.
Won't the money find their way back to the US, since that is the only place where you are able to trade them for goods and services?

Would the impact be different for a smaller country with a currency not as global as the US dollar?


texts: Did previous researchers fail to detect the hot hand simply because of a statistical fallacy?

texts:
Many basketball fans/players believe that having made several shots in a row,  the next shot is more likely to go in. This is sometimes called the hot hand.

Starting (I think) with Gilovich, Mallone, and Tversky (1985), it was "shown"  that this was in fact a fallacy. Even if several shots in a row have gone in, the next shot is no more likely to go in than your average shooting percentage would dictate.

Miller and Sanjurjo (2015) argue that the hot hand does in fact exist and previous researchers had simply fallen prey to a fairly basic statistical fallacy. Their argument is something like this:

Flip a coin four times. Compute the probability that H follows H. To give a few examples: HHTT would have probability 1/2, HTHT would have probability 0/2, TTHH would have probability 0/1 1/1, and both TTTT and TTTH would be N.A.

Miller and Sanjurjo's punchline is that the expected value of this probability is not 0.5, but ≈0.4. And the error made by previous researchers was to incorrectly assume that the expected value of this probability is 0.5. So if for example these previous researchers conducted the above coin-flipping experiment and found the average probability to be say 0.497, they incorrectly concluded that there was no evidence of a hot hand (not significantly different from 0.5), when in fact there was very strong evidence of a hot hand (significantly different from 0.4).

My question is this: Are Miller and Sanjurjo correct that previous researchers failed to detect the hot hand simply because of this mistake? I have only skimmed one or two papers on this so I wanted to get some confirmation from someone here who might know this literature better. This seems like a surprisingly silly error to have persisted for three decades or more.


texts: What assurances are there that the Federal Reserve does not give money to banks?

texts:
My understanding of the operation of the United States Federal Reserve Bank is that it invents dollars by a unilateral, unbalanced credit to its own account and then it loans this money to member banks. In some cases this money is loaned to non-bank institutions of the Federal Reserves choosing and that all of these loans, whether to member banks or non-member institutions are secret.

What assurance is there that the Federal Reserve is not giving the money to the various recipients as opposed to lending it?

For example, let's imagine the Federal Reserve "loans" $400 billion to JP Morgan Chase. What is to prevent them from "forgiving" this loan, meaning to allow the recipient to never pay it back? Or, in a similar vein, simply making the terms of the loan essentially infinite, for example making it a zero coupon loan for 5000 years, which is effectively a gift.

What assurance do members of the public have that this is not occurring?


texts:
I am studing a little bit of auction theory. I found the optimal bid value in the Milgrom paper for the first price auction that is
$$
P=v \frac{n-1}{n}
$$
where $P$ is the optimal bid, $v$ is the true value and $n$ is the number of bidders.
Now I am wondering if there exist an equivalent formula for reverse auctions.
What is the formula for the optimal bidding in reverse auctions?


texts: Greek mathematics' application in the early economic theories

texts: I am writing about the development of mathematics in the Ancient Greece as an assigment and I have to include its relation with economics. However, I lack of sources for this topic and I only found Joseph Schumpeter: History of Economic Analysis's one early chapter. Can someone recommend me any article or book in this topic?


texts: GDP (Is this a part of GDP Calculation)?

texts:
The GDP Calculation is for US.
If a Canadian company decides to change from a US supplier to a Canadian supplier, will that change the GDP?

I thought it would - as that it would reduce exports - but the answer given is "no change"


texts: mean variance utility function for risk loving person

texts: Let $X$ denote wealth. The mean variance utility for a risk-averse person is given by $E(X)-\frac{r}{2}Var(X)$ where $r$ is degree of risk-version. $r=0$ implies that person is risk-neutral. How does the mean variance utility function look like for a risk-lover?


texts: Can the Goodwin Model of cyclical labor growth be applied in a micro context to specific industries?

texts:
I have been doing a bit of research into the Goodwin Model (1967), which generates cycles of economic activity. I understand that this is mostly used in macroeconomics. However, I am curious if this predator-prey style model can adequately model the dynamic between workers share if output and their employment levels at the level of an industry versus the economy as a whole?

I've done some preliminary literature searches to see if it can be applied in a micro, rather than macro context, but have not found anything on this. Does anyone know if this is feasible? If not, can someone point me in the proper direction of a micro model which might do something similar?

Thanks!


texts: Is it possible to derive the marginal product of an input using a transformation function?

texts:
I'm using a transformation function $F(\cdot)$ to describe a production set $y = (x, z, L, K)$, where $x$ and $z$ are private goods denoted by positive numbers, $L$ is labour input, $K$ is capital input and both are denoted by negative numbers. Here I'm just following Mas-Colell (1995), page 128, but changing the labels of the variables in the production set.

In this case, if $F(y) = 0$, I think I can claim that the marginal rate of transformation (MRT) of good $x$ for good $z$ is

$$
MRT_{xz} = \frac{\partial F / \partial x}{\partial F / \partial z}
$$

and also that the marginal rate of technical substitution (MRTS) of labour ($L$) for capital ($K$) is

$$
MRTS_{LK} = \frac{\partial F / \partial L}{\partial F / \partial K}
$$

In this same setting, can I also claim that the marginal product of labour ($L$) with respect to the private good $x$ is

$$
MP_L = \frac{\partial F / \partial L}{\partial F / \partial x}
$$


texts:
everyone. I want to estimate an FAVAR model step by step in python to better understand how the algorithm works. Here is my approach, kindly let me know if it makes sense.
Step 1: Separate informational variables ($X_t$) from the policy variable of interest ($Y_t$).
Step 2: Extract principal components ($\hat{C} (F_t, Y_t)$) from $X_t$ using python's PCA algorithm/function.
Step 3: Extract principal components ($\hat{C}^* (F_t)$) also from slow-moving variables of $X_t$
Step 4: Estimate coefficients ($\hat{\alpha}, \hat{\beta}$) by running the regression: $\hat{C} (F_t, Y_t) = \alpha \hat{C}^* (F_t) + \beta Y_t + e_t$. If there are two or more principal components, then run two or more regressions accordingly.
Step 5: Construct the estimated factor(s) as follows: $\hat{F_t} = \hat{C} (F_t, Y_t) - \hat{\beta} Y_t$.
Step 6: Run a standard VAR model with $\hat{F_t}$ and $Y_t$
If something is missing in these steps, kindly lemme know. Many thanks!!


texts: What is the cumulative amount of working hours for consumer products?

texts:
Is there any research about the cumulative amount of working hours for consumer products like cars or mobile phones?

With cumulative amount of working hours I mean the total amount of working hours that is spend to create 1 quantity of that product, including research & development, extracting resources, transportation, manufacturing, distributiong, etc.


texts: Can geography explain differences in economic development between present day economies?

texts: Just wondered if anyone considered this. Do simple geographic factors explain differences in economic development?


texts:
I am interested in finding the literature or at least some references (books, journal papers etc.) for the following problem:

  Suppose there is an auction with one seller and one buyer. The seller has two distinct and indivisible goods to sell and the buyer wants to buy at most one good.

Also, has the community of mechanism design dealt with this problem?

The reason I'm asking is because I want to design an auction for an engineering problem. But first I need to understand the theory behind auctions.

I'd appreciate any help. Thank you.


texts: Devaluation of Venezuelan Bolívar - Will it increase or fight hyperinflation?

texts:
According to recent news, Venezuela is lopping 5 zeros out of its regular Bolívar, and devaluing it, and pegging it to a cryptocurrence issued by Venezuela, to fight the economic situation (hyperinflation, low GDP, etc.)

However, if I remember well, won't the devaluation of a currency increase inflation by increasing prices of imports, and in some cases also increasing prices from domestic products by increasing exports?

What's the rationale here for this measure?


texts: What are the main differences in a macroeconomic model, i.e. New-Keynesian DSGE, under a currency substitution (full dollarization) scheme?

texts: I have searched arround the web and economic journals trying to find out research related to a macroeconomic model in which the country is fully dollarized, but I haven't had any luck. My main concern is how to deal with exchange rates and the monetary authority. Maybe I just have to forget about them.


texts: Retaliating against a foreign country's import tariffs

texts: When Trump imposes tariffs on imports from China, he is hurting American consumers who won't be able to take advantage of cheap Chinese goods. If China was to retaliate by imposing tariffs on imports from the US, they would be hurting Chinese consumers in the same way. So, is there is any need for a country to retaliate against another country's import tariffs?


texts: Elasticity of Substitution of CRS Production Function

texts:
Suppose that $F(\cdot)$ has CRS in $K$ and $L$, the elasticity of Substitution is  $\sigma_{K L} \equiv F_{L} F_{K} / F F_{L K}$.
I once derived this equation but I remember that it takes me quite long time and the process is quite tedious. I wonder is there any easy way to derive this or remember it intuitively?


texts: Estimating production functions with time series data

texts:
A while back I asked How do we estimate production functions?

The answers given address cases when dealing with cross-sectional data, However most of the data I've been seeing is given by a time series.

For example if we have a (logged) VAR(1) with two variables $x_{t,1}$ and $x_{t,2}$, the appropriate model is:

$$x_{t,1}=\alpha_1+\beta_{11}x_{t-1,1}+\beta_{12}x_{t-1,2}+\mu_{t,1}$$
$$x_{t,2}=\alpha_2+\beta_{21}x_{t-1,2}+\beta_{22}x_{t-1,1}+\mu_{t,2}$$

How do we develop concise production functions from a set of equations like these?


texts: What is the advantage and disadvantage of fiscal illusion policy in terms for the financial market?

texts:
What is the advantage and disadvantage of fiscal illusion policy for the financial market?

Fiscal illusion suggests that when government revenues are not completely transparent or are not fully perceived by taxpayers, then the cost of government is seen to be less expensive than it actually is.


texts: DSGE model with agents that develop their skills

texts: Are there DSGE models with agents with different skill levels (and according wage differences) who can develop or lose their skills and with employees with dynamic/changing skill levels and skill domains? Can such models be used for developing and validation policies that are designed according to Amartya Sen Capability Approach theory? Capability Approach is the leading approach for government programmes that invest in human capital development and poverty eradication, e.g. Germany's policies are based on it. In such a way we could use DSGE for validating and forecasting and design of wider policies, no just monetary or fiscal policies. If there are no such DSGE models, are there any other tools for modelling human capital development. Why not to use DSGE as the common framework for all the major policies?


texts: Vocabulary/Name for Utility of a Set of Choices

texts:
I am trying to find if there is some litterature or definition of the concept of the Utility of a set of choices. My google searches return nothing, and I expect it is because I do not know the right word.

Here is an example to illustrate what I am looking for.

Consider the following items; a very nice sport car, Car1, the same model of car, only without some options such as no A/C and slightly worse seats, Car2, and a worn off pickup, Truck.

Say that all those vehicles have some associated utility, say

u(Car1) = 500, u(Car2) = 490, u(Truck) = 100

While Car2 is very good in isolation, it is dominated by Car1 and very unlikely that anyone would pick Car2 over Car1. The Truck, on the other hand, has a low value but might be picked over Car1 under some circumstances.

Hence, the utility of the set of choices {Car1, Truck} should be higher than the value of the set {Car1, Car2} even if it contains lower quality items as the truck might actually be helpful.

The assumption here is that the single value of utility associated with the item does not tell us exactly how the user makes its choice. We could assume for example that the utility of a vehicle is 2-dimensional and consists of Niceness of the vehicle and Carrying capacity.

The total utility of the vehicle is the sum of the utility provided by those two features, but the decision process might be more complicated and not follow the Independance of Irrelevant Alternatives/Luce Choice Axiom and would follow a model where correlation among options is possible.


texts:
I'm getting into asset pricing and was looking at Ito's Lemma, but cannot understand a few steps that are given.

Ito's Lemma states that given

$$dx_t = \mu dt + \sigma dz_t \\
y_t = f(t, x_t)$$

then

$$(1) \quad dy_t = \frac{\partial f}{\partial t} dt + \frac{\partial f}{\partial x} dx_t + \frac{1}{2} \frac{\partial^2 f}{\partial x^2} dx^2_t \\$$

I understand this part using chain rule and a second order Taylor expansion, of the second equation. I don't understand why then the following holds:

$$(*) \quad dy_t = \left[\frac{\partial f}{\partial t} + \frac{\partial f}{\partial x} \mu + \frac{1}{2} \frac{\partial^2 f}{\partial x^2} \sigma^2 \right] dt + \left[  \frac{\partial f}{\partial x} \sigma \right] dz_t \\$$

When I substitute in $dx_t$ into $(1)$ and use the fact that $dz^2_t = dt$, it isn't enough to arrive at $(*)$. I think $dx^2_t$ can literally be interpreted as $(dx_t)^2$, but if there is a better way of handling that term, any guidance there would be appreciated.


texts: My Challenge in Econ 101 explanation of Marginal Benefit = Marginal Cost

texts:
In Econ 101 textbooks, there are lots of examples and emphasis on marginal analysis leading to the greatest equation of all, $MB=MC$.

My challenge is the following and wonder if anyone had a similar issue or a way to get over it:

One of the textbooks examples use consuming pizza or water. First unit brings you the biggest joy. Then it diminishes. So student would understand each additional unit of pizza wouldn't bring the same amount (e.g. initial v. when you are full) utility. But then there comes a time where you are quite full and feel satisfied. At this point, additional unit of consumption would probably make you feel sick or vomit, so it is not "worth the money" to spend on.

  The trouble with this example is that it illustrates at margin, benefit is not constant. There comes a time when you would stop consuming. But this doesn't really shed light on why $MB=MC$? How can I do a better job explaining that this "equality" is embedded in all these stories? Is it perhaps the stuffed/eat-until-vomit is a corner solution example?

For pedagogical reason, if you are better at explaining these concepts, please share how you would go about this with an example both interor and corner solution in ECON 101 textbook situation.

My strategy was from example to the graph and to show why the equality should hold leading to connecting the dots on the first order conditions of utility maximization... But this equality is hard to really spell it out on 101 level, that's my challenge.

Thanks!


texts: Does a drop in GDP per capita, with the population staying around the same, mean people on average are poorer?

texts: Essentially, I'm trying to determine if there is a correlation between a drop in GDP per capita (e.g. during the 2008 financial crisis, Australia's GDP per capita dropped from USD \$49,000 to $42,000 2009) and the average income.


texts: What's a more accurate term than 'share price' that doesn't depend on (reverse) stock splits?

texts:
Purport that retail investors desire to invest in AAPL or TSLA (both have been reported to split their stock soon), because they think their "future share price" (after the stock split) will skyrocket. Is there a more accurate term for "future share price"?  "share price" feels inaccurate if you are disregarding (reverse) stock splits.
Is it "market capitalization"? I know that market capitalization signifies "the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares."
To wit, at the moment when stocks split their stock, their "share price" will drop, but their [fill in the blank] ought stay the same.


texts: Is it theoretically possible for a singular national currency to exist under a free banking system?

texts:
Free Banking is a proposed monetary system, usually by Austrian Economists, as an alternative to the prevalent Central Banking system. Under this arrangement, commercial banks would issue their own banknotes rather than by a Central Bank. The total quantity of banknotes and interest rates would be dictated by market forces. Free Banking is said to have existed historically in several countries such as the US, Canada, Scotland and China.
The question I'm wanting to ask is concerned mainly with the issue of currencies in this proposed arrangement. Suppose, India tomorrow decides to scrap the RBI (its Central Bank) and move to Free Banking system where banks would issue paper money backed by gold. Would that mean its national currency i.e. the Rupee, would cease to exist because commerical banks would issue their own forms of currencies (Currency X issued by Bank A, Currency Y issued by Bank B and Currency Z by Bank C)? In other words, would multiple currencies (each being issued by a commerical bank) be existing in India then rather than one single national currency i.e. Rupee? Is it possible for India to have a Free Banking arrangement with one singular national currency?
Also, if several competing private currencies are to exist in one country, would each bank be willing to accept the currency of the other? How did historical examples of Free Banking function regarding this issue?


texts: How do economists/investors predict supply and demand in financial markets such as indices, currencies, etc?


texts: Net effects of mergers from consumers' perspective

texts:
When Anthem Insurance acquired Cigna Insurance in July 2015, this reduced consumer choice and possibly transferred negotiating power from the consumer to the insurance provider.  But the merger also probably conferred some economic benefit on society by increasing the economy of scale.

These two possible effects are opposed from the perspective of the consumer.  The consumer benefits from the economy of scale, but the consumer loses when negotiating power is reduced.  So one could say the merger had good and bad effects to the consumer.

What is the net effect of the merger from the perspective of the consumer?  Are consumers better off when mergers occur?  Obviously monopolies are not good for consumers, so at what point do mergers approach monopolies and no longer have a net benefit to society?


texts: We know that a rise in real interest rates will cool down the economy in terms of investments. An increase in interest rate will provide higher incentive for saving rather than consumption. So people will start to save in banks and banks would be having a high stock of these savings. Now, effectively this stock should compel banks to lend more to the people needing it and hence it should drive down interest rates and raise investment levels. How is this fallacy arising ? Please explain


texts: Equilibrium Uniqueness in a General Equilibrium Framework

texts:
I was wondering if anyone had any insight into the conditions that lead to a unique equilibrium in an exchange economy under a general equilibrium framework. More specifically, I know that the two "general" conditions that can be used to show an equilibrium is unique are Gross Substitutes and Weak Axiom of Revealed Preference.

But beyond that, I'm having trouble figuring out what those two conditions actually look like in practice, and finding examples for each case. For example, a few of the specific questions I have (and note, parts of my questions may themselves be wrong, so please do not hesitate to point out any and all flaws you see!):

In an Edgeworth Economy setting, both consumers having Cobb Douglas utility functions is sufficient, correct? I'm not 100% sure, but I think that satisfies the gross substitutes condition. That said, is that result generalize-able? If all individuals have Cobb Douglas utilities in an n-consumer, l-good case, is there still a unique equilibrium?

Similarly, in an Edgeworth Economy setting, if both individuals have quasilinear utilities in the same good it is also sufficient to show a unique equilibrium (if it exists). Is that result generalizable to an n case?

Moreover, if anyone else has any good examples of either utility function forms or tips regarding proving or disproving uniqueness in a given case, I'd love to hear them! I'm particularly curious about Edgeworth Economy cases, but any general examples/results would be wonderful!

Thanks so much!


texts: Why is the definition of opportunity cost "the benefit of the best alternative choice" but not "the benefits of all alternative choices combined"?


texts: How do I solve the Envelope Theorem condition in Microeconomics?

texts: I am preparing myself for a MSc in Economics and don't understand why, according to the Envelope Theorem, when deriving a utility function $ u(θ, q(θ), r(θ)) = B(q-r) - C(\frac{q}{θ})$, its derivative with respect to $θ$ is $(\frac{q(θ)}{θ^2})C'(\frac{q(θ)}{θ})$.


texts: Straub and Werning, 2014, on zero capital taxation

texts:
This is a test balloon to see whether these kinds of questions are appreciated/welcome on Econ.SE:

I had a hard time grasping Straub and Werning (2014) (no paywall). I understand the general environment, but could someone explain intuitively what exactly the mistake in the original Chamley-Judd calculations was, related to the optimality of zero-capital taxation?

You can download Judd's 1985 paper, here. and Chamley's 1986 paper, here.


texts: Where is there more money: Bank Accounts or Brokerage Accounts?

texts: There is a significant amount of money in the stock market in US companies. For example, look at the largest US company by market cap - Apple. It is currently worth over 800 billion US dollars. I've heard there is about 1 trillion total US paper dollars. So Apple would cost you about 80% of all US paper money. I've also heard people say it is just 'funny money' and the 800 billion is not 'real money'. I would think there are brokerage accounts out there that account for the 800 billion that is Apple - that it is not just a made up number. So my question is, is there more money in traditional bank accounts like Bank of America checking and savings accounts or in brokerage accounts where the money in the account is accounted for by shares of companies and possibly other equities like ETF shares? What are the actual numbers? Is it even close? I see many of the big tech companies getting to around half a trillion dollars and it makes me wonder where all this money is when you also see articles that say something like 40% of Americans don't have $1000 in savings available for an emergency.


texts: Elucidation needed on textbook's description of the effect of increased Interest rates on the money supply curve?

texts:
A textbook, when explaining the effects of higher interest rates, claims that:

  The initial equilibrium is with real output at $Y_0$,the price level
  at $P_0$ and the rate of interest $r_0$. An increase in the rate of
  interest to $r_1$ will need to be balanced by a decrease in money
  supply to maintain money-market equilibrium.

The illustration below accompanies the claim.

How/why does the money supply shift leftwards to accommodate a return to "money-market equilibrium", and what is such an equilibrium to begin with?

Additionally, is this shift automatic or is it one where the government must intervene?


texts:
This is the table given for levels of output for different levels of inputs.

\begin{pmatrix}
Q  & K & L\\
100 & 3  & 6\\
200 & 5 & 10\\
300 & 7.5 & 15 \\
400 & 10 & 20 \\
500 & 12.5 & 25 \\
600 & 15 & 30
\end{pmatrix}

These are questions on my Final review guide and I am getting different answers than my professor and feel like he may be wrong. Here are the questions.

1) Which of the following conclusions can be drawn from this information?

A)Increasing returns to scale exist between 100 and 200 units of output.

B) Constant returns to scale exist throughout all levels of production.

C) Labor is subject to diminishing marginal productivity in the short run.
D) No firm conclusions can be drawn.

2)Returns to scale are greatest at which level of output?

A) 100-200 units
B) 200-400 units
C) 400-600 units
D) There is insufficient information to answer the question.

3) At which level of input are there constant returns to scale?

A) 400-600 units
B) Constant returns to scale exist throughout all levels of production.
C) Constant returns to scale do not exist at any level of production.
D) No firm conclusions can be drawn.

The Answers I concluded were 1) D, 2) C, and 3) C

I can give you my professor's answers if need be. But if what you guys respond with is the same as what my professor has then I will contact him.


texts: According to the U.S., what constitutes as fair subsidies?

texts:
The U.S. asked China to do this during the trade negotiations:

  China immediately will cease providing market-distorting subsidies and
  other types of government support that can contribute to the creation
  or maintenance of excess capacity in the industries targeted by the
  Made in China 2025 industrial plan;

However, why does the U.S. think it's unfair? And also what would constitute fair subsidies since the U.S. is known to give massive subsidies to companies like Boeing and Ford? Is it me or were logic and fairness thrown completely out of the window during the U.S. trade negotiations?


texts:
I have been reading an Economics working paper and trying to derive the first-order conditions of a seemingly complicated optimization problem.
The optimization problem with choice variables $P_{t}^{R}$, $P_{t+i}^{S}$, $H_{t+i}$ is as follows.
$$\max E_{t} \sum_{i=0}^{\infty}(1-\delta)^{i}Q_{t,t+i}\pi_{t+i} = \pi_{t} + E_{t} \sum_{i=1}^{\infty}(1-\delta)^{i}Q_{t,t+i}\pi_{t+i} = \pi_{t} + V_{t}$$
$$\pi_{t+i} = \int_{H_{t+i}}^{1}\sigma^{F}(q_{t+i}^{R})\frac{P_{t+i}^{R}-W_{t+i}}{P_{t+i}}dt + \int_{0}^{H_{t+i}}\sigma^{F}(q_{t+i}^{S})\frac{P_{t+i}^{S}-W_{t+i}}{P_{t+i}}dt - \frac{\Psi }{2} \left ( \frac{P_{t+i}^{R}}{P_{t+i-1}^{R}} - 1\right )^{2}$$
s.t. $$\sigma^{H}(q_{t+i}^{R})\left ( U-\lambda_{t+i} P_{t+i}^{R}\right ) \geq 0,$$
$$\sigma^{H}(q_{t+i}^{S})\left ( U-\lambda_{t+i} P_{t+i}^{S}\right ) \geq J_{t+i},$$
where $Q_{t,t+i}$ is the stochastic discount factor defined $Q_{t,t+i}\pi_{t+i} = \frac{\beta^{i}\lambda_{t}}{\lambda_{t+i}}$, $\sigma$'s are the probabilities.
The first-order conditions are:
$$P_{t+i}^{S} = \frac{U}{\lambda_{t+i}} + \frac{q_{t+i}^{S}e^{-q_{t+i}^{S}}}{1-e^{-q_{t+i}^{S}}} \left ( \frac{U}{\lambda_{t+i}} - W_{t+i}\right ),$$
$$\sigma^{F}(q_{t+i}^{S})\left ( P_{t+i}^{S}-W_{t+i} \right ) = \sigma^{F}(q_{t+i}^{R})\left ( P_{t+i}^{R}-W_{t+i} \right ),$$
$$\mu_{t+i}\sigma^{H}(q_{t+i}^{R})\lambda_{t+i} = Q_{t,t+i}\left [ (1-H_{t+i})\frac{\sigma^{F}(q_{t+i}^{R})}{P_{t+i}} - \frac{\Psi }{P_{t+i}^{R}-1}\left ( \frac{P_{t+i}^{R}}{P_{t+i-1}^{R}} - 1\right ) \right ] + Q_{t,t+i+1} \Psi\left ( \frac{P_{t+i+1}^{R}}{P_{t+i}^{R}} - 1\right ) \frac{P_{t+i+1}^{R}}{(P_{t+i}^{R})^{2}} = \Phi (P_{t+i}^{R}),$$
where $\mu_{t+i}$ is the Lagrange multiplier w.r.t the constraint of $P_{t+i}^{R}$.
I am not sure how the first-order conditions were derived in the paper. I think the authors used the method of Lagrange multipliers, but I am not sure how to go about it. Can anyone help me with the process of getting the above first-order conditions?
EDIT: For more information, $P_{t+i}$ is aggregate price level, $\pi_{t+i}$ is firm's real profit in period $t+i$, $V_{t}$ represents the real net present value of an existing firm at the end of the period $t$, $\sigma^{F}$ is the firm's probability of getting at least one customer facing different queue length attracted by a posted price, $W_{t+i}$ is nominal wage, $\Psi$ is price adjustment cost in real term,  $\sigma^{H}$ is the customer's probability of purchasing the good at the firm visited different queue length, $\lambda_{t+i}$ is the Lagrangian multiplier in the household's problem, and $J_{t+i}$ is the sale hunter's expected utility from visiting any other firm. $q^{r}$ and $q^{s}$ are queue lengths at the regular and sale prices.


texts: Where can I retrieve a complete history of macro economic data annoucements?

texts:
I'd like to get the complete ( well at least the last 20 years) history of economic data announcement calendar firstly for US and secondly for G5 countries.
I have found many websites that propose the real time calendar so they yield the upcoming economic announcement dates but do not keep the previous announcement date (or at max the previous year)
For instance:
https://tradingeconomics.com/calendar
or https://www.newyorkfed.org/research/calendars/nationalecon_cal.html
or https://finance.yahoo.com/calendar/economic/
Having the figures of the economic indicators would be a plus.
Any clues guys?
Thanks


texts: what is the marginal cost divided by the average cost

texts: Marginal cost and average cost are both a u-curve. They cross in the competitive equilibrium. If we divide one by the other, is the ratio the degree of competition?   Ratio is 1 in perfect competition. What is the name of this quantity, MC/AC?


texts:
I have  the following structural equations where $G,Z$ are endogenous and $X,Y$ are exogenous

$$ G_d=B_0+B_1Z+B_2X+u_1\\
G_s=a_0 +a_1Z+a_2Y+u_2 \\
G_d=G_s
$$

Now, I would like to perform 2SLS, thus, I started off by obtaining the reduced-form equations

$$
Z=c_1+c_2Y+c_3X+v_1 \\
G=d_1+d_2Y+d_3X+v_2
$$

Now how do I proceed to test for weak instruments? should I consider the overall F test for the two reduced form equations? or consider the individual t statistics?


texts: Is there any economic explanation why industrialization first occured in Britain?

texts:
I am asking this question because historians often consider pre-industrialization Britain to be a poor and backward country relative to other European powers/states such as Spain, France, Italian city-states, or Habsburg empire.
Maybe this is a naive view, but I would expect that it would be the richest countries places where people would have the most time/resources to spend on science and industrialization. I get that people's attitudes and culture could play (Weber's protestant ethic) a role but I also don't see that big differences among European countries, and Germany was culturally similar to UK but industrialized relatively late. So was the UK just lucky or was there some economic reason why UK was ripe for industrialization?


texts: Multiple regulatory changes at the cutoff

texts:
Consider a running variable $a$, and a cutoff $a_0$.

There are two regulatory variables, $x$ and $z$. Both variables jump around $a_0$, in the sense of fuzzy regression discontinuity design (RDD) setting.

Can I disentangle the effects of two regulatory changes on $y$ by using $1(a>a_0)$ as an instrument variable for $x$ and $z$?


texts: Which is a better measure of the health of an economy between Debt-to-GDP and Debt-to-Revenue? Why?


texts:
I'm looking at this webpage here:
https://gilkalai.wordpress.com/2013/05/18/test-your-intuition-21-auctions/

I've generated the R code below to simulate the value for each Bidder 1000's times. I'm trying to figure out the optimal allocation strategy as well as the expected revenue.

Assuming a Vickrey Auction, it seems that the sample space is as follows:

Event         Probability     Revenue
3x300           .1^3            300
2x300, 1x100    .1^2 * .9       300
1x300, 2x100    .1 * .9^2       100
2x300           .9^3            100

This gives me an expected revenue of $105.6. This is inline with the simulation below.

However, I'm confused by what's exactly meant by "optimal allocation" strategy. Any suggestions?

generateBid <- function(x){
  epsilonValue <- runif(1, min = -1 , max =1)
  isNostalgic <- rbinom(1, size = 1, prob = .1)
  finalValue <- epsilonValue + isNostalgic*300 +(1-isNostalgic)*100
  return(finalValue)
}

cameraBid <- data.frame(bidderA = sapply(1:1000, generateBid), bidderB = sapply(1:1000, generateBid), bidderC = sapply(1:1000, generateBid))

VickreyAuctionProfit<- apply(cameraBid, 1, function(x){
  indexSecond <- rank(x)
  return(x[which(indexSecond ==2)])

})

mean(VickreyAuctionProfit)

Also, looking at the mean, it seems that the expected revenue of the auction should be less than 115?


texts: Keynesian cross. Can there be a situation when the point of equilibirum "runs away", shifts in response to attempts to reach it?

texts:
In Keynesian cross model, as far as I understand, income-expenditure equilibirum is reached this way:
when unplanned inventory investment>0, then firms produce less, when unplanned inventory investment<0 firms produce more. This works just fine ... for small fluctuations. But let's take a different scenario: previously there was income-expenditure equilibrium, but then there happened a significant decrease in the aggregate expenditure. Obviously unplanned inventory investment will be >0, making firms to produce less. But this fall in production will decrease disposable income of households, consequently starting off engine of paradox of thrift. Households will reduce their consumption, consequently shifting the aggregate expenditure curve to new lows. Firms would be getting closer to the equilibirum point by reducing their production, but before they will arrive at it the equilibirum point will "run away", like a hare from wolves, because the aggregate expenditure curve will achieve new low, provoking firms to make yet another cut in order to decrease their unplanned inventory investment. And so on.

Do I understand everything correctly? Is it how the things work?


texts:
To test the structural breaks and to perform markov-switching model  in time series data,  should i have stationary data.
Thank you in advance.


texts: Why are ecology and economics seemingly disjunct topics?

texts:
The words ecology and economy are very similar.  Ecology derives from the words οἶκος + λογία, i.e. the study of the house/household.  Economy derives from the words οἶκος + νόμος, i.e. the laws of the house/household.  In modern usage, ecology studies, among other things, movement of materials and energy through living communities (e.g. Wikipedia).  Economy, in modern usage, is defined by Wikipedia as An economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location.
An interdisciplinary field is called ecological economics, which is the treatment of the economy as a subsystem of the ecosystem (again according to Wikipedia).

I've often wondered by ecologists and economists seem, often quite literally and physically, separated fields.  Ecological economics considers the economy as a subsystem of the ecosystem.  Why is this not standard?  How can the economy ever not be a subsystem of the ecology, and why is not all economics "ecological economics"?  Or is it?


texts: Free alternative to EViews for ARIMA modelling

texts: Can someone guide me in acquiring an application similar to EViews? I need a free application where I can incorporate the ARIMA model.


texts: If a best-response dynamic converges, does it converge to a Nash equilibrium?

texts:
Consider a game with a finite number of players and finite action space. Suppose we consider a sequential iterative game-playing process in which, in
each period, players myopically select actions that are a best-response to the actions last
chosen by all other players.
Question: suppose that after a certain number of iterations no player wants to change action.
Hence, the best-response dynamic has converged to some action profile. Is this action profile necessarily a pure strategy Nash equilibrium?


texts: Will high computing power substitute the certainty-equivalence assumption?

texts:
Bloom in a recent JEP paper considers that "the increase in computing power has made it possible to include uncertainty shocks directly in a wide range of models, allowing economists to abandon assumptions built on “certainty equivalence,” which refers to the amount of money that would be required as compensation for risk." (2nd paragraph of page 154, third point).

My understanding of Bloom's point is the idea that with computing power we can treat and exploit the heterogeneity of data. We can use high-frequency and/or large-scale data, in combination with computing power, to identify the role of uncertainty shock on economic outcomes.

My guess is that Bloom's point could be an implicit criticism of the expected utility theory given the importance of the certainty equivalent concept, and the related concept of risk premium, in this framework. Is this guess/interpretation right?


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I have a question with the following statements.
Adding the gains to the Home economy from the Foreign workers, we end up with the triangle ABC, which represents the Home gains as a result of full immigration. The reason for these gains is the law of diminishing returns: as more Foreign immigrants enter the Home workforce, their marginal products fall, and because the wage equals the marginal product of the last worker, it must be less than the marginal products of the earlier immigrants. This economic logic guarantees gains to the Home country from migration.
I don't quite understand why the wage should equal to the the marginal product of the last worker. I mean, shouldn't the first immigrant get the same wage as what it is in the Home country, which is W in the figure? In other words, why does the first immigrant receive wage that is W'.
figure:

Thanks in advance.


texts: Are tariffs ever levied on services and does MFN apply?

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I am interested in tariffs on services.

Are tariffs ever levied on services and do most-favoured nation rules apply as they do with goods?


texts: Value vs. Price and its relation to tariffs

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I’m naturally against tariffs as they impede on free trade, and end up hurting the consumer by inadvertently becoming a tax on imports as well as raising the cost of goods. So I'm trying to challenge my natural assumptions as best I can.

I know the Hayekian school of thought is that the cheaper and more widely available products/materials are the better for the consumer, but I wanted to pose the question that if cheaper doesn't necessarily equal quality why is cheaper always being preferred ? For instance with Steel, I've read numerous publications citing American Steel & Aluminum to be of far greater strength and quality than overseas Steel. Does it all boil down to the freedom to choose as Milton Friedman says ? What is the cost / benefit analysis on something like a Tariff on Steel & Aluminum if its a far better product which might require us to buy less of it over-time ?

I remember growing up my father would say that he didn’t care that he could buy a microwave for 30$, and that he would gladly pay triple or quadruple for a superior product that would last a lifetime. Do we rely too heavily on affordability ?

Sub-Question : I’ve noticed prominent speakers like Victor Davis Hanson say that these Tariffs are so minuscule no one will notice them. Apparently 70% of steel used in the United States is American Steel and China is actually 11th on the list of steel & aluminum providers. Is there too much hyperbole that a steel & aluminum tariff will cause a trade war ?


texts: What is the long term outcome of inflation?

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I was just reading how \$1 from sometime in the mid-1800s is worth a little over $30 today.

This got me wondering, where does this go in the long term? In the year 2400, will a loaf of bread be $200? Will an average house be tens of millions? What about the year 2700?

My understanding is that inflation is a universal economic phenomenon. Has a currency ever lasted long enough to know where it leads in the very long term? If not, are there theories predicting what might happen?


texts: How to work out Price with only the Derivative of Profit Function?

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Best response functions are obtained by differentiating a profit function and solving for q.

In equilibrium, the firms produce 30. But, there's no inverse demand function, so how would equilibrium price be determined?


texts: Economic schools of thought VS Econometrics

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From  Wikipedia:

  In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a common perspective on the way economies work

Why is it that different economic schools of thought are  still taught in spite of the fact that we now have data to test their ideas and philosophies of the economy and see if they really line up with reality?


texts: Non Linear regression to obtain diminishing marginal effect / elasticity

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I am working with some real estate data on housing units. For a given market, I have data on occupied units, rents, and control variables such as population, demographics, income levels etc.
I'd like to obtain the diminishing marginal effect and the elasticity estimate. i.e the point at which rents have a diminishing effect on occupied units.
I attempted to do this using ols - log-log regression, I need non-linear model to fit the data.
import statsmodels.formula.api as sm

model1 = sm.ols(formula = 'np.log(Occupied_units) ~ np.log(Rent) + np.log(Income) + np.log(unemployment)', data=df).fit()

My question is, what non-linear models can I use to estimate this diminishing effect? and how do I interpret the results? i.e the point at which the effect starts to diminish.


texts: Approximating the socially-optimal price in a monopolist market

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A monopoly firm has an incentive to increase the price and decrease the produced quantity in order to increase its revenues. But this decreases the social welfare. The government can intervene in several ways, one of which is to set a maximum price for the product.

Ideally, the price set by the government should be equal to the equilibrium price, because then the social welfare is maximized. However, in order to know this socially-optimal price, the government must know the cost curve of the seller. A monopolist seller might decide to hide the true cost curve and claim that the cost is higher than it is, in order to make the government raise the maximum price.

MY QUESTION IS: what can a government do in order to approximate the socially-optimal price? I am interested in references to both theoretical suggestions and practical case-studies.

NOTE: I am interested even in a very simple case, in which the monopolist's price per unit can be assumed to be constant, so that the only hidden information is that constant.