texts: Solving for Pareto Efficient Utility Possibility Frontier using constrained optimisation

texts:
The economy is a one-good two individual endowment economy in which individual $i’s$ preferences are given by $_(_)=_$, for ∈1,2, and the feasibility constraint on the amount of x available is $_1+_2=ω$.

We need to show that the equation of the utility possibilities frontier for this economy is $_2=ω−_1$

Setting up the Lagrange constrained optimisation function.

Max $U_1(x_1)= x_1$ subject to:
$$U_2(x_2) = x_2$$
$$x_1 + x_2 = w$$

$$L = x_1 + \lambda x_2 + \mu (w - x_1 - x_2)$$
$\lambda$ shows how small changes to $x_2$ affect $U_1$, and $\mu$ shows how small changes to the amount of x available in the economy affect $U_1$

Partial differentiation of all variables:

$$\frac {\partial L}{\partial x_1} = 1 - \mu = 0 \rightarrow \mu = 1$$

$$\frac {\partial L}{\partial x_2} =  \lambda - \mu = 0 \rightarrow \mu = \lambda$$

$$\frac {\partial L}{\partial \lambda} = x_2 = 0 $$
$$\frac {\partial L}{\partial \mu} = w - x_1 - x_2 = 0$$

$x_0 = 0$, so the Pareto Efficient point found involves the allocation where individual 1 receives all of x.

$\mu = \lambda$,so individual 1 is affected equally by changes to $x_2$ and by how much x is available in the economy.

I'm unsure how to conclude this, demonstrate that $_2=ω−_1$, or if I'm even on the right track. Could anybody please advise?

Also any feedback on my use of LaTex is also welcome, very new to using it.


texts: Why do companies sit on cash while they have debt?

texts: Why don't they use cash to pay down their debts?


texts: Forecasting integrated variables in a macroeconomic setting

texts: I am trying to measure the effects of restrictions on immigration to a specific country on both real estate rental indices and real estate property price indices during the next 3 to 5 years. As a software, I am using Eviews and I would like to calculate two alternative scenarios. A VECM (vector error correction model) should be used for simulating the effects of changes in population numbers on different macroeconomic variables (GDP, consumer price index, interest rates). Rental prices are straightforward to estimate in an error correction setting. How would you derive a pricing formula for the real estate price index? Would you consider using FM-OLS (Fully Modified OLS) or DOLS (Dynamic OLS) using the mentioned macroeconomic variables as cointegrated variables? The equation structure will be linked by a model object within Eviews for running forecasting simulations.


texts: Why marginal revenue must equal marginal cost?

texts:
Price  Quantity   TR      TC   Profit   MR    MC
6         0       0       3     -3     -     -
6         1       6       5      1     6     2
6         2       12      8      4     6     3
6         3       18      12     6     6     4
6         4       24      17     7     6     5
6         5       30      23     7     6     6

Consider table above. If my understanding is correct, optimal quantity equals 5, because at this point MR = MC.
But after producing 5th widget, profit does not increase.
Then why is producing 5 widgets considered to be profit maximizing quantity, but not 4?


texts: equilibrium, optimum, and decentralizing the optimum

texts:
I'm reading a paper on parking:
Anderson & de Palma, 2003, The economics of pricing parking.

The authors repeatedly refer to either 'decentralizing the optimum' or 'the optimum can be decentralized'....

Here is an example:

  The optimum involves unequal treatment of equals in the sense that
  different individuals get different utilities at the optimum.  Those
  who are allocated to park closer to the [central business district]
  get higher utility than those who park further away.  The optimumm can
  be decentralized via pricing of parking.  Since parking is more
  desirable closer to the center, the optimum parking tariff increases
  with closeness to the CBD in order to counteract this effect and
  reduce the over-congestion that is more pronounced closest to the CBD.
  We next derive the optimum parking tariff.

Q1: In general in economics literature and/or in the context of this paper, is "optimal" generally accepted as referring to Pareto efficiency?

Q2: What does it mean to "decentralize the optimum" ?


texts: What does "(Earnings Per Share) sen" mean in a shareholders' context?

texts:
What does "SEN" / "sen" (possibly an abbreviation?) mean in a shareholders' context?

In particular, I am wondering how to interpret "sen" in the following context:

"Earnings Per Share (sen)"

This can be encountered a lot, as a simple google query "Earnings Per Share (sen)" shows.


texts:
I heard on UK and US news that higher education is very high and a lot of students are in debt.
In Israel here education is very cheap, because it is heavily subsidized by the government (Israel tries to be self-sufficient as opposed to other western countries because it doesnt have the liberal policies to attract brain drain like the western countries have). It strategy is to produce university candidates by their high school grades and IQ (psychometric) scores (those requirements are mandatory by top universities).

How would such educational policy work for countires like US or UK?
would it be better for US to subsidize their top universities heavily and introduce higher educational requirements (such as IQ scores and better grades)? or would it have disastarous effects on the economy, following such a government policy that Israel has?
I know that education is positively correlated with GDP.

*****UPDATE*****

First, I have to thank you for answering. I live in Israel the tution fees for top univesities (Tel Aviv, Ben Gurion, Jerusalem, Bar Ilan) is no more that \$10,000.. tution fees for harvard for one year only from what I heard is something like \$40,000 a month alone (https://college.harvard.edu/financial-aid/how-aid-works/cost-attendance). My question why wouldnt a government open the market competition for those univesties only to American citizens (that will bring costs down), and also subsidize them, to bring  the costs to around 10-15k, that would be much affordable. In return, Harvard, could make higher requirments for its courses like psychometric tests and very high school grades. If it did that it would gurantee an educational self sufficiency and higher economic independence from immigration.
Wouldnt that be preferable politically (assuming your perception is right wing) instead of being pushed into a tougher rat race with immigrants coming from abroad?

Last point to add, Israel also provides a lot of education for free in the army (Israel has conscription laws). It provides higher degrees for good studens who also performed well on their IQ test.

If Israel provides and believes that there are high returns on their student's educational investment by providing education at low cost (when subsidized) or for free, why other Europen countries dont follow? or is Israel wrong in their approach to education and higher economic efficiency?

Could a country like US and UK pursue educational self-sufficiency or would such a pursuit be a disastor?


texts: What is the significance of the Hansen-Jagannathan bound?

texts:
The Wikipedia article on the Hansen-Jagannathan bound is short, giving only the following:

  Hansen–Jagannathan bound is a theorem in financial economics that says that the ratio of the standard deviation of a stochastic discount factor to its mean exceeds the Sharpe Ratio attained by any portfolio. This result is an application of the Cauchy–Schwarz inequality.

An important detail that is missing is a discussion of the theorem's significance. The Hansen-Jagannathan (H-J) bound gives us a type of mean-variance frontier. But what is importance/significance (in theoretical and empirical work) of the H-J bound over the classic mean-variance efficient frontier? (The two are different but related. What's the main insight from the H-J bound?)


texts: Unintended consequences from "fixing" the US financial system

texts:
Last year, I read the book The Bankers' New Clothes: What's Wrong with Banking and What to Do about It.  The book explained some of the causes of the recent financial crisis of 2007-2009 and gave some steps to prevent a similar crisis from occurring again.  Some of the steps were

  1) eliminating the FDIC,
  2) increasing the capital requirements of banks (up to ~30% instead of the current 2%-3%), and
  3) having liability rest completely on bank owners and decision-makers within the bank (i.e. no government bailouts, depositors receive a certain number of cents on the dollar rather than 0, etc.).

However, economics in plagued by the law of unintended consequences.  If these three points were implemented into the US financial system, what are some unintended consequences that could result?


texts:
The question:

A price-taking farmer produces a crop with labor L as the only input.
His production function is:$$F(L) = 10L^{1/2} − 2L$$

He has 4 units of labor
in his family and he cannot hire labor from the wage labor market. He
does not face any cost of employing family labor.

a. Find out his equilibrium level of output.

b. Suppose that the government imposes an income tax at the rate of
10 per cent. How does this affect his equilibrium output?

c. Suppose an alternative production technology given by:
$$F(L) = 11 L^{1/2} − L −15$$ is available. Will the farmer adopt this
alternative technology?

My approach:

a. As the cost is 0 and the farmer is price taker, he will try to maximize his production, by FOC differentiating F(L) we L=6.25 where function is maximum. But he can employ L=4, hence his equilibrium level of output will be 4

b. Profit when he is taxed $$R(P,L)=PF(L)-0.1PF(L)=.9PF(L)$$
again he will maximize his production and by FOC L=6.25 but he will employ only L=4 because it's his maximum limit for L ,so equilibrium out will not change even after tax.

c. he will not adopt new technology because if we put L=4 in new production function then F(L)=3 which is less than production from his earlier technology.

Is my approach correct for all three parts?


texts:
In the last 2 days, bond market has declined a bit. All major news outlets published articles like these: Can We Ignore the Alarm Bells the Bond Market Is Ringing?

Such an event in bond market occurred back in ~1950 (according to the graph on that article). The stockmarket had a major dip around ~1932 due to the great depression but it has looked good since then till 2007.
Overall things also bounced back in 1950, 1960, slow down in 1970 due to energy crisis and then it recovered after 1982.

I am not an economist but trying to understand how will the economy will behave when it will face a similar situation. Is it fair to compare 1950 US economy to 2016 US economy?


texts: Is there a good way of assessing an estimated absolute value of a currency?

texts:
If we want to figure out the strength of a currency relative to another currency, we look at the exchange rate between the two. However, I'm wondering what is the most accurate way of assessing the absolute value of a currency?

I suppose commodities or gold could be used, but there can be variations on the value of those over time (i.e if there is a new use for gold in electronics, the value is obviously going up.) So have economists found a better way?


texts:
Ive been doing some superficial reading on Feldman-Mahalanobis Model and have been wondering what other equations and "brand name" models that have been prodouced by marxist economists?

What other mathematical Marxian models are out there?


texts: Static game with complete but imperfect information

texts:
I am confused on the concept of static game with complete but imperfect information and its consequences on the equilibrium definition.

Suppose we have 2 players. Each player $i$ chooses action $Y_i\in \{A,B\}$. Actions are chosen simultaneously by the two players. Simultaneity=static in my mind. Is it the case actually?

Each player $i$ gets a payoff $\Pi^i(Y_1, Y_2)$ at the end of the game.

We assume complete information, i.e., players know the values
$$
\begin{cases}
\Pi^1(A,B),\Pi^1(A,A),\Pi^1(B,B),\Pi^1(B,A)\\
\Pi^2(A,B),\Pi^2(A,A),\Pi^2(B,B),\Pi^2(B,A)\\
\end{cases}
$$

An equilibrium concept that we can use in this context is Pure Strategy Nash Equilibrium: $(Y_1, Y_2)$ is a PSNE if
$$
\begin{cases}
\Pi^1(Y_1, Y_2)\geq \Pi^1(\tilde{Y}_1, Y_2)\\
\Pi^2(Y_1, Y_2)\geq \Pi^1(Y_1, \tilde{Y}_2)\\
\end{cases}
$$

Question: What does it mean assuming the players have imperfect information in this case? Would that be in contrast with any of my claims above? Would that change the equilibrium notion? Is Pure Strategy Nash Equilibrium still applicable? This question is related but it does not clarify exactly my point.


texts:
Stock-Flow Consistent (SFC) models are becoming more popular among heterodox economists (particularly in the Post-Keynesian school of thought). But I fail to see the relevance of this approach. The main addition seems to be the "construction" of the "Flow of Funds" table. But is that really necessary? Whenever an economist is doing a model, careful attention must be presented to including relevant sectors, and trying not to have "inflows/outflows" which are not explained in the system.

What is so special/new about SFC models? Are not most of mainstream models SFC? Even more, what if a model is not SFC, but is a better predictor/more realistic than one with SFC?


texts: In most New Keynesian models, can monetary shock affect technology shock also?

texts:
One simple New Keynesian model would be http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf but I do not restrict my question to this model only.

Let us for now ignore the problem of linearizing around zero-growth-rate, and assume that there is no problem in modelling constant natural growth rate.

Let us suppose that monetary shock occurred, due to stochastic or forecast errors or intentional deviation. Can this shock result in technology shock also? (ex. change in $A_t$ in production function?)

I am sure that there exists a model that does this, but in most models, and especially Gali's model as linked above, is this true?


texts:
I intend to use Pesaran's (2006) common correlated effects pooled (CCEP) estimator. However, I'm not yet very familiar with advanced econometrics and advanced use of eviews. More specifically I want to estimate this model:
\begin{equation}
y_{it} = \alpha_{i} + \beta_{1}x_{1,it} + \beta_{2}x_{2,it}+\gamma_{i}F_{t}+\epsilon_{it}
\end{equation}
in which $F_{t}$ is an unobserved common factor and $\gamma_{i}$ is a country-specific factor loading. We were taught that $F_{t}$ can be proxied by:
\begin{equation}
F_{t}=\frac{(\bar{y_{t}}-\bar{\alpha}-\beta_{1} \bar{x}_{{1,t}} -\beta_{2} \bar{x}_{{2,t}}-\bar{\epsilon}_{{t}})}{\bar{\gamma}},
\end{equation}
in which $\bar{y_{t}} = \frac{1}{N}\sum_{i=1}^{N} y_{it}$, and $\bar{\gamma_{}}=\frac{1}{N}\sum_{i=1}^{N} \gamma_{i}$, with $N$ the number of cross-sections.

Substituting the second equation into the first yields:
\begin{equation}
y_{it} = \alpha_{i}-\frac{\gamma_{i}}{\bar{\gamma}}+\beta_{1} x_{1,it} +\beta_{2} x_{2,it} +\frac{\gamma_{i}}{\bar{\gamma}}\bar{y_{t}} - \beta_{1} \frac{\gamma_{i}}{\bar{\gamma}} \bar{x}_{1,t} -\beta_{2}\frac{\gamma_{i}}{\bar{\gamma}}\bar{x}_{2,t}+\epsilon_{it}-\frac{\gamma_{i}}{\bar{\gamma}}\bar{\epsilon_{t}}
\end{equation}
or with $\alpha_{i}-\frac{\gamma_{i}}{\bar{\gamma}}=\alpha'_{i}$ and $\frac{\gamma_{i}}{\bar{\gamma}}=\gamma'_{i}$:
\begin{equation}
y_{it} = \alpha'_{i}
+\beta_{1} x_{1,it}
+\beta_{2} x_{2,it}
+\gamma'_{i}\bar{y_{t}}
- \beta_{1} \gamma'_{i} \bar{x}_{1,t}
-\beta_{2}\gamma'_{i}\bar{x}_{2,t}
+\epsilon_{it}-\gamma'_{i}\bar{\epsilon_{t}}.
\end{equation}

To estimate this in eviews, I had the following idea

The cross-sectional averages $\bar{y_{t}}$, $\bar{x}_{{1,t}}$, and $\bar{x}_{{2,t}}$ can be easily calculated from the dataset. I would use cross-sectional fixed effects to estimate all $\alpha'_{i}$. Next, I would need $N$ terms to estimate all $N$ $\gamma'_{i}$. To do this, I would include these $N$ terms: $\gamma'_{A}\bar{y}_{t}dum_{A} + \gamma'_{B}\bar{y}_{t}dum_{B} + ... + \gamma'_{N}\bar{y}_{t}dum_{N}$, in which each capital letter denotes one of the $N$ cross-sections and the dummy variable takes the value of $1$ once for each cross-section. Then, for each averaged explanatory  variable, $\bar{x}_{1t}$ and $\bar{x}_{2t}$, I would include these $2 \times N$ terms: $\beta_{1}\gamma'_{A}\bar{x}_{1,t} + \beta_{1}\gamma'_{B}\bar{x}_{1,t}+ ... + \beta_{1}\gamma'_{N}\bar{x}_{1,t}$ and $\beta_{2}\gamma'_{A}\bar{x}_{2,t} + \beta_{2}\gamma'_{B}\bar{x}_{2,t}+ ... + \beta_{2}\gamma'_{N}\bar{x}_{2,t}$.

So, to sum up, my suggested input for eviews (to estimate with cross-sectional fixed effects) is the following:
y = c(1)*x1 + c(2)*x2 + c(3)*y_avg*dumA + c(4)*y_avg*dumB + c(5)*y_avg*dumC + ... + c(1)*c(3)*x1_avg + c(1)*c(4)*x1_avg + c(1)*c(5)*x1_avg + ... + c(2)*c(3)*x2_avg + c(2)*c(4)*x2_avg + c(2)*c(5)*x2_avg + .....

In this equation:

c(1) = $\beta_{1}$;
c(2) = $\beta_{2}$;
c(3) = $\gamma'_{A}$;
c(4) = $\gamma'_{B}$;
c(5) = $\gamma'_{C}$.

These are my questions regarding this estimation:

First of all, confirmation of the correctness of my derivation would be welcome;
Would the estimation in eviews I suggest do the trick?
If so, should I include an intercept in the fixed-effects estimation?
If not, is there an alternative procedure to implement the CCEP estimator in eviews?
The estimated error terms should be $\epsilon-\gamma'_{i}\bar{\epsilon}$, is this structure automatically obtained? Or should this be imposed one way or another?
The same question for $\alpha'_{i}$: it should equal $\alpha_{i}-\frac{\gamma_{i}}{\bar{\gamma}}$. Should this condition be imposed, or is it automatically fulfilled when inputting my suggested input in eviews;
Other suggestions regarding the use of CCEP estimator in eviews are certainly welcome.

Any help, also partial answers, is appreciated!


texts: What is the name given to an exporting-only economy?

texts: In international trading there can be an economy that only exports, but restrict the import to minimum or at all. I cannot recall what the name given to this type of economy.


texts: Does free capital mobility invalidate the basic comparative advantage argument for free trade in goods?

texts:
In Herman Daly's article "Economics for a Full World", Daly states that international trade must be regulated because free capital mobility would invalidate the principle of comparative advantage (Daly, 2015, p.12). As a reference, he cites John Stuart Mill's "Principles of Political Economy" IV.VII.I. However, there doesn't seem to be a chapter 7 in book 4, so I cannot check what he is referring to.

I would greatly appreciate your help in understanding the argument made by Daly here!

References

Daly, H. (2015). Economics for a Full World. Great Transition Initiative.


texts: How to interpret illigal foreign currency (cash) transfers in terms of Balance of payments

texts: There are a lot of examples of legal operations with trade balance and capital flows. Nonetheless, I've failed to find a clear explanations of how to interpret illigal (read, criminal) foreign currency (cash) transfers in terms of Balance of payments. Is such operation capital inflow or outflow, and why is it so? How should it be reflected in real Balance of payments, if this illigal transaction is revealed by foreign state authorities?


texts: What metrics would indicate a house bubble rather than genuine market values?

texts:
There are concerns that Auckland, New Zealand, is currently experiencing a housing bubble.

Auckland is one of the top 10 cities in the world on a housing unaffordability index.

The question is - how as economists can we tell whether housing prices reflect a bubble or genuine market value?

I would be looking at average wages, crime rates, happiness, and other social measures of the city (ie. it's reasonable that people would be willing to spend more on a house in a utopian city). A good answer should comprehensively list these and explain the relevance of these metrics.


texts: Why does the European Union give subsidies to farmers?

texts:
According to neoclassical economics, subsidies are a solution to correct for the existence of externalities in consumption or production.

What is the economic rationale/justification for such subsidies in the EU? Which are the externalities subsidies are correcting for? Or are subsidies justified by other motives, e.g. political?


texts: Which economical consequences could happen to a country if it forbiddes importing cars?

texts:
My country has major economical headaches each 10 years or so, like hyperinflation or defaults or things like that. It's been 17 years since the last major crisis (a larger crisis than the 1930's crisis) but it looks like we are aiming again towards the same. Usually we have trade imbalances or fiscal deficits which causes my country being unable to sustain the current money exchange rate, the goverment devaluates the currency and that leads people to increase the price of the goods in the same rate "just in case other prices increase the same rate", that usually is the cause of a snowball inflation.
I was taking a look at our current imports. Usually I can't get a detailed list but we have a trade imbalance deficit record of 8,47 billions last year (2017) and the car imports increased in 2 billions in one year, being 6,3 billion total the amount of imported cars. My question is, being the trade imbalance a major cause in the inflation we have, why we just can't stop importing cars, at least in the proportion it creates imbalances? Why we can't live with new cars or imported (non national) cars? Could there be any serious consequences to this or we are just paying the consequences of some people wanting to live with goods/cars which signals their high social status?


texts: Income effect for inferior goods question

texts:
When you are only told in the question that the price level of the inferior good decreases, how can you draw the indifference curve accurately? The size of Substitution effect depends on the curviness of the curve. Thus when I draw my diagram, it is not matching with the one in the textbook.

When do you prevent this when no figures about the exact consumption is given?
Thanks


texts:
Microeconomic models are usually classified as partial and general equilibrium models. As a layman, I understand that partial equilibrium focuses attention on a few economic variables to find the equilibrium, while general eq. models capture a larger interaction.

Besides this, what are the key differences between the two kinds of modelling? Are there advantages and downsides to each of them?


texts:
I would like to know how to find a Euro zone country real quarterly gdp growth, using the OECD database.

We have Quarterly GDP, and CPI.
How should I proceed?

If it's not possible, which database can I use to obtain it?

Any help would be appreciated.


texts:
A risk averse is given this: Option1: 1000 with p=0.25 and 100 with p=0.75. Option 2: 325 for sure. Which option would he choose?
For this part, I know the person will choose option 2 over option 1.
However, the question continues,change to $320 for sure, what would be his choice?

Anyone can guide?please


texts: Meaning of "let him take Money at Interest, and not buy at Time"

texts:
Dudley North (1691):

  let him take Money at Interest, and not buy at Time

What does the above statement mean? I think "take Money at Interest" simply means "borrow at some interest rate". But I have no idea what "buy at Time" means.

(I've read this and the surrounding text several times now but still can't figure out what it might mean. Hopefully someone who's familiar with this and other contemporary works can explain it to me!)


texts: Historical returns for popular American funds over 20-30 years?

texts:
I have seen charts like this one  showing the return for the past 100+ years cited as evidence why one should invest in stocks for their retirement. I don't disagree with that, but realistically, nobody invests for 110 years; my guess is that they actually invest for 20-30 years on average (for those who actually have a retirement account).

Also, it's not advised to try to play the market by investing in individual stocks, but rather mutual or index funds, so nobody can actually invest in "the stock market", but rather some subset of stocks.

So if I were making a case for someone to invest their retirement money in the stock market on a long-term basis, I would want to show them historical returns for popular consumer-grade funds over 20-30 year periods. The Dow over 110 years doesn't really tell me what an average investor's returns might look like (I understand that past performance is not indicative of future performance, but this is the whole reasoning behind looking at a chart of historical returns).

Has anyone crunched the numbers on this and published the charts and figures?

Edit: The wikipedia article notes that "[t]he first retail index fund, First Index Investment Trust, was formed in 1976...", so it looks like mutual fund investing by the average Joe could only have been done since then. Which makes the 100-year charts even more irrelevant.


texts: What's is the purpose of "conditional preferences" as specified in Savage's framework?

texts:
In this paper, "Savages’ Subjective Expected Utility Model" by Edi Karni, he gives a definition of "conditional preferences." See here:

What situation is this supposed to capture? It seems like it might be more useful to define conditional preferences as $f \succeq_E f'$ if $f(s) \succeq f'(s)$ for all $s \in E$. This definition seems like it might be more ... useful? For one, it seems to resemble conditional expectation that way (or does it?). What idea is the definition as given in the paper supposed to capture (this might be a simple question)?

Also, would it be more general to say, in the definition given in the paper, that $f(s) \sim f'(s)$ instead of $f(s) = f'(s)$?


texts: Inflation vs GDP growth as factors driving down the US debt-to-GDP ration post-WW2

texts:
I'm trying to figure out how much inflation (vs GDP growth) shrank the debt-to-GDP ratio (in the decade or so) post-WW2 in the US. I found one paper that says:

  In 1946, the debt ratio was 108.6
  percent. Inflation reduced this ratio about 40 percent within a decade. [...]

  In 1946, just after the end of World War II, gross Federal debt reached
  121.7 percent of GDP and the share held by the public was 108.6 percent. Over the next 30
  years, debt as a percentage of GDP decreased almost every year, due primarily to an expanding
  economy as well as inflation.

But how much was due the expanding economy and how much due to inflation? (Is that 40% from the abstract just due to inflation?)


texts: Non-homothetic CES preferences: demand derivation

texts:
I am struggling a little with the derivation of the goods demand and price index when preferences are CES and not homothetic. I am optimising the allocation of a Dixit-Stiglitz aggregator, so the program writes
\begin{equation}
\max \underbrace{[\gamma_x^{1/\epsilon}(x-\bar{x})^{\frac{\epsilon - 1}{\epsilon}} + \gamma_y^{1/\epsilon}(y-\bar{y})^{\frac{\epsilon - 1}{\epsilon}}]^{\frac{\epsilon}{\epsilon - 1}}}_{\text{= C, total consumption}} + \mu[W-x -yp]
\end{equation}

Where $x$ and $y$ are the quantities of the two goods, $\bar{x}$ and $\bar{y}$ are some levels that make the preferences non-homothetic, $\mu$ is the lagrangian multiplier, $p$ the relative price of $y$, and $W$ the expenditure level.
Is it possible in this case to derive a demand system involving the total consumption level $C$ and the price index that usually pops-up when using CES? The case with homothetic CES would be
$$
y=\gamma_y(p/P)^{-\theta}C
$$
with $P$ being the price index obtained by the usual tricks with the Dixit-Stiglitz setting.


texts:
Consider a consumer with a Cobb-Douglas utility function over three goods of the form $u=(x_1+z_1)^\alpha \cdot (x_2+z_2)^\beta \cdot (x_3+z_3)^\gamma$ with $\alpha, \ \beta, \ \gamma, \ z_1, \ z_2, \ z_3>0$, and $\alpha+\beta+\gamma=1$. The consumer has income $m$, and pays prices $p_1, p_2, p_3$ for the three goods.

Find the Marshallian demands for goods 1, 2 and 3 for this consumer, using the
Lagrangian method.


texts: Does the theory of contestable markets apply to industries where there is a natural monopoly?

texts: The theory contestable markets requires that there be no barriers to entry, no sunk costs, and access to the same level of technology. I know common industries that have natural monopolies (like utilities) often break these assumptions. Is there an example of an industry where there is a natural monopoly and it can still be considered a contestable market? Or can these two things not exist together?


texts: If a CDS is x%, why does this mean $(1 - x)\%$ probability of default?

texts:
At 11:52, Tim Bennett says:

  Well let's have a look at
  11:52
  some prices. Currently the cost of
  11:57
  insuring Greek debt is in excess of
  12:02
  $\color{green}{2,000}$ basis points. Another way of
  12:07
  looking at that is that you are paying as a
  12:09
  premium annually $1/5$th of the value
  12:12
  of the debt in question. So another way
  12:16
  of looking at that is: the market is
  12:19
  effectively giving the chance of Greeks
  12:20
  going bust within five years over $\color{red}{80\%}$
  probability.

Doesn't the cost a Credit Default Swap (CDS) for Greek debt is $\color{green}{20\% (= 2000}$ bp), entail that the chance of default by Greece is also 20%? Why  $\color{red}{80\%}$?


texts: Rigitiy stickiness of wages and how it relates to goverment during a recession

texts:
"explain why the wages in an economy are downward rigid/sticky but not upward sticky. How does this rigidity/stickiness help to explain why the government is more likely to try to stabilize the economy during a recession than during an expansion"
Attempt:
Because workers resistant to pay decreases, firms will reduce costs elsewhere, minimum wages, employment contracts and hurts productivity and morale then be seen as unfair. Government more likely to to try to stabilize economy during recession.
I'm having difficulty answering how rigidity/stickiness relate to stabilizing the economy, I understand government uses fiscal policy but not why this makes wages fall harder than raises and how it can only occur during expansion. I know it relates to Keynesian models in some way through AD-AS being the cause of recession and companies having suffered negative AS shocks.
So
-why are  wages in an economy not upward sticky?
-how does rigidity/stickiness relate to  why the government is more likely to try to stabilize the economy during a recession?


texts: Why are banks allowed to resell mortgages?

texts:
It just seems like a way to get around money creation limits imposed by liquidity requirements. For example if a bank creates new money by extending new morgages then securitizes them and resells them, the bank is effectively printing money and giving it to itself to boost it's liquidity ratio, which in turn allows the bank to extend more morgages and resell them ad infinitum!

Maybe it's actually good that banks can do this? I'd like to know if this is a responsible business practice that's good for the economy as a whole (maybe allowing for cheaper mortgages) or if it's only in the interest of bank shareholders (at the expense of destabilizing the economy).


texts: Block pricing vs Perfect price discrimination

texts:
I have just learned about Perfect price discrimination and block pricing. And I was wondering, in the case of these two graphs
Block pricing & Perfect price discrimination. Why, in case of the perfect discrimination, is the monopolist still willing to sell the quantity where reservation price is equal to marginal cost. while in the block pricing situation the "block" from 40 - 60 would have a price equal to MC but the producer is unwilling to sell it for a price equal to MC, thus ending up with a deadweight loss.
Perhaps I have a few conceptual misunderstandings but I would appreciate it if someone could explain what is different in these two cases.
Block pricing

Perfect price discrimination


texts: Economics perspective of connected workers

texts:
According to the Deloitte report published here, a connected worker is defined as someone whose working life is changing due to digital and other technologies. This is due to advancement of technologies, such as, smart wearables, IoTs, Industry 4.0 etc, therefore, enabling the worker to work from anywhere and anytime. This implies that due to these technologies, the geographical and temporal boundaries are becoming less relevant.
Is there any perspectives that we can use from the Economics literature to understand the concept of connected workers?


texts: The evolution of economic thought in the XX century

texts:
While I was studying, I stuck into a great debate between what is called "modern macro" and Keynesian macro with a lot of interesting and actual insights. I have already read about "classical economics", I mean Smith, Ricardo and so on but I did not succeed in finding a book/paper talking about the actual debate and its roots.

Can you please suggest me some references in order to better understand the evolution of economic thought in the XX century and to make my own idea about the actual debate going on?


texts: Incentive compatibility: Weakly dominant strategy versus Nash equilibrium?

texts:
When it comes to proving that a mechanism e.g. auction is incentive compatible this is the approach I'm using:

I break down all the cases that might happen if the agent reports an untruthful value to achieve higher utility. Then I show that by lying about the valuation an agent will achieve a lower or at best the same utility as of truthful valuation reporting. I call this weakly dominant strategy truthfulness.

Now my question is that what is the difference between weakly dominant strategy and Nash equilibrium? I know that a strong dominant strategy equilibrium is stronger than the nash equilibrium. But what about the weakly dominant strategy equilibrium?


texts: trading security volume that affects price

texts:
Curious if there's a formula for this. There are some notorious cases of software (accidentally) and people (purposefully) quickly unloading a given security, causing the price to (temporarily, generally) plummet.

Is there a general formula for determining how many issues can be transacted in a given time period so that the market price is minimally impacted?


texts: Reasons and mechanisms of Deutsch Mark revaluation in 1968

texts:
In November 1968, large inflows of foreign currency into the Bundesbank prompted Germany to enact a "pseudo - revaluation" with a special tax on exports and tax allowance on imports.

Source: German Monetary History
in the Second Half of the
Twentieth Century, pg 44.

Could anyone explain why the mark finally revalued?  What was the mechanism?


texts: What is it about certain business types that seem to restrict how much large they can grow?

texts:
For example, I've never heard of a large lawn-mowing corporation. Phone and computer repairers seem to consist mostly of 1 or two man operations. Wedding planners and photographers seem exclusively to be home businesses.

Why is it that certain types of businesses seem never able to grow into a large company? I'm assuming if it were possible, at least some percentage of lucky or savvy businessmen or women would have found great success.


texts: Do banks make profits by selling bonds to the central bank?

texts:
I am a bit puzzled by the quote below, from here (emphasis mine):

  Modern monetary theorists have helped clarify the obvious point that private banks are not essential to the design of the system. It would be possible for the Federal Reserve to bypass the banks which profit by selling bonds to the Fed and, instead, invest the proceeds, for instance, in a public “Infrastructure Bank” [...]

So, central banks pursue open market operations by selling/buying bonds from banks or other financial institutions involved in these operations. Maybe the author is referring to the "buying side" of these operations, whereby the central banks buy short-term debt from banks?

Does this mean that banks only sell these bonds if they expect a profit? Does that also mean that banks only buy these bonds at a profit? How does this profit materialise? Through a discount/premium over the price at which these bonds are bought/sold? Or is the author simply referring to the fact that these bonds have positive nominal interest rates? (but these bonds are usually from the government, so it is not the central bank who is paying the interest)

Does this mean that banks are in every single transaction profiting from such operations?

(sorry, a lot of questions but they are very much related).


texts: How can you model/simulate the price/value of a good?

texts:
Let's say that you have a good which price can change quite often because of its demand. Let's assume that you developed an algorithm that changes continuously the supply of the good to make its value as constant as possible and equal to $1. How would you simulate this system?

What I cannot figure out is how to simulate the changes in price of the good based on the demand. For example, let's take these as the initial conditions of the system:

$$initial-supply = 1000 goods$$
$$initial-value = $1/good $$
$$ production-rate-of-the-good=500 goods/second$$

Now let's assume that the demand is 500 goods/second. Does this imply that the price of the good will stay constant?

If the demand becomes 2000 goods/second for some interval, how will the price of the good change if the production rate remains the same?

I am a beginner in these concepts and I hope that this question makes sense


texts: Is there a centralised subscription system for new and forthcoming economic books?

texts:
Many publishers (e.g. MIT Press, Oxford University Press, Harvard Press, Norton, et cetera) are constantly releasing new economic books. I could subscribe to email alerts for each of them (for example, MIT, OUP, Harvard). However, this has two problems:

I will get a lot of emails.
Unless I subscribe to all/most, I will be missing from many other, lesser known, perhaps heterodox publishers.

I wonder whether there is a single, centralised system which can alert me, say, every month, of the plethora of new economic books published or forthcoming.

I know Inomics is a good centralised system for conferences and jobs alert, but I am not aware of book alerts. RePEc does not seem to provide that service either.


texts: Is money supply affected by the stock market?

texts:
Do stock prices have any effect on the money supply of an economy? Please provide a simple example if possible.

Intuition suggests there is more money around when prices are high (consider for instance the dotcom boom). I guess the answer may be dependent on what definition of money supply one uses (M0-M4).


texts: What is a good proxy for government quality?

texts: Is it ok to use corruption as a proxy for government quality?


texts:
Recently, I read an IMF blog on how the negative interest rate policy can be implemented feasibly here. I don't really understand what they are saying in this paragraph:

  When cash is available, however, cutting rates significantly into negative territory becomes impossible. Cash has the same purchasing power as bank deposits, but at zero nominal interest. Moreover, it can be obtained in unlimited quantities in exchange for bank money. Therefore, instead of paying negative interest, one can simply hold cash at zero interest. Cash is a free option on zero interest, and acts as an interest rate floor.

What I guess they are trying to say is that when cash is available, people need not take up loans and hence, the availability of cash diminishes the effectiveness of the policy. Could someone please help to enlighten me on this?


texts: Solving for value function (non-Bellman)

texts:
I am trying to build a model and am having trouble getting a closed form solution for this value function:
$$V(h_{t})=\max\limits_{{k_{t+1},\tau_{t},l_{2},I}} ln[w(h_{t})[1-l_{2}-\alpha I]-k_{t+1}-\tau_{t}]+\sigma ln(l_{2})+\beta ln(Rk_{t+1}+\tau_{t+1})+\lambda ln(Rk_{t}+\tau_{t})$$

$\lambda,\beta,R,\sigma,\alpha$ are constants
$k_{t+1},\tau_{t},l_{2}$ are my controls
$h_{t}$ is my state.
I is an indicator variable
$\tau_{t+1}$ is a function of I

What might be some approaches I could take to get a closed form solution?

I know about the Bellman Equation and the technique to solve one but here my right hand side has no value function so I am at a loss. Any advice would be much appreciated.


texts:
I'm a bit unsure about how to derive a long-run cost function. Suppose my production function was $X(L, K)=L^a K^b$, where $a+b>1$.

I'm thinking about doing the following, but I'm not sure it's correct. If it's not, what am I not considering?

The beginning of my solution:

Our production function is $X=L^a K^b$ and our cost equation is $C=wL+rK$. So, we must solve $\max L^a K^b \text{ s.t. } C=wL+rK$. Therefore, our Lagrangian function is $\mathcal{L}=L^a K^b + \lambda(C-wL-rK)$.

The first order conditions are: (1) $aL^{a-1}K^b-\lambda w=0$, (2) $bL^aK^{b-1} -\lambda r=0$, and (3) $C-wL-rK=0$.

Then, we solve the maximization problem (dividing conditions 1 and 2, solving for $L$ and $K$, and then plugging $L$ and $K$ into the cost equation). Does this seem like the right way to do it?


texts:
this is more a theoretical question, nowadays with Internet, Debit/Credit cards and Cryptocurrencies, why should we keep printing/making more physical money?

granted not everybody has access to these technologies, but for the sake of this question, let's say every body does


texts: What is the mechanism for when the fed purchases a gov't or corporate bond from a non bank?

texts: My understanding is when the fed buys a bond from a bank they use bank reserves (bank reserves are swapped for a bond). How does the transaction differ when a non bank (ex hedge fund) is involved?


texts: microeconmics: can a monopolistic firm be profitable if its marginal revenue is negative?

texts:
Statement: If a monopoly is producing a quantity for which its MR is negative, its total profit cannot be positive.

Is this statement correct or incorrect, and why?

I've read a lot about this, but sources tend to discuss maximizing profitability, while the question above presumes that MR < 0 (and obviously smaller than MC) but wonders about profitability in this scenario.

My hunch is that yes, it is possible, but I'm struggling to prove it.

Edit: this getting downvoted is the reason why SE is deteriorating at the rate it is. I’ll go look for a more welcoming community.


texts: Intuition - Why does elasticity vary along a curve?

texts:
Source: p 96, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw

  Even though the slope of a linear demand curve is constant, the elasticity is not.
  This is true because the slope is the ratio of changes in the two variables, whereas
  the elasticity is the ratio of percentage changes in the two variables.

  [Source:] Elasticity along a straight line demand curve varies from zero at the quantity axis to infinity at the price axis. ... At the midpoint ... elasticity is equal to one, or unit elastic.

Please explain the above intuitively? I ask NOT for a formal proof.


texts: features of Generalised Method of Moments estimation

texts:
[

What does it mean that GMM is robust to distributional assumptions?


texts:
The Universal Basic Income scenario seems to be one where people are free to cultivate their passions. From what I could gather, the main argument for this to be the best case scenario goes something like, if people are free to choose what they would like to do they would choose something which they are passionate about, which in turn would mean that they will gladly work towards becoming better at it, and create a pleasure-productivity feedback loop.

This seems almost universally accepted, and intuitively right.

My question is, who would take care of the menial but necessary tasks? (Elders' carers, garbage man, plumbers, cleaners...)

Some answer that AI development, will give rise to "unconscious" slave robots who will be able to take care of it. How likely is this?

There seems to also be an idea of the possible emergence of "artisanal" markets, in the sense that even if, for instances, robots are able to function as carers for basic tasks, there would be a premium market for "flesh" carers. And people who would choose to fulfill these roles would be highly remunerated.

Are there any studies, papers or polls on this topic?


texts: Does GNI change once it has been published?

texts:
From what I understand, GNI is published for the last year once the year has ended

I am trying to have a look at the GNI for Korea for the past couple of years

The official GNI is published by Bank of Korea on their website

10 days ago I checked the GNI, and the latest published GNI was for 2016, and it was 3198.40 * 10000 Won (about $30000)

Today I checked the GNI again and the system shows the GNI for 2016 and 2017 as:

2016: 3212.40 * 10000 Won (higher than previous value of 3198.40)
2017: 3363.60 * 10000 Won

Why is the GNI for 2016 different after 10 days? How does this work? Does this mean the GNI for 2017 as published now is not final either? Can either of these GNI values change again?


texts: Economic impacts of a declining population

texts:
In the article “Japan’s population problem” in The Japan Time, Hugh Cortazzi write:

  Japanese leaders and Japanese people generally are well aware of their
  nation’s demographic challenges. The population has begun to decline
  […] The implications for the Japanese economy and for Japan’s position
  in the world should be obvious.

I can see some “intuitive” reason why a decline in population would be an issue for a country, mostly if it comes with a decline in the workforce (roughly decreased labor supply, decreased international competitveness and problems with funding pension system?). But I am interested in more careful and more general analysis.

My questions are:

What are (if any) the economic challenges of a declining population, in the case of Japan (or in general,if not too broad)?
Does there exist modern macroeconomic models (say open economy DSGE) including demographics and studying declining populations ?
Have some paper tried to compare the welfare costs of a declining population with the potential welfare benefits of a declining population (e.g. for a dense country like Japan, decreasing housing prices)?


texts: How to utilize the projection matrix in econometrics?

texts:
When consider the following DGP : $y=X\beta^{*}+\epsilon$ where $\beta^{*}$ is a $\tilde k\times1\ $ vector.

Define the projection matrices: $P_{X}=X(X^{T}X)^{-1}X^{T}$ and $M_{X}=I-X(X^{T}X)^{-1}$.

first problem is prove that $X^{T}P_{X}=X^{T}$ and $ X^{T}M_{X}=0$

I thought this problem is too simple to think because P is just I. So, I think that there is an intention for given problem considering second problem.

Second problem is Prove thath if $X_{(i)}$ is the $i^{th}$ column of $X$, then, $M_{X}X_{(i)}=0$

My question is

What is the point of first problem?
Can I solve these problem by considering $X_{(i)}=XA\ $ where A has a vector consisting of just 1 and the other columns are all zero? or Should I utilize first problem's solution?


texts:
Keynes defines saving as equal to investment, saying:
"Having now defined both income and consumption, the definition of saving, which is the excess of income over consumption, naturally follows ... Our definition of income also leads at once to the definition of current investment. For we must mean by this the current addition to the value of the capital equipment which has resulted from the productive activity of the period. This is, clearly, equal to what we have just defined as saving. For it is that part of the income of the period which has not passed into consumption."
To me, Keynes' assumption that all income that is not consumed is invested in augmenting capital seems problematic. It's pretty obvious that people do keep money on hand without either consuming it or investing it. Keynes himself doesn't seem to rely on this definition in the rest of The General Theory. In fact, his own concept of liquidity preference seems to contradict this definition. My understanding of liquidity preference is that it is the desire of people to hold their money in liquid form, as opposed to investing it to earn interest. Keynes himself says:  "For if a man hoards his savings in cash, he earns no interest, though he saves just as much as before," acknowledging that people can and do hold parts of their income without investing or consuming it.
Am I misunderstanding Keynes? Does Keynes address this definition further in any of his works?


texts: Multiproduct firms and horizontal product differentiation

texts:
I am having difficulty modelling the effect of horizontal product differentiation between multiproduct firms. I've been looking at models specifically by Hotelling and d'Aspremont. Hotelling concluded that in duopolistic competition, an equilibrium was found through firms differentiating minimally, (i.e. designing products of similar attributes) whilst d’Aspremont shows the opposite with the equilibria resting at maximal product differentiation.

However, both of these principles do not take into account multiproduct firms, where firms could produce different varieties of the same product (take shoes for example) where some are highly differentiated and others may be similar to a competitor. Is there a model that explains this situation?


texts: What would happen if total welfare were evenly distributed?

texts:
Suppose that there is a market with a large number of consumers and producers. Assume that the government knows the reservation prices of  all people in the market. Suppose that the government uses this information to tax all the consumer and producer surplus created in the market (by making everyone pay or receive the reservation price). The government distributes the total welfare equally to everyone.

What effect would this have on the economy compared to the situation without government intervention?


texts: Consumer optimum in an economy with a continuum of commodities

texts:
Consider an economy with a continuum of commodities, with one commodity for each point in $[0,1]$.

Suppose a consumer wants to maximise
$$U = \int_0^1 c_i^\theta\,di\qquad 0<\theta<1$$
subject to
$$\int_0^1 p_i c_i\,di = M$$
where $c_i$ is the amount of the $i$-th commodity consumed, $p_i$ its price and $M$ the consumer's money income.

This kind of problem arises for example in applying the Dixit-Stiglitz model to macroeconomics or international trade.

The solution to this problem is supposedly
$$c_i = Ap_i^{1 \over {\theta-1}}$$
where $A$ is a constant chosen to ensure that the budget constraint is satisfied.

I am not very satisfied with derivations of this result which use Lagrange multipliers in analogy with the case of a finite number of commodities. What would be a completely mathematically rigorous method of deriving the above result?

It seems clear that there isn't a unique solution since arbitrarily changing the values of $c_i$ for a finite number of values of $i$ will leave the integrals in the utility function and budget constraint unchanged. I am expecting that a completely rigorous derivation would also correctly pinpoint this degree of nonuniqueness.

EDIT: In response to the comments by @BKay, @Ubiquitous. My problem with starting out with economies with $n$ commodities and taking the limit as $n \to \infty$ is that this needs to be accompanied by an argument which shows that the limit of optima is an optimum of the limit problem. I would appreciate a reference to a result which shows this either for this particular problem or a general result which is applicable to this problem.

In response to @AlecosPapadopoulos. The proofs of the Langrange multiplier method that is taught in math for economics courses is usually for a finite number of choice variables. I would appreciate a reference to where the method is justified for a continuum of choice variables. Also, the nonuniqueness I mention above shows that the method cannot be exactly right. Then what exactly are the qualifications required for its validity?


texts: Prodest package in R for TFP estimation, gives different results

texts:
I have the following issue: each time I run the estimation of the TFP by using prodest package in R 4.0.3, I obtain different coefficients before the variables as well as omega variable is different:
The dataset is here: https://drive.google.com/file/d/11cZ4ozUOtKxlXR3fLtjaQjsr9G-z54yN/view?usp=sharing
The code is the following:
remove(list=ls())

library(plm)
library(dplyr)
library(ggplot2)
library(prodest)

pckg<-c("plm","readxl","dplyr","ggplot2","prodest")
install.packages(c("plm","readxl","dplyr","ggplot2","prodest"))
lapply(pckg, require, character.only = TRUE)

# Set the working directory
setwd("------")

# Downloading the survey data
Data <- read.csv("test.csv", header=TRUE, sep=",")
str(Data)

Data$ID<-as.numeric(as.factor(Data$ID))

summary(Data)

# Creating a panel data frame

DataA <- Data %>%
  filter(NACE == 'A') %>%
  filter(VA > 0, L > 0, FA > 0, M > 0, Turn > 0, TFA > 0) %>%
  mutate(ID = ID,
         Year = Year,
         l = log(L),
         va = log(VA),
         k = log(TFA),
         m = log(M),
         turn = log(Turn),
         ta = log(TA))

####################################################################################################################################
mod2LP <- prodest::prodestLP(DataA$va, fX = DataA$l, sX = DataA$k, pX = DataA$m, idvar = DataA$ID, timevar = DataA$Year,
                             R = 100, cX = NULL, opt = "optim", theta0 = NULL, cluster = NULL, tol = 1e-100, exit = FALSE)
mod2LP
omegaLP <- prodest::omega(mod2LP)
summary(mod2LP)
summary(omegaLP)

DataA$omega <- prodest::omega(mod2LP)

hist(omegaLP)

mod2OP <- prodest::prodestOP(DataA11$turn, fX = DataA11$l, sX = DataA11$k, pX = DataA11$m, idvar = DataA11$ID, timevar = DataA11$Year,
                             R = 100, cX = NULL, opt = "optim", theta0 = NULL, cluster = NULL, tol = 1e-100, exit = FALSE)

mod2OP
omegaOP <- prodest::omega(mod2OP)
summary(mod2OP)
summary(omegaOP)

mod2ACF <-  prodest::prodestACF(DataA$va, fX = DataA$l, sX = DataA$k, pX = DataA$m, idvar = DataA$ID, timevar = DataA$Year,
                                R = 100, cX = NULL, opt = 'optim', theta0 = NULL, cluster = NULL)

mod2ACF
omegaACF <- prodest::omega(mod2ACF)
summary(mod2ACF)
summary(omegaACF)

DataA$omega <- prodest::omega(mod2ACF)

mod2W <-  prodest::prodestWRDG(DataA$va, fX = DataA$l, sX = DataA$k, pX = DataA$m, idvar = DataA$ID, timevar = DataA$Year,
                                   cX = NULL)
mod2W
omegaW <- prodest::omega(mod2W)
summary(mod2W)
summary(omegaW)

####################################################################################################################################

Now if you run ACF or Wooldridge methods several times, you will obtain different coefficients as well as TFP measures.
Any ideas on how to solve it?


texts: What is the effect of redirecting government tax intake to a consumer retirement saving incentive?

texts:
In New Zealand we have a retirement saving scheme called Kiwisaver.

The scheme is opt in. If a consumer opts in, they must save at least 3% of their income, which they can't access until retirement. (They can also withdraw it to buy a first house).

Their employer must match up to 2% of the employee's income.

The government matches up to ~$500 a year.

My question is, what happens if the government, instead of giving a tax cut, increases its contribution to the retirement scheme?

e.g. The government cuts services, and so can afford to give taxpayers a 1% tax cut. Instead of simply giving the tax cut, they announce that they'll be instead matching an additional 1% on the saving scheme.

The effects I see are:

There is the effect of of reduced government spending.

There's also the effect that it will increase consumer participation in the scheme.

But there's also the effect that all this extra money has on the investment world. Would this simply be inflationary on existing stock prices? Or is it likely to increase new (risky?) investment?


texts: Convex games: equivalence of definitions

texts:
Let $N \subset \mathbb N$ denote the set of players and $v : 2^N \to \mathbb R$ , $v(\emptyset) = 0$, the characteristic function.
We call $(N,v)$ a cooperative transferable utility (TU) game.

Definition 1.
A game $(N,v)$ is called convex, if for all $S,T \subseteq N$ it holds that
\begin{align}
v(S \cup T) + v(S \cap T) \geq v(S) + v(T) \tag{C.1}.
\end{align}
In Hafalir (2007, p. 255) it says that Def. (1) is equivalent to the following statement.

Definition 2.
A game $(N,v)$ is called convex, if for all $S,T \subseteq N$ with $|S \setminus T| = |T \setminus S| \leq 1$ it holds that
\begin{align}
v(S \cup T) + v(S \cap T) \geq v(S) + v(T) \tag{C.2}.
\end{align}

There is no proof of the statement, but the author refers to Moulin (1988, p. 112). But here it only gives an equivalent for Definition 1.

Definition 1'.
A game $(N,v)$ is called convex, if for all $i \in N$ and $S \subset T \subset N \setminus \{i\}$ it holds that
\begin{align}
v(S \cup \{i\}) - v(S) \leq v(T \cup \{i\}) - v(T) \tag{C.3}.
\end{align}

Definitions 1. and 1'. are standard. I never heard of 2. though. I have a problem, however, where I can show that Def. 2. is satisfied. And now I'm wondering how to show the equivalence of Def. 2. with either 1. or 1.'.


texts: Why would investment banks not care about their risky exposure to subprime mortgages?

texts: At the end of The Big Short, Steve Carell's character asserts that the banks weren't acting stupid, and that they knew they were getting a bailout so they just didn't care. Why wouldn't they care? From what I understand the bailout was just a bunch of big loans. Why would you not care about losing a bunch of money and having to take out huge loans?


texts: DSGE Model Solutions as a Vector Time-Series process. Examples?

texts:
I'm trying to understand how the solutions of a DSGE model can be seen as VAR or VARMA.

Can you give examples of DSGE model solutions which can be seen as such? Also, does this only happen when we use linear methods, or also with non-linear methods?

Any help would be appreciated.


texts: Why do we use mostly two-tailed Student's t-statistics to find if an explanatory variable is significant in a regression?

texts:
Let's assume a standard regression model:
$$y=\beta x+u$$
We'd like to test if an variable $x_j$ is relevant in the respect of the model.

t-statistics: $$t=\frac{\hat{\beta_j}-b}{SE(\hat{\beta_j})}$$

Most of the time, we assume the following two-tailed hypothesis:
$$H_0: \beta_j=b, \ H_1: \beta_j \neq b$$

My question is, why don't we use more often the one-tailed hypothesis to test the significance of a variable $x_j$? When I read papers and write assignments I hardly ever come across one-tailed t-tests in the respect to regression models. Why?


texts: Why does marginal private cost increase with quantity?

texts:
There are often two ways of interpreting the demand and supply curves.

The market

The demand curve consists of all buyers -- some who value the good more than the market price, and some who value it less. For more quantity to be produced, you have to lower the price so that those who value it less will buy. It makes sense that it is downward sloping.

Similarly the supply curve consists of all producers -- some who can produce the good at a lower cost than the market price, and some who can't. In this case, for more quantity to be produced, you have to raise the price so that those less efficient firms will be motivated to produce. It makes sense that the curve is upward sloping.

Marginal benefits and costs

Now we look at the curves in the context of one producer and one consumer. The demand curve of the consumer is downward sloping because of marginal utility. This makes sense to me.

What doesn't make sense to me is that the supply curve is upward sloping because marginal costs increase. Why is it that it costs more to make the next toy than it did the last?

If I've had any misconceptions or misunderstandings, please point them out to me. Thank you for the help!


texts: How does the Federal Reserve unwind the asset purchasing scheme announced in response to the 2020 Coronavirus Pandemic?

texts:
On Monday, 06 April, 2020 the Financial Times reported that the Federal Reserve balance sheet could increase to $9 trillion.  This is partly due to the myriad of initiatives, some new, to protect the economy of the United States during the 2020 Coronavirus Pandemic.

A lot of online commentary is alarmist and centres on the threat of hyperinflation and many of the news articles don't inform the reader how the Federal Reserve purchases assets.. This puts the average citizen at a disadvantage when understanding the economic impact.

My question is multi-faceted (but singlular) and aiming to focus purely on the economics.

How does the Federal Reserve unwind the positions on their books?  Do financial services have to purchase the assets back at a later date and does the Federal Reserve charge a premium for the service?
Can a position of this size (60% of national output) actually be unwound?

If this question is similar to the approaches of other Central Banks then please tag accordingly if appropriate.


texts: Multinominal logit regressions - marginal effects

texts: I am running a multinominal logit regression with five dependent variable categories: "I disagree fully", "I disagree", "Neutral", "I agree" and "I agree fully". I computed marginal effects in Stata (margins dy/dx in Stata), which show the difference in probability of each of the dependent variable categories associated with a one unit change in each of the independent variables. Only the marginal effect for "Neutral" is significant and negative for one of the independent variables. If the mean of the dependent variable is "I agree", can I then conclude that the independent variable has a positive effect on the dependent variable?


texts: Why is the yen getting stronger even with negative interest rates?

texts:
Checking this graph we can see that 1 Yen is worth increasingly more dollars this past week.

I wonder why is this, specially when the BoJ has imposed negative nominal interest rates.

It seems a bit strange...


texts:
I am trying to wrap my head around the 'no arbitrage' (NA) and 'efficient market' (EM) assumptions, in particular their difference.

Please correct me if I am wrong, but NA just claims that there is no trading strategy that generates profit but has zero risk, while by contrast EM states that the (historical) price data of an asset already contains all that there is to know about its future development.

Does one of them imply the other?


texts:
Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase?

I understand that to increase the money supply, the central bank uses cash reserves to pay for bonds. I’ve been thinking about this for a while, but does this lead to an increase in demand for the bonds and a decrease in demand for money or is it the other way around?


texts:
Is the development of market rate housing independent of the development of affordable housing? Can anyone provide evidence that supports or refutes this?

Here is my thinking. While I have yet to find direct evidence for the affirmative, I did find here that:

  A recent survey examining vacant land and abandoned structures in 70 cities found that: On average, fifteen percent of a city's land was deemed vacant. This total includes widely varying types of land, ranging from undisturbed open space to abandoned, contaminated brownfields.

I also found here that:

  But it is not necessarily the case that the land where market-rate housing (or a mixture of market rate and affordable housing) is proposed would otherwise be used entirely for affordable housing. The land might continue to be too costly to support affordable housing, even if the land could not be used for housing for higher income households, because there are other uses (such as office or other commercial space) competing for the land. Also, the reasons affordable housing is not provided in larger quantities go far beyond the lack of land and include the inadequacy of funding to pay for construction, financing costs and operating costs.

This tells me that disallowing market rate housing may not create space for affordable housing, however does this really show independence of the two? This also tells me that there are other factors that affect the development of affordable housing besides land. Would the fact that these factors include "inadequacy of funding to pay for construction financing costs and operating costs" support the affirmative side of my question? I think they would unless it could be shown that market rate housing development affects these factors in affordable housing development, i.e., construction and operation costs.

Essentially, is there evidence that developing market rate housing necessarily comes at the consequence of the development of affordable housing?

I think that this comes down to simple economics, however, if this question belongs on a different Stack Exchange site, please let me know.


texts: I need to prove how an increase in output p increases profit-max. Can someone help to understand why IFT implies that z is a unique maximizing point?

texts: MWG 5C6 asks: "Suppose a concave prod function f(z) with inputs $(z_1,...,z_L-1)$ and also that $\partial f(z))/\partial z_l \geqslant 0$ for all l and $z\geqslant0$ and that $D^2f(z)$ is negative definite at all z. Use FOC and Implicit Function Theorem (IFT) to prove that an increase in output price increases profit-max level. I did undertand the most part of Solutions, although it´s not clear why does the Implict Function Theorem implies that z is a unique maximizing point that satisfies $p\bigtriangledown f(z)-w=0$.


texts: What types of identification are there in Econometrics?

texts:
Identification of a model is the simple property that when two likelihoods (for the same data), or Joint CDF (for the same random variables), if equal, then they must imply that the parameters must also be equal, i.e. we cannot have two different set of parameter values which fit data. (This is probably imprecise, sorry).

I'm wondering just how many types of identification there are. I've heard of weak, semi-strong, and strong... And what do they mean?

If possible, I would like the answer to also link to a bibliographical reference, where the authors would explain in some detail most of these concepts in a general setting.

Thanks in advance.


texts: Derive the Hicks demand function for $U(x_1,x_2) = x_1^{1/2}x_2^{1/3}$

texts:
Consider the utility function $U(x_1,x_2) = x_1^{1/2}x_2^{1/3}$ and the budget line $p_1x_1+p_2x_2 = m$. Then I have to find the Hicks demand function.

I know that to do this I have to solve the following expenditure minimization problem
$$
\min_{x_1,x_2} p_1x_1+p_2x_2
$$
subject to
$$
x_1^{1/2}x_2^{1/3} = U
$$
for some utility level $U$. I have already found the Marshallian demand functions to be $x_1^* = \frac{3m}{5p_1}$ and $x^* = \frac{2m}{5p_2}$.

I thought maybe we could use the well-known Cobb-Douglas demand functions but I don't think we can as $1/2 + 1/3 = 5/6 \neq 1$.

I then tried to use Lagrange and got that

By Lagrange we have that
$$
L = p_1x_1+p_2x_2 - \lambda \left( x_1^{1/2}x_2^{1/3}-U \right)
$$
Thus the three FOC will be
\begin{align}
\frac{\partial L}{\partial x_1}: p_1- \lambda \left( \frac{1}{2} x_1^{-1/2}x_2^{1/3} \right)
\\
\frac{\partial L}{\partial x_2}: p_2 - \lambda \left( \frac{1}{3} x_1^{1/2}x_2^{-2/3} \right)
\\
\frac{\partial L}{\partial \lambda}: x_1^{1/2}x_2^{1/3} = U
\end{align}
Dividng the first equation with the second equation one gets
$$
\frac{3x_2}{2x_1} = \frac{p_1}{p_2}
$$
Thus
$$
x_1 = \frac{3p_2x_2}{2p_1}
$$
Inserting this into $U(x_1,x_2)$ we have that
$$
\left(\frac{3p_2x_2}{2p_1} \right)^{1/2} x_2^{1/3}
$$
which gives me after some few calculations that
$$
x_1^* = \frac{3p_2}{2p_1} \left( \frac{U\sqrt{2}\sqrt{p_1}}{ \sqrt{3} \sqrt{p_2}} \right)^{6/5}
$$
$$
x_2^* = \left( \frac{ U \sqrt{2} \sqrt{p_1}}{ \sqrt{3} \sqrt{p_2} } \right)^{1/(5/6)}
$$
but this doesn't seem right. Is there an easier solution to this kind of problem?


texts: When the federal reserve buys bonds or other assets from banks, do the banks make a profit?

texts: My understanding is that the federal reserve is injecting money in the market by buying bonds and debt from banks.   Do the banks make a profit on the sale of their bonds or corporate debt to the feds?  If not, what is their motivation for selling bonds or debt to the feds?


texts: Why does an increasing demand for dollars lead to the depreciation of a currency?

texts:
I am self studying some slides of a course on monetary economics.

The source of the slides is Pilbeam, chapter 11 on the mechanism of the Bretton Woods system.

I don't understand the following reasoning:

Suppose there is an increasing demand for dollars in some country (because of a shortage on the current account).
This will lead to the depreciation of the currency.


texts: Why are Portuguese migrating out of Portugal?

texts:
Where the world's population is growing and shrinking

Apart from a low fertility rate, why is the Portuguese population declining?


texts: Why did the rate of money supply growth increase from 1993-96 in the United States?

texts:
Even though the rate of growth in the monetary base decelerated — and the money multiplier decreased for the most part — from 1993-96 in the United States, the growth rate of the M2 money stock still progressively increased. How is this possible?

References:

https://fred.stlouisfed.org/series/BASE

https://www.alt-m.org/2016/07/21/why-the-money-multiplier-remains-so-low/

https://fred.stlouisfed.org/series/M2


texts: Why is imputed rental income for owner-occupied housing included in the measurement of household income?

texts: In the National Income Dynamics Study in South Africa, total household income is measured by totalling labour income, government income, investment income, capital income, agricultural income, remittances and imputed rental income for owner-occupied housing (see page 48 of the user manual). Why is this last variable calculated and included? The household doesn't actually earn that income, so surely it's more a measure of wealth? Please point me to literature that backs up this methodology.


texts: Are there some guidelines/strategies for deciding between showing a list price vs "call for price"?

texts:
I suppose as a buyer many have been on the receiving end of "call for price" price discrimination or one of its less unpleasantly sounding synonyms. Now it's generally known that the average Joe hates negotiating at least for cars... So how do you decide as a seller whether to sell something the call-for-price-way or (still using cars as example) the Costco way i.e. with fixed/list prices?

I suppose there's some kind of market research that takes into account the psychological aversion [for protracted negotiation] of the prospective buyers, but I don't know much about that. Is there any research on this topic, i.e. what are the things to consider in deciding on list price vs "call for price"? And is there empirical validation for such decision schemes if they exist?

Yeah, the traditional economic theory simply says "If you can discriminate, it is profitable to do so". But that seems to ignore any behavioral economics aspects.


texts:
Can someone clarify the difference between nominal and real growth of monetary base? I believe it is the policy of some central banks to target for example 0% nominal growth in the monetary base. What would an example of 0% real growth target be - nominal growth of say 2% but inflation also of 2%?

Are there advantages or specific motivations of designing policy according to one vs the other?


texts: Profit maximization with Cobb-Douglas function

texts:
I'm trying to maximize a firm's profit given the production function $F(L,K)=L^\alpha K^\beta$ (where $L$ is labor and $K$ is capital) and that $\alpha + \beta \neq 1$.

So, I know that this maximization problem can be written as $\text{max }pF(L,K)-w_1 L-w_2 K$.

Since $pMP_L (L^*,K^*)=w_1$, $p\alpha(L^*)^{\alpha-1}(K^*)^\beta=w_1$. And since $pMP_K (L^*,K^*)=w_2$, $p\beta(L^*)^{\alpha}(K^*)^{\beta-1}=w_2$.

By dividing these functions and simplifying, we get $\displaystyle\frac{\alpha K^*}{\beta L^*}=\displaystyle\frac{w_1}{w_2}$.

I'm unsure how to proceed from here, though. Should I solve for $L^*$ by separating $K^*$ from the equation and plugging into $pMP_L$? Wouldn't this yield a very complicated solution?


texts:
How are purchasing power parity (PPP) conversions computed?

I guess that goods' and services' prices are compared across different countries/currencies. However, there are services such as healthcare or university education that some countries (e.g, EU countries) provide as universal rights and are "free" (paid by "taxes"), whereas within other countries those services/coverages are to be paid directly by people. So I don't know how these important differences are taken into account when computing PPP conversion.


texts: Find Change in output from marginal products of labor/capital

texts:
A firm produces 231 doohickeys with 8.4 units of labour and 22.1 units of capital. the marginal product of labour is 18, the marginal product of capital is 20. Approximately how many doohickeys will it produce with 8.6 units of labour and 22 units of capital?

Is this just as simple as taking the difference between the new and original values and multiplying that by the marginal product?

i.e. (8.6-8.4) x 18 + (22-22.1) x 20 = 1.6

so they will produce approximately 232.6 doohickeys

Or am i supposed to take the integral of the marginal products and do something with those? i tried that but I couldnt get any where


texts: Does a strong dollar achieve the same tightening effect on the economy as rising interest rates?

texts:
Rising interest rates means the cost of borrowing USD goes up. A stronger USD means USD becomes more expensive. Wouldn't that naturally follows that the cost of borrowing USD goes up since each dollar becomes more expensive?

Does strong USD achieve the same effect as rising interest rates? If yes, is it logical to conclude that the Fed would put off raising interest rates if the dollar rises too much?


texts: How likely are the Sonnenschein-Mantel-Debreu results?

texts:
I have been reading about the SMD results and it's "damning" nature for GET. My understanding of the result is as follows: price changes not only cause a substitution effect but also change the wealth distribution of a society. The latter could, in principle, cause the excess demand function to have any shape (save for homogeneity of degree zero, Walras' Law, boundary conditions, continuity)

My reaction to this is that it seems enormously unlikely. While I'm sure it's possible, it seems to me that if the number of individuals and commodities gets sufficiently large, that "hardly any" economies would actually exhibit this weird behaviour. The wealth redistributions required to get the weird shape would be just too improbable. I am curious if there was some way of defining the space of economies as a measure space, and then saying that the set of economies with weird aggregate excess demand function is of "small" measure (and tending to zero with the number of individuals/commodities). Do mathematical economists agree with this intuition of mine?


texts: How does the Monetary base, Narrow money and Broad money affect inflation?

texts:
In a lot of countries (e.g. Hungary) the M0, M1, M2 and M3 all doubled, tripled or even quadrupled in the past 10 years. How does this directly affect inflation?

Since just because M2 doubles, it doesn't mean that the Hungarian Forint is worth the half of what it did before. What is the relation between money supplies and consumer price indexes?


texts: Economics behind reverse auctions with occasional non-profiting suppliers

texts:
I was curious about the theory behind a reverse auction system where some suppliers act in a non-profit manner, namely, that their consideration of extra-auctions benefits of providing their service results in a free offer to the buyer.
Can such a system exist where there are some suppliers willing to provide free services and others suppliers that are not willing to provide free services?
Is an equilibrium possible if, say, 30% of the potential suppliers acted in such a voluntary manner or would this result in a market failure?
Any guiding thoughts or material would be very welcomed.
Edit: Most of the literature I've read came from the internal references within this review: https://www.sciencedirect.com/science/article/abs/pii/S1366554503000711 (paywalled)
I also read about the auction rulesets defined in this work:
https://web.stanford.edu/~milgrom/publishedarticles/Putting%20Auction%20Theory%20to%20Work.pdf
Neither of the above references, to my knowledge, accounted for the consequences of non-profit reverse auction bids.


texts:
I have a short question:

Why  does the gross return of wealth decrease as wealth increases?

Why do the gross return of wealth and wealth move in opposite direction?

$$R=1+(a/w^2)$$ where a is non-negative parameter.


texts: Theoretical market capitalisation of a crypto currency?

texts: Here’s the context. I want to know what the theoretical market capitalisation (say eg $US / Bitcoin times Q the number of coins - it doesn’t have to be Bitcoin) of a crypto currency? Assume that the crypto currency is uniformly better than fiat. I think it tends to infinity. To see this, let’s say everyone decides that a digital currency is better (eg because you could avoid tax / minimise transaction costs), then in an extreme scenario ppl decide that it’s just better to hold digital currency rather than fiat - so demand for fiat currency in that case tends to 0 and exchange rate between fiat / digital currency tends towards infinity because the fiat becomes worthless. So it’s kind of like holding a stock that’s price goes to 0. And that probably explains the considerable growth of digital market capitalisation. Is my reasoning correct?


texts: Why Constant Returns to Scale Suggests Certain Relation

texts:
I'm self studying intermediate macroeconomics by reading a textbook and I came across a relationship that I'm not quite sure how it is derived.

Let $F(K,L)$ be a production function where $K$ is capital stock and $L$ is the labor force. Assuming constant returns to scale, I'm not sure how to derive $$F(K,L) = F_K(K,L)K + F_L(K,L)L,$$ where $F_x$ denotes the partial derivative of $F$ with respect to $x$.


texts: Best companion for Mas-Colell Microeconomic Theory textbook

texts:
What are the best sources to accompany MasColell Microeconomic Theory textbook in 1st year of MA in economics?
I mean any sources - textbooks, videos, websites, book companions, etc.
And I mean easy sources - as MasColell is quite difficult.
Best if it follows the chapters of MasColell.
Thanks


texts: In Smith's theory, what is the difference between the "nominal price" vs. "market price" and "real price" vs. "natural price"?

texts:
In Adam's Fallacy, Foley writes:

"Smith distinguishes what he calls the nominal price of a commodity (the amount of money for which it exchanges) from the real price of the commodity, the amount of labor required to produce it." (p. 12)

Later he writes:

"The market price is just the amount of money for which the commodity changes hands at any particular moment; it rises and falls because of shortages and gluts, changes of taste and supply, and speculation. But Smith believes there are important forces that tend to push the market price back toward a certain level, which he calls the natural price of the commodity. Since there are always disruptions in any market, he does not expect the market price to converge smoothly to the natural price and then stay there, but instead believes it will fluctuate or (adopting an image from Newtonian planetary physics) “gravitate” around the natural price." (p. 13 et. seq.)

Is there a difference between the nominal price and the market price, and between the real price and the natural price? Because to me, the two pairs of terms seem to match up.


texts: Using the CSV file provided by St. Louis Fed (which is based on the data series LNS14000000 from the Bureau of Labor Statistics) I noticed that the date is always the first day of each month for the unemployment rate, i.e. for May 1957 it is 1957-05-01 and so on. Because BLS currently will announce the data for June 2018 on the 6th of July, I doubt that the CSV file is correct. Where can I find the accurate historic release dates for the unemployment rates?


texts: Is it reasonable, in panel data, to use past values of explanatory variables as instruments to deal with simultaneous causality?

texts:
I am trying to examine the determinants of economic growth, essentially regressing a number of variables upon economic growth. I face a problem that there is likely simultaneous causality between many of my explanatory variables and the dependent variable. To deal with it I am using instrumental variables. I was wondering would it be reasonable to use the past values of my explanatory variables as instruments for their current values?

Thank you so much for the answers.


texts: Sequential games and Perfect Bayesian Equilibrium

texts:
Reading the paper http://www.sciencedirect.com/science/article/pii/002205319190155W
I came up with the following question.

Given that this paper deals with games in which players move simultaneously, the formula in (1) of Definition 3.1 makes perfectly sense. If someone considers sequential movements of the players, how Definition 3.1 (and hence formula in (1)) would change?

Any good reference about "sequential moving" games?


texts: What is an example of a utility function where one good is inferior?

texts:
Say the consumer has a standard convex, monotonic preference over Apples and Bananas.

(Update: I'd like the preference to be as 'standard' as possible. So ideally we have diminishing MRS everywhere and we also have "more is better" everywhere.)

Say his preference can be represented by some utility function $u(A,B)$. He must satisfy some budget constraint $p_AA+p_BB=y$, where $y$ is his income.

Then what is an example of a utility function in which $\frac{\partial A}{\partial y}<0$, at least under some circumstances?

This seems to me a very simple question but briefly Googling I'm unable to find anything.


texts: Is America getting to a point where there are many more people than jobs or money to go around? Are times better or worse than 50 years ago?

texts:
Is America headed to a point of too many people, not enough work?  Is life for an average American better than 50 years ago?  I have asked about automation in my first question.  Then I've asked a couple of others but I guess I am asking too general?  I read it should be more precise.  America was a strong nation for many for a long time; now it looks like it just going that way for a few.  think so?

50 years ago would being us to 1965.  My Aunts and Uncles are very old, I'm 22, and they all say the same thing about people as young as me; "What future will they have?"  In some countries population is lowering so much they actually want people to have more kids because of not enough jobs being filled.  In America, over 300 million people and most already in poverty.  If this was 1965 people would be more optimistic.  Now, this decade, technology has come so far in what it can do, not as many humans to none are needed to do certain things anymore.

In the last 50 years taxes are higher, jobs are outsourced to other nations instead of being done by Americans here, automation is increasing so rapidly it is expected that by 2025, even truck driver jobs will start to diminish.  Retailers are already shutting down due to online competition from Amazon and restaurants are getting there too with tablets being placed at tables to take orders.  Another bad factor facing the nation is the rise of income inequality.  Standard cost of living has raised high while wages have stagnated in some places or lowered in others.   The rich are richer than ever, but most of us apart from them have such a small portion of the wealth of America for the work we do or investments we've made.


texts: I am going to write an essay about Hayek's views on economic and political (individual) liberty. I am trying to find books to develop a positive discussion on the topic, but I do not know where to search. I started with J.S. Mill's "on Liberty" and Hobbes' "Leviathan", but I cannot find where Locke discuss subjects such as individualism. Also, I was thinking about reading anarchist idea on the topic as an opposing view. Is there any good reading I've missed so far?


texts: How the Balassa-Samuelson affect real exchange rate?

texts: According to standard Balassa-Samuelson effect, when the productivity increases in the tradable sector (GDP), price increase can be observed in non-tradable sector and this can lead to appreciation of real exchange rate - This is what all of other papers explain, but the paper that I follow gives different result. When Greek real GDP per capita increases 10%, the real exchange rate falls 4,8%. (depreciation). This estimation follows another paper that explains undervaluation can cause economic development and productivity. In my opinion, GDP and real exchange rate have an inverse relationship that's why the author estimates that as exchange rate undervalued, GDP level gets larger. Is this true?


texts: How to compute standard errors for Blanchard-Quah-restricted SVAR?

texts:
People tell me that the way of bootstrapping standard errors in the original paper is incorrect, but then how should I do it?

Is there a convention of how to compute standard errors for Blanchard-Quah type SVAR in the literature?


texts: Different values for US Public Debt, why?

texts:
In this OECD link we have the US General government debt. The value is close to 120% of GDP.

However, the wikipedia has the US Federal Gov debt at 80%.

Why is there such a difference? What debt is being considered by the OECD, that is not by the wikipedia graph?

Any help would be appreciated


texts:
I am trying to study the effects of a policy on educational attainment of individuals (years of schooling, primary/secondary school completion, literacy). Since the policy starts in a specific year I decided to use an RDD using birth year as running variable.

The problem is that my sample is made of 5 different countries in which the policy has been implemented in 5 different years.
Am I able to pool the effect of the policy across countries?

Because if I build a unique running variable as being 0 for each cutoff year I get individuals born in e.g. 1994 having running variable both 0, -2, +3 depending on the country of origin.

How can I deal with this issue? Should I run a RD for each country alone?


texts:
There are some clear conflict of interest with when a person simultaneously holds a director position and is also part of the management, as CEO for example. We would clearly have a conflict of interest as the board should make decisions for the benefit of the shareholders, and the CEO has to rule the company. On top of this an incompetent CEO, who is also on the board of directors, is hard to fire.

I wanted to know if there is any governance problems or conflict of interest, in the case where a shareholder or a trustee, also occupies the role of chairman of the board of directors.

Thank you for your help.


texts: price elasticity of output, makes sense?

texts:
I was wondering, in a log-log model of output, labour and commodity price where output is the depedent variable, does it make sense if the coefficient on the price variable is interpreted as the "price elasticity of output"? Assume output is measured in constant monetary unit.

Let's say $log(gdp_t) = \beta_0 + \beta_1log(labour_t) + \beta_2\log(commodityprice) + \epsilon_t$

I've not seen $\beta_2$ being defined as the elasticity of output with respect to price. But, could this be correct at all?


texts:
What textbook(s) (and other resources) would you recommend to someone who wants to self-study microeconomics to an advanced (graduate) level starting from 0 (i.e. no formal background in economics)?
I have an undergraduate double major in a humanity and natural science. So there is a base of mathematical ability and knowledge of calc. I plan on improving in this area as well, so it isn't essential that all the requisite math is covered, but accessibility without a lack of rigor is of course preferred.


texts: Has this differential calculus inequality approach to optimizing the production possibility curve exist?

texts:
I just started micro-economics at my community college and my teacher mentioned the derivative of the PPF for two output resources. I thought about it a while and came up with this approach. Some of the notation may be incorrect as the highest math course I completed was college algebra (I tested out of it but still have todo trigonometry).

Does this approach I came up with already exist?

Here is the equations:


texts: What is the difference between the international Fisher effect and uncovered interest rate parity?

texts:
References:
https://en.wikipedia.org/wiki/International_Fisher_effect
https://en.wikipedia.org/wiki/Interest_rate_parity#Uncovered_interest_rate_parity
As far as I can tell, these two are the same. What is the difference? (Is the former a statement without taking expectation over future exchange rate, and thus, a stronger prediction?)


texts: How do we determine if wealth will be created or destroyed (and how much) when we want to provide (quasi)public goods?

texts:
It seems quite simple under framework of free market, when there are no taxes or subsidies,price celling or price floors, etc, that can mess up the market: if there is profit (or will be, according to forecast of expert), then wealth was created (or will be created). If profit is negative (i.e. we have loses) then wealth was destroyed.

But what if we have public goods provided by the State? There will be no profit, so this metric is dead in this case. Normally people don't buy things from the State, they are taxed.

Using opinion of an expert seems too fragile strategy to see if wealth is created or destroyed. Probably we could survey people with questions like "How much would you contribute to additional street lighting if there was crowdfunding campaign?", but I'm not sure if it's how it is done in practice.(Please confirm if I right). Ideally it would give us demand curve.


texts:
The following video https://www.youtube.com/watch?v=PHe0bXAIuk0  argues that credit is the principal force behind the business cycle.

Is this considered to be a established truth within some school of thought and is there a specific school of thought that disagree?


texts: Why is an inverted yield curve NOT a good predictor for recessions except in the US?

texts:
I am trying to better understand the mechanism (if there is one) behind an inverted yield curve predicting - or causing, as some would argue - a recession. In order to do that, I'm trying to understand why an inverted yield curve has historically NOT been a good predictor in countries other than the US.

See e.g. this article by AQR, which discusses the track record of yield curve inversions in Australia, Japan and Germany. The authors qualitatively argue why that track record hasn't been great but don't provide much of a general framework to think about it. I suspect that they are on to something in the case of Japan: "It is possible to argue that the banking system in Japan is so broken that it doesn’t matter how steep the yield curve is, banks won’t lend anyway. But, more likely, the relationship has broken down because interest rates have been stuck at or near zero for so long. The yield curve can no longer tell you whether the Bank of Japan has raised rates too much or not, because it hasn’t raised rates at all." I agree that the banking system looks pretty zombified, which would explain why banks (and the economy in general) don't really react to cues from interest rates. In addition, the Bank of Japan has such an outsize weight in the market for government bonds these days that the true information content of interest rates is probably quite low. However, I don't think either of these characterizations would apply to Australia, so clearly a broader line of thinking is necessary.

Academic references and/or plain English welcome. Thanks.


texts: Variable cost as the sum of marginal cost

texts:
We learned in class that variable cost is the sum of marginal cost. I am given the following question.

Assume you are a profit-maximizing firm in a perfectly competitive market. Marginal cost is MC(qi) = 10 + qi/4 and the market price for you output is P= $60.

Calculate variable costs. So the teacher goes ahead and solves for the area of a trapezoid to get a variable cost of 7000 (when q=200) and that's fine. But why do I get a different answer when I try to calculate the sum of a series? My attempt:

$$VC=(10+1/4)+(10+2/4)+...+(10+200/4)=2000+(200)(201)/8=7025$$

Clearly 7025 doesn't equal 7000, so what is going on here? Also I thought MC isn't supposed to include fixed costs so is the equation MC(qi)=10+qi/4 only defined when qi is at least 1? Thanks


texts:
Most government bonds and corporate bonds have a maturity date when the principal must be repaid.

While the few percents of interest every year is generally not a big problem to pay out, when a bond matures the issuer must pay back all the principal at once which can be a huge expense and the issuer can go default if they don't have all the cash at hand by that time.

If the bond issuer issues a bond without maturity, then they only need to deal with the interest payments, which is a fixed amount of money and as the inflation gradually devalues the money it's become gradually less problem to pay it out.

If the price of the bond decreases or after a good year, the bond issuer may repurchase some of his own bonds from the market on his own discretion to further reduce the interest burden.

From the investor side this is kind of security can be bought from the market and sold when they need the cash just like any other security regardless of the lack of maturity. This way this security can be like a stock with a predetermined dividend.
Since the issuer only need to pay interest, the credit risk is lower, but interest risk is high.

So far it looks like a perpetual bond is just another kind of security with interesting properties and risks.

But most bonds do have maturity, so what are the caveats? What's the reason that most bonds do have maturity and perpetual ones are uncommon?


texts: Is it possible to have transferable utility in non-cooperative games?

texts: Transferable utility is a concept that seems to be associated with cooperative game theory and coalitions. I would like to know if there are any examples of transferable utility in non-cooperative game theory.


texts: Why are required reserves so trivially low?

texts:
We know that required reserves are the reserves that central bank requires banks to hold in reserves.

Reserves= Required Reserves +Excess reserves.

But I see that in 2017 Total Reserves (RESBALNS) = 2000 Billion whilst Required Reserves (RESBALREQ) are only 124 Billion.

If required reserves are so low how could changing it possibly effect anything? Am I not using the right indicators?


texts:
I am interested in how much "economic value" is/was forecast to accrue to various stakeholders as a result of the Keystone XL pipeline project and the DAPL pipeline project. I would be interested in various measures of "economic value" made by various forecasters. If anybody wants to undertake a back-of-the-envelope guesstimate, that would be cool too.
Broad question I know, let me know if you think of good ways to tighten it up. Thanks!


texts: Creation of Money - Hypothetical Situation

texts:
Imagine you sell me some consulting services. I don't have any cash, so I give you a $100 IOU instead. You now have a $100 Note Receivable on your Balance Sheet.

My question is: Did we just create money?


texts: why federal fund rate vs treasury bond yield generally move in the same direction?

texts: My own thought is, if the fed lowred federal fund rate, peoole should look for investment with greater return, like treasury bond. More demand=decline in yields but why do they generally move in the same derection?. Same goes for Mortgage rate during 2001-2005, why would mortgage rate go down if all the fed did was just lowering federal fund rate which has nothhing to do with mortgage?


texts: Why is it important to look at all three different ways when looking at the macroeconomy of a country?

texts:
we have and use three different ways of deriving the Gross Domestic Product namely Output, Income, and Expenditure (or final consumption) methods but why is it important to view the GDP from all three perspectives? what purpose does it serve? and how does it help macroeconomists, policymakers? how is it helpful?

It would be great if you could offer a detailed explanation. I am so thankful for your efforts. God bless!