texts: Does people paying back their debts cause deflation?

texts:
The majority of the monetary supply results from credit, with every loan creating pairs of assets and liabilities representing the same underlying value. Considering that every time someone pays back a loan, the asset and liability collapse back into a single copy of the money, intuitively it feels like people paying back loans causes a reduction in the monetary supply, which should cause deflation. Forgiveness or "writing off" of loans would seem to have the same effect, removing the value of an asset being used as the basis of additional monetary supply, so in theory reducing the monetary supply and causing deflation.
Is this the case? If not, why?


texts:
I am reading the famous paper of Blanchard,1985. There are some fundamental stuff that I did not really get.

1) Why they call it "perpetual youth"?
2) On page 225, he mentions the cohort size. So, for example does it mean that there are "x" numbers of individual of age 20. But this number x declines when the time goes to infinity? Does it mean that at a given date $t$, there are people with age between $0$ and $\infty$ ?


texts: How do major global events interact with debt cycles?

texts:
I recently watched Ray Dalio's video on how the economy runs on short/long term debt cycles. However I was wondering how other major events impact economic growth:

How does the short and long term debt cycle interact with major political or news events that might affect the economy (e.g. trade wars, Enron)?

Does one supersede the other or perhaps even cause the other?
Does the debt cycle only apply in a vacuum as one factor of many?


texts:
Question

Are there any simulated datasets that have been designed specifically to represent macroeconomic data? In particular, are there any such datasets that can be used in benchmark studies?

Background

To give an analogy, in optimization, one may be interested in assessing the quality of a given algorithm. To do this, there are a number of test functions for optimization, such as the well-known banana function, that can be used to evaluate the performance of an algorithm; for example, by analysing if and how fast the algorithm can find a global minimum.

I am interested in working in this controlled experimental setting using simulated data that has a macroeconomic interpretation. With data simulated from a known data generating process (this would be my control), it would be possible to investigate, say, the performance of algorithms designed to detect structural breaks and to assess techniques/models used for forecasting.

I would greatly appreciate if someone could help: either by pointing me to some simulated datasets that can be used for the above purposes or by providing some guidance on how to simulate data that carries a macroeconomic interpretation.

It's possible for me to simulate a variety of ARMA processes (or VARMA model), but I am really interested in something that goes beyond that; the simulated data ought to have similar properties to observed macroeconomic data. Obviously, I am trying to avoid using actual data because my control (of knowing the data generating process) would be lost.

Update

For one of the purposes I had in mind, a quick read of Castle, Doornik, and Hendry (2013) suggests that it is, perhaps, not that difficult. Their "experimental design" is based on the following equations
$$
y_{t} = \beta_{0} + \gamma y_{t-1} + \beta_{1}x_{1,t} + \cdots + \beta_{10} x_{10,t} + \epsilon_{t}\\
x_{i,t} = \rho x_{i,t-1} + v_{i,t}, v_{i,t} \sim IN[0,1], i=1,\ldots,10,\\
\epsilon_{t} \sim IN[0,1], t=1,\ldots ,10.
$$
along with some further qualifications. So, it would appear that for one of my examples (the case of evaluating structural break algorithms), relatively simple (although by no means, "not tricky") DGPs are all that's required.

Reference: Castle, Doornik, and Hendry (2013) Model Selection when there are Multiple Breaks


texts:
I am totally new to Economics. I have issues understanding GDP and real GDP. I have listed 3 statements below, can someone tell me if those makes sense ?

GDP Gross Domestic Product is used to get an idea of the nations economic development.
GDP excludes production that does NOT go through markets hence, GDP is not considered as a good measurement to measure the economic development.
Real GDP on the other hand is inflation-adjusted unlike GDP alone. and can be the best choice to use to measure a countries Economic development.


texts: When I apply Euler's Theorem onto the Cobb-Douglas equation I receive the Cobb-Douglas equation back. That is, there is no change after applying the theorem. Can someone please explain what the intent and point of this is, seeing no difference?


texts: Pareto efficiency and maximization of sum of utilities

texts:
I'm trying to understand the relation between maximizing sum of utilities and finding Pareto efficient allocations. According to https://econ.ucsb.edu/~tedb/Courses/UCSBpf/pflectures/chap2.pdf (page 13), concavity plays an important role in whether maximizing the sum of utilities will help obtain the efficient allocations or not. Could someone explain this further?
A similar question is posted at Quasilinear Utility: Pareto Optimality Implies Total Utility Maximization?, but the counterexample in this answer seems contradictory to the result stated in the above document.
Specifically, my questions are:

When can we maximize the sum of utilities to find all the efficient allocations?
What criteria can be used to locate all the efficient allocations in corner/edge cases?


texts: How can we incentivize volunteer rescue forces like the Cajuan Navy which assisted in Louisiana?

texts:
State-sanctioned militias in the state of Louisiana were an important part of the state's natural disaster response. Tiny boats went off into flooded areas to rescue people. These rescuers may have broken some laws but were allowed to do it because of the broader humanitarian interest they served.

Question: How to incentivize people to get a permit?
The incentives to get a license to become a member of a Cajun navy would be in times of peril---such as hurricanes--- to get to the disaster area quicker. But, this is not a great one. What could the state do to register people in times of non-crises? Tax-breaks? I am not sure


texts: Corporate Finance: From External Financing Needed(EFN) to Sustainable Growth Rate

texts:
Well in this link I get the EFN definition that I know of, with the spontaneous liabilities term included. I'm trying to derive the Sustainable Growth Rate for a corporation, from this definition of EFN.

How does one calculate the liabilities-that-change-directly-with-sales term, using just previous year's sales (S), total assets(A), total debt(D), total equity(E), projected growth in sales(g), profit margin(PM) and retention ratio(b) as variables?

I found this link(page 11-12) that does the required derivation, but I don't understand the reasoning...

Any help would be appreciated.


texts: The impact of a devaluation of the national currency under a fixed exchange rate system

texts:
I would really be thankful if any of you could check my answer to the following question.
Question:
Describe, using the IS-LM-BP model, the impact of a devaluation of the national currency under a fixed exchange rate system?
My answer:
Under a fixed exchange rate system, a devaluation of the national currency by the monetary authority will increase the economy's exports (X) and decrease its imports (M), expanding its net exports (NX) and raising aggregate income (Y) thus shifting, both, the IS and BP curves to the right (IS0 to IS1, BP0 to BP1). At point A, the state of both balance of payments accounts improves due to devaluation of national currency and growth of interest rate. As a result, demand for the national currency increases. In order to maintain a fixed exchange rate, the Central Bank buys up foreign currency, thus increasing money supply and shifting the LM curve to the right (LM0 to LM1). As a result, the interest rate will decrease which will lead to equilibration of the balance of payments and restitution of the external balance at the point B.


texts: I've been reading on producer theory and came up with a ridiculous question. Has anyone tried to model costs with a trigonometric function? would it work with the assumptions we need? Thanks!


texts: Understanding distortions in investment in human capital

texts:
I am currently reading Economics of The Colour Bar by WH Hutt, and I'm having trouble understanding this bit he has written: “But when the price of any commodity is raised above the free market level, by strike threat or action or by state edict, the effect is always regressive, harming poorer consumers more than wealthier consumers. Moreover, such a process distorts investment in human capital. It causes, inter alia, relatively more people to be trained for and employed in occupations if low productivity and remuneration, and hence relatively few to be trained for and employed in occupations of high productivity and remuneration.”

I don't get the part where he talks about more low productivity jobs will be created and HENCE relatively few high productivity jobs will be created. How does this work? If I'm selling some commodity above free market price, if I'm making a profit, why would I hire more low productivity folks than high productivity folks? Is it because I'm assumed to be losing money for going above the free market price?


texts: Trying to apply in practice the theory of finding the optimal price in a cournot competition

texts:
I recently received my bachelors degree in economics. For fun I wanted to try to apply some micro-economic theory of finding the optimal price in a cournot competition.

I wanted to do this for a business my friend has. He's a goldsmith and has his own established goldsmith store in a city with a population of approximate 100.000 people. There are two more goldsmiths with their own store in this city.

My plan would be to only look at one product, suppose a simple and plain gold ring. Finding the marginal cost function for this should be easy. However, I struggle with thinking about how I would find the marginal revenue function to eventually find MR=MC. For the marginal revenue function I need to know the demand curve. In order to find the demand curve I need to know the the sum of utilities of individuals (for simplicity assuming that consumers are homogeneous), right? How could I estimate this utility of an individual?

Furthermore, I would believe that this market could be described as a cournot competetion (n=3) where we could assume, for simplicity, that each goldsmith would have the same marginal costs, since they all buy gold from the same supplier and the costs of effort and production wouldn't differ that much from each other.

So mainly I struggle with finding or estimating the utility function. Since a simplistic utility function could be U(p)=X-p, where X is the willingness to pay and p the price of a golden ring. But how do I find the willingness to pay of an individual. Is it perhaps possible to estimate deduce this from my friends previous years revenues or profits?

Last question. This optimal price would only be optimal in a cournot competition when the other two goldsmiths would also use the same price? Assuming that these firms are symmetric.

If you have critique on my process of thought of how to approach this, please do and correct me if I mentioned something wrong about the micro-economic theory I had in mind for this application.

Thank you for your attention :)


texts: Derivation of Surplus in Paul Romer's paper on "mathiness"

texts:
In this paper by P. Romer https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.p20151066
I'm wondering the Surplus $S$ was derived.
By using the given condition I found that $$q_0=m^{-\tfrac{1}{a+b}}N^{-\tfrac{b}{a+b}}$$
By Surplus I assume he means total Surplus (Consumer Surplus + Producer Surplus) which can be calculated by the integral $$\displaystyle{S=\int_{0}^{q_0}[D(q)-S(q)]dq=\int_{0}^{q_0}[q^{-a}-N^{b}q^{b}]dq}$$
With a little bit of algebra I find $$S=C(a,b,m)N^{\tfrac{b(a-1)}{a+b}}$$ where $C(a,b,m)=\tfrac{1}{1-a}m^{\tfrac{a-1}{a+b}}-\tfrac{1}{b+1}m^{-\tfrac{b+1}{a+b}}$
So I'm probably wrong, is my idea of $S$ correct? I need to know because if it is then it's likely a mistake in my algebra. I also assumed that $b>0$ and $0\leq a<1$


texts: Strong sequential equilibria and the existence of others

texts:
I am working on the following game

and I have to find all strong sequential equilibria here.
I determined that here any belief derived from a fully mixed strategy gives a distribution (1/2, 1/2) over the nodes in Player 2’s information set. Given this, player 2 will chose r and player 1 will chose y. I believe that this is the unique sequential equilibrium. But is it strong?
And are there any other Nash equilibria and if so why they are not sequential?
Thanks!


texts: Can money flow from Firms into the Financial Market in the Circular Flow?

texts:
In Macroeconomics, we learn that the circular flow diagram is a simple economic model that illustrates the flows of goods and services through the economy. Can the arrow that connects the "Financial Market" sector of the economy to the "Firm" sector be double-headed?

Traditionally, in the class, I've learned that Firms borrow money from the financial market to make investments in capital (so the arrow is always pointing from the Financial Market to the Firms), but I've never seen a situation where money flows from the Firms into the Financial Market.

Can this occur? And if so, can you give an example of when?

Thanks!


texts: How can I re-base monthly financial time series

texts:
I have a monthly time series with 2015=100. I want it to be in 2010=100. How could I do so?
It is from 195901 to 201407.


texts: Did JP Morgan mitigate the effects of the Great Depression?

texts:
I had heard that, at the start of the Great Depression, JP Morgan and other bankers attempted to prevent the depression by purchasing some of the overpriced stock.
Did the actions of JP Morgan and the other bankers have any effect on the US economy at the time?  Were the effects of the Great Depression mitigated by their actions?


texts: Risk factors and diversification in asset pricing models

texts:
Consider a factor model like Fama and French (1993). Total risk has two components, systematic risk and idiosyncratic risk. Idiosyncratic risk can be diversified while systematic risk cannot. Systematic risk is the risk that amounts to the priced risk factors of the model.

My question is: when can the risk of a factor be diversified?
Can there be a priced and a diversifiable risk factor? Does this implies that investors hold not diversified portfolios?


texts: What are some important mathematics results that were first developed in Economics?

texts:
Economics is known to import mathematical methods that were proven to be useful in other areas.

There is any important result in mathematics that was first developed in the context of Economics research and then explored in other applied fields such as Physics or Engineering?


texts:
Is there one single formula which allows to calculate the income of a person in PPP\$ from her income in LCUs (local currency units), given for example the  PPP conversion factor, GDP (LCU per international $) as published by the World Bank.

Assume for example an Indian farmer with a monthly income of ₹50,000, given India's PPP conversion factor of 18 and exchange rate ₹70 = $1. What is his monthly income in PPP\$ and by which formula? Is other or further information needed?

Vice versa: What is the farmer's monthly income in rupees when his income is known to be PPP\$30?

References:

GapMinder's Dollar Street
Detailed income calculations for Dollar Street
The Economic Lives of the Poor by Abhijit V. Banerjee and Esther Duflo


texts: Total factor productivity (TFP) estimation in R


texts: Has it truly been established that the restaurant industry operates on thin margins?

texts:
For as long as I can remember I've constantly seen the truism that restaurants operate on "razor sharp margins" repeated endlessly by the media, the restaurant industry, and the average joe. This seems to be something that people take for granted, yet there are and have been so many restaurants, many extraordinarily profitable and consistently so, and so little data ever presented to back up this truism when it is bandied about.

I've never seen any restauranteurs being open with their margins or disclosing how much they are losing or profiting from the business and the reasons for said profit/loss in a validatable & analytical way. Yet I always see this truism used to justify everything from paying employes $2 an hour and offloading their wages to the consumer, to exorbitant meal prices, and frankly its usage in making complaining about literally anything in the restaurant business seem legitimate. But when pressed, nobody ever backs it up with actual data. Does this data even exist or has this been an extremely effective guerrilla marketing ploy?

Why should I accept that the industry operates on thin margins? Why are they famously so much thinner than any other industry (or more loudly thin), and why is this so widely accepted as true? Has this truly been established from a data-based economic standpoint and if so does that data remain relevant year after year? If the answer is "yes" it has indeed been established, I ask for the how, when, where, and why--if only established once and not continually--it is relevant.

(pre-coronavirus economics only)


texts: Research and development data before 1970 for United States

texts: I'm looking for expenditure of research and development data per sector or averaged across all sectors from the United States prior to 1970 either in absolute values or in percentage of GDP.


texts: Predicting Shifts in Supply and Demand for Loanable Funds

texts: I know the answer is A.  but I need an explanation on why. I thought government savings would decrease since they have less tax revenue, shifting savings left and interest rates up. I could see how public savings could also increase due to this new taxation cut but consumers would spend part of the tax break, resulting in less of an increase in savings compared to decrease in government savings. What am I missing here? Thanks.


texts: Is it possible to proxy producers' capital with corporate bond in a macro model?

texts:
I'm trying to reproduce Gertler-Karádi (2013) model. How far-fetched is the thought to use the amount of corporate bond as an input of production?

Thank you in advance.


texts: Is importing included in the value of the final product that is calculated in GDP

texts: I have been arguing with my friends about wheather imports are included in the gdp or not. For example, I have a locally built device that is worth 900\$. Then  I imported a chip worth 100\$ and embedded it, so the value of the device is now 1000$.My question is, what is the final device value that is included in the GDP?


texts: Numerical Question on a subsidized monopoly

texts:
Suppose a government agency has a monopoly in the provision of internet connections.
The marginal cost of providing internet connections is $ \frac12$, whereas the inverse demand
function is given by: $p = 1 - q $. The official charge per connection is set at 0; thus,
the state provides a subsidy of $\frac12
$
per connection. However, the state can only provide budgetary support for the supply of $0.4$ units, which it raises through taxes on consumers.

Bureaucrats in charge of sanctioning internet connections are in a position
to ask for bribes, and consumers are willing to pay them in order to get connections.
Bureaucrats cannot, however, increase supply beyond $0.4$ units.

(a) Find the equilibrium bribe rate per connection and the social surplus.

(b) Now suppose the government agency is privatized and the market is deregulated.
However, due large fixed costs of entry relative to demand, the privatized company
continues to maintain its monopoly. Find the new equilibrium price, bribe rate
and social surplus, specifying whether privatization increases or reduces them.

(c) Suppose now a technological innovation becomes available to the privatized monopoly,
which reduces its marginal cost of providing an internet connection to $c$, $0 < c < \frac12$.
Find the range of values of $c$ for which privatization increases consumer surplus.

I understand that the consumers will be willing to trade away all the consumer surplus as bribe to receive the connection. But each consumer has a different willingness to pay as demonstrated by their demand curve or MB. How do I find a single equilibrium bribe rate for the problem? Should I just take the $Total \ Benefits \ = trapezoid \ area = 0.4\frac{1 + (1-0.4)}2 $. And divide this area with total connection which is $0.4$ and thus get the per connection average bribe.

Also total taxes = total subsidy, and also consumer surplus will be just traded away as bribe. So isn't the social surplus the same overall all the time?


texts: Any interior solution for $u(x,y) = min\left \{ x,y \right \}^{2} + max\left \{ x,y \right \}$?

texts:
Will all the solutions be in the corner or will the cusp in the middle give us any interior solution? This is by the intersection of the budget line.

I am getting this type of a shape:

But I am not sure if there will be interior solution. If there is we can't use differentiation because of the cusp. I think that there will only be corner solutions but it depends on the shape of the indifference curve.


texts: Research Design: Indifference curves and budget lines

texts:
I have a basic Idea on how to construct indifference curves such that we must use two goods and then ask for pairs of bundles which are preference indifferent.

When doing applied research on estimating a consumers demand for a given bundle of goods, (which is probably done by survey as far as I'm concerned) what are the main questions we are seeking to answer in order that the data will work out nicely when using such a framework? How should such questions be worded on a survey?


texts: How can the stock market keep growing indefinitely?

texts: It sounds like a dumb question, but there is only so much money in the world. Assets can grow, but money can only be printed. So if there is 400 trillion dollars worth of money in the world, and the stock market beats inflation by about 7% each year, eventually it will be projected to grow to be more than 400 trillion dollars, which should be impossible.


texts: How to compute Walrasian equilibrium in the case of logarithmic utility?

texts:
If the utility is $U = \ln x + 2 \ln y$, how do you compute Walrasian equilibrium via usual formula for demand $x=a(x p_x + y p_y)/p_x(a+b)$ ?

What is $a$ and $b$?

In case of Cobb-Douglas function like $U=x^3y^4$ it would be simple: $a=3$ and $b=4$, but in this case how is it computed?


texts:
Suppose you have 2 activities, A and B. Doing activity A gives a return of 100 dollars, doing activity B gives a return of -50 dollars. What would be the opportunity cost of choosing activity B? 100 dollars or 150 dollars.

Oxford American Dictionary gives a pretty standard definition of opportunity cost: "the loss of potential gain from other alternatives when one alternative is chosen".

Looking at it one way, the loss of potential gain by picking B is 100 dollars, as that is the gain that would be had from doing A. However, by choosing B, not only are you missing out on 100 dollars, you're also losing 50 dollars by doing B itself. The difference in the gain between the two activities is 100 - - 50 = 150 dollars. This is the foregone value when activity B is chosen, and seems to give the full picture as to what is lost by choosing B. This term "The value foregone.." seems to appear in many definitions of opportunity cost online as well.

Different sites and sources seem to fall on either one side or the other. There are example questions and solutions online which show both methods of approach.

So, in an assignment which requires calculations of opportunity cost, which definition of opportunity cost will get me the marks- the value of the next best alternative, or the difference between the value of the next best alternative and the value of the chosen activity? Or both?


texts: Pure-Strategy Bayesian Nash equilibrium with general common prior

texts: I'm doing a problem set on the subject of Bayesian Nash equilibrium. I'm asked to find the pure-strategy BNE of the following. I've calculated to matrix shown below. My first concern is if I've calculated the expected payoff matrix correctly, and second how do I find all of the pure-strategy BNE when the common prior is not concrete.


texts:
On page 116 of The British Industrial Revolution in Global Perspective Robert Allen writes

  "...the total factor productivity of enclosed farms was 18 per cent
  higher than that of open fields. If rent accounted for one-third of
  revenues, then enclosure boosted rent by 64 per cent, for example a
  rise from 12 shillings to 20 shillings per acre."

Is the 64% rent increase derived from the 18% total factor productivity increase here?  If so, what is the working in detail?


texts: How is the interest on fractional reserve money creation paid?

texts: In fractional reserve banking commercial banks create money when they make loans. When these loans are paid back the account is zeroed, the created money disappears, but the bank is still entitled interest. Where does the money to pay the interest come from? Does the central bank necessarily have to inflate the currency to pay it? Does money in circulation generally cover it?


texts: How do saving and investment work in macroeconomics?

texts: It is stated that saving equals investment. However, suppose the interest rate rises and people save more. However, businesses will borrow less so investment decreases. Hence investment is less than saving now. What happened?


texts:
Explain why the currency crisis must occur at time t0 when the pegged rate equals the shadow exchange rate and not before or after t0.

Suppose the crisis were to occur at a date before and after t0 and examine the incentives of an individual investor. Is it in his or her interest to also sell the currency on that date?


texts: Is it easier to borrow money during a recession or high inflation period?

texts:
During a recession the FED applies expansionary monetary policies while during high inflation periods it contracts the money supply which respectively lowers and raises interests rates.
Given that someone is willing to pay a fixed interest on their loan are they more likely to get it during the recession or during the high inflation period?


texts: How does the Fed predict Economic Growth?

texts: Which factors or formulas are used by the Fed to predict Economic Growth?


texts:
Can a firm have a negative turnover during a period of time? I'm asking this because I couldn't find any details on the web.

I am working with a data table that holds a lot of firms and their turnovers for each month. Some of them have negative turnover for one or more of the months.

Is that possible? How does a negative turnover work? How does it appear in the first place?


texts:
Here is a game I like to play:

Every player gets a random number independently drawn from a fixed distribution. To fix ideas, suppose everyone draws a number from $\{2, ..., 10\}$ where all numbers are equally likely (that way you can do this with playing cards...)
The first player says: 'I think that the sum of the numbers is $k$ or higher' where the 'bet' $k$ is an integer that they need to choose.
The second player can either challenge or make a higher bet. If they challenge, the numbers are revealed and the sum computed. One of the two players is then knocked out depending on who was right -- and we move to the next round. If the second player doesn't want to challenge, they must then state 'I think that the sum of the numbers is $k'$ or higher' for some integer $k' > k$.
In that case, we move to the third player who can either challenge or make a still higher bet. And so the round continues.. until one player does inevitably challenge when the betting gets too high.
The above defines the rules in a particular round. And the players keep playing rounds until all but one is knocked out.

Despite having played this a few times, I really don't know what a sensible strategy (or alternately a Bayes-Nash equilibrium strategy) might be. Does anyone have any ideas? [If the game above is too complicated, I invite simplifications -- for instance, you might suppose that there are just 2 players.] For what it is worth, here are a couple of speculations on my part:

A very naive strategy is ignore the informational content of bets and stick with one's prior. In this example, the expected value of each number is $(2 + 10)/2 = 6$. Suppose then that my number is $x$ and that I face $n$ opponents. Then I might predict the sum to be $x + 6n$; and increase the betting until doing so would force me to bet higher than this (at which point I challenge).
Obviously, one can try to best respond to players who follow this kind of strategy. For example, if you see them betting some large amount $k$, you may infer that $x + 6n \geq k$ where $x$ is their number, or equivalently $x \geq k - 6n$. You might then compute the expected value of their number $x$ conditional on its being larger than $k - 6n$ (which is pretty easy in the uniform example).
I suspect that in a (Bayes-Nash) equilibrium, players must use mixed strategies. If your bet is a (strictly increasing) function of your number, then I can perfectly infer your number from your bet (if I know your strategy). This gives me a big edge -- and suggests that your strategy can't form part of an equilibrium.


texts: How to handle change in base year of index?

texts:
I have monthly IIP data from 1996-2016. But the issue is the change of base year. For the year 1996- 2011 the base year is 1993-94 and the index is disconnected from Feb 2011. For the year 2005-2016 the base year is 2004-2005.

I intend to use the IIP monthly index from April 1996 - March 2016 but as you can see their exists two set of different index. Can you please help suggest some technique/method so that the entire index is on the same base year of 2004-2005?

For your reference I have attached the data.

Edit: see the data and the necessary calculation here.


texts:
If you look at information on the Treasury website, you will notice that currently, the real interest rate on the entire yield curve is negative.

If you check the nominal rates in the short term, you can verify for the shorter period bills.

Thus, an interesting question for laypeople to learn from us on this site may be why this is the case? How can it be that investors are essentially paying the government to hold onto money for them?


texts: Economic Achilles' heels of global financial economy

texts: The latest attacks on oil production in Saudi-Arabia highlights the need for risk managers to follow up on possible terrorist targets that can have a global impact on the global financial economy, together with the corresponding degree of vulnerability and political uncertainty involved. More specifically, the translation of such a list in specific stress test scenarios can highlight areas for a company to hedge certain risks. So the question is, what are the current Achilles' heels of our global financial economy and how would you assess the vulnerability?


texts: Market structure and price setting: Imperfect competition in the final good sector

texts:
I'm looking at an economy with two sectors. The intermediate good is produced under perfect competition and Cobb-Douglas production.

There is a fixed-cost for producers to enter the final market. Hence, there is a measure of firms that produce here. There is a search friction between consumers and producers, such that ultimately, each consumer will by from one producer only. Final-goods producers produce "on demand" using the intermediate good only, hence, some of them will need more of the intermediate good and some will need less.

This is the first time I'm looking at a market like this. There is a measure of firms in both sectors. This means, there are countably infinitely many firms in both sectors, right? How does this make sense, given that there is perfect competition in one and imperfect competition in the other?

I would like to final sector firms to all pay the same price, despite having different ex-post demands. I guess some sort of insurance prior to period start would take care of that. However, how would then prices be set here?


texts:
currently I am writing my Master-Thesis about SRI-Fonds. For analysing Sharpe Ratios from different Fonds I need to use the risk free rate (e.g. Euribor 3M). Unfortunately I can‘t find anything about dealing with negative risk free rates. Is it useful to calculate with those negative rates or should I prefer a risk free rate about 0% in case it‘s negative?
Thanks a lot for your answers.
Maybe someone had the same problem before...


texts: Why do central banks increase their rate to fight inflation?

texts:
It was top news a week ago that Bank of Ukraine increased its rate to 30%.
And the news said they did this to fight inflation.

But I don't understand one thing: isn't the increased rate of "money printing" of the central bank only aggravates the problem? How is it supposed to reduce inflation?


texts:
Consider a typical macro firm set-up where the capital can be produced from output goods using a linear technology. It costs some X units of output good to make a unit of the capital, and the capital production is instantaneous. For simplicity, let the numeraire be the output good.

The typical law of motion of the capital is (with a geometric depreciation rate):

$k_t=k_{t-1}(1-\delta)+i_t$

The firm's technology meets the typical strictly concave, increasing, Inada, and TFP conditions: the amount of capital invested by a firm at time $t$ produces output $y_t$ at time $t+1$ where $A>0$ denotes the TFP.

$y_{t+1}=Af(k_t)$

$\textbf{My question}:$
How do you understand the $\textit{investment TIMING}$ in the law of motion of capital? I read it as the capital that is available today is the sum of what you have carried over from yesterday as depreciated capital plus how much you invest. But how do you interpret this rearrangement:

$i_t=k_t-k_{t-1}(1-\delta)$

So if I stand at $t$, then I have the following sources for capital, correct?:

(1) $(1-\delta)k_{t-1}$: This simply what I carried over as depreciated capital

(2) $k_t$: The capital I obatained from my linear production technology using the capital I used yesterday. (The remainder of unused capital is depreciated and carried over as in (1))

But why is (2)-(1), today's firm investment?


texts: I'd like to know if you know some book that summarize the history of macro ? I'm in Master (after undergrad) so I don't ask for beginner's book. I've begun to read "a history of macroeconomics from keynes to lucas and beyond" from Michel De Vroey but he is not very clear in his explanations.


texts: Do privately owned banks ever indefinitely lend money to their owners?

texts:
By privately owned bank, I mean specifically a bank that is not registered as a corporation with publicly tradable shares.

Does it ever happen that such banks create money by lending it to their own owners? The owners could simply borrow the money indefinitely, and spend it on luxury goods, keeping the bank in debt until they die, at which point they don't care anymore.

e.g. if the bank starts out for the first time, and obtains 1 B in cash deposits which it has as reserves, it could have a 10% reserve ratio, and lend 900 B to the owners, which they use to party and buy yachts. The other 100 M they keep as reserves.

Assuming a bank run doesn't occur, this can be stable indefinitely.

Does this ever happen? examples? or why not?

e.g. if it does not happen, is that because it is illegal, or are there incentive reasons intrinsic to banking why it would never happen?


texts: Translated Selten Subgame Perfect Eqm Paper

texts: Does anyone know where I can get a translated copy of Selten's original work on subgame perfection?


texts: Difference between Value-Added TFP and Gross-Output TFP?

texts:
I am working with EU-KLEMS data, and I am using TFP growth as a proxy for technological change. However, there are 2 variables for TFP - TFP based on Gross Output and TFP based on Value Added.

I understand that Value added in this case might be Gross Output-intermediate consumption, but I am not sure whether this is indeed the case, as there is no such explanation in the EU-KLEMS dataset. The two TFP measures move in a similar fashion across industries, but there are indeed some differences - for example, the VA TFP average increases at a much slower rate than the GO TFP.

I would be eternally grateful if some clarification could be provided on these two measures.


texts: Expansionary fiscal policy in a low mobility economy

texts:
I am reading the CFA Level 2 Economics section and I came across this statement:

  In emerging markets, capital flows may be restricted. In that case, impact of trade balance on exchange rate (goods flow effect) is greater than the impact of interest rates (financial flows effect). In such a case, expansionary fiscal policy or monetary policy leads to increases in net imports, leading to depreciation of domestic currency

My question is: how can expansionary fiscal policy which results in an increase in interest rate cause depreciation of currency?


texts: Relationship between Revenue-Elasticity and Price-Elasticity

texts:
I have attempted to solve this problem and would be grateful if someone looked over my solution

5% increase in price  results in 5% decrease in total revenue. I need to determine price elasticity of demand. I have done calculations but I am not sure whether the way I have solved it is true.

$$TR=PQ\mapsto Q=\frac{TR}{P}\rightarrow Q=\frac{0.8TR}{1.2 P}=2/3$$
And then I wrote $$PE=\frac{\frac{8}{12}}{\frac{12}{10}}=5/9$$

But this solution doesn't appear in the test answer options. Can someone please check it and tell what is wrong?

Thanks in advance!


texts: Economics isn't my home field, but I'm looking for references for a paper I'm working on and I'm hoping one of you can help.  Are there many good references for optimizing a Cobb-Douglas like utility function for current consumption $x$, and future consumption $f(w-x)$: $$U(x)= x^\alpha f(1-x)^{1-\alpha},$$ where $x\in[0,w]$ and $f$ is assumed non-decreasing? I've worked out what restrictions $x(w)$ must have so that there exists some $f$ which gives $x(w)$ as the rational response, but I was curious if there is a stock reference I should cite.  Thanks!


texts:
In the context of international financial crises, what mathematical methods have Economists employed in order to quantify financial contagion?

Note: For a working definition of contagion I'll use the description supplied by Kaminsky, Reinhart & Vegh (2003):

  We refer to contagion as an episode in which there are significant immediate effects in a number of countries following an event—that is, when the consequences are fast and furious and evolve over a matter of hours or days. This “fast and furious” reaction is a contrast to cases in which the initial international reaction to the news is muted.


texts: Does a high positive output gap relate to high unemployment rates?

texts:
I have read that high output gaps (GDP gaps) are directly related to high unemployment rates. However, I did not find any source clarifying whether this "rule" apply to both positive and negative gaps or just to one of them. I can see how this relate to recessionary (negative) gaps, but I am not sure about the inflationary (positive) gaps. Some articles say that positive gaps cause unemployment rates to fall, but I just found a graph showing a rise in such rates also when positive gaps increase:

Image source


texts: Why must the lag length of the autoregressive term in an ARDL model be determined separately?

texts:
I am estimating an autoregressive distributed lag model, and I've read that I must determine the lag length of my autoregressive term separately from the lag length of the other regressors in the model.

For instance, given the model $y_t=\delta_0 + \alpha_1y_{t-1} + \alpha_2y_{t-2} + \alpha_3y_{t-3} + \gamma_1z_{t-1} + \gamma_2z_{t-2} + u_t$
Wooldridge 18-5 (p.590 in 6th edition) writes, " As a practical matter, how do we decide on which lags of $y$ and $z$ to include? First, we start by estimating an autoregressive model for $y$...Once an autoregressive model for $y$ has been chosen, we can test for lags of $z$."

But, there's no explanation on why we must test for lags of $y$ and then lags of $z$.  Can you provide me with an explanation of why we do this?

Many thanks-
Maurus


texts:
Okay, this is from latest events.

Countries like USA & Japan have successfully used QE to stimulate the economy, but what stops European Central Bank from implementing it?

If they decide to use it what will happen to stocks and bonds? How will the investors react? Most economists also say that it wont work well in Europe, why?


texts: What is the general rule for classifying factor that only shift one supply/demand curve or two supply/demand curve?

texts:
What is the general rule in words/mathematical description for a factor that only shifts one supply/demand curve or two supply/demand curves simultaneously?

It is pretty confusing to me, because no single textbook I found had such a rule.


texts: In the short run, why do higher interest rate lower inflation?

texts:
A common interpretation is "Higher interest rates put less borrowing power in the hands of consumers and businesses. And when they spend less, firms are not selling everything and prices naturally falls." In the perspective of AS-AD model, this is caused by a downward shift of the demand curve.

However, I suppose it will cause a supply curve shift as well. Today, most production is funded by short-term borrowing and relied on people paying them for the goods and then pay back the loans. So when the interest rate goes up, the production costs go up, and hence causing a negative supply shock as well.

But reality seems to confirm the fact that higher interest rate lower inflation. Why is that? Is that because the supply shock is not as significant as the demand shock? If so, why is that?


texts: Why does savings equal investment (scenario)?

texts:
Scenario 1: There's an economy of two people (Joe and Amanda). Joe buys a 500 dollar car from Amanda (which she made herself from raw materials in her back yard). Amanda takes the 500 dollars and hides it under her bed. Savings = 500 dollars, Investment = 0 dollars. What am I missing?

Scenario 2: Same Amanda and Joe. Joe gets 500 dollars from the Federal Reserve (they just gave it to him). He puts it in a bank. The bank decides to only lend out 250 dollars of it. Amanda invests in inventory. S = 500, I = 250. Right?

These are two cases where investments do not seem to equal savings. How can these cases be explained?


texts: Complete markets: security market equlibrium same as contingent commodity equilibrium?

texts:
"For complete markets, the security market equilibrium is the same as the contingent commodity equilibrium but with far fewer spot markets."

I wrote this down in my notes today on what my professor said but I don't really understand why this is the case. This may be the wrong way of posing a question but I thought this was rather interesting. Any suggestions on the matter are greatly appreciated.


texts: Who gathers the production/use data that makes up GDP? And how?

texts:
I know that GDP can be calculated from the national accounts using data which says how much of each industry's output was bought by each other industry.

But how is this kind of supply/use data gathered? Is it via questionnaire?

If so, is a random sample of businesses quizzed, or does every business have to submit data on what they bought and from whom?

Where is this data-gathering process documented? (For, e.g., the UK.)


texts:
If an ultra high networth individual, like Bill Gates, Mark Zuckerberg, Carlos Slim, Paul Allen, Elizabeth of Windsor, Amancio Ortega,  Liliane Bettencourt, Stefan Persson, Bernard Arnault etc. would leverage their fortune in the way a bank does with savings, would that multiply their wealth?:

If an UHN individual owns their own 'bank' and puts their fortune in it as savings, they could create e.g. 10 x their fortune in loans.


texts: Where in the BOP does the rental of a building appear?

texts:
Say a Japanese citizen (living and working in Japan) owns a house in the US and rents it out (to a US resident) for \$10,000 in 2020. (Assume the value of the land is negligible.)
Where in the US BOP does this \$10,000 appear?
I initially thought this should appear under Primary Income (PI). But the BPM6 (p. 178) says

Rental is also used as a term for the amounts payable under operating leases for produced assets, and
is a service. ...

In contrast, rent is used to describe amounts payable under a resource lease covering natural resources, such as land, water, or mineral rights. Rent arising from such resource leases is included in the primary income account

So where does the \$10,000 appear in the US BOP? Should it instead be an import (of services) under the Goods and Services Account?


texts: Why do high earning multiples imply a likelihood of low or even negative returns?

texts:
I quote Burton Malkiel in his May 4 2020 dialogue with Robert Shiller.

Some historical perspective is useful. Even during one of the most spectacular “bubbles” in stock market history (the dot.com bubble of the late 1990s, considered damning evidence against EMH), most investors who tried to time the market made egregious mistakes. In 1996, Bob (with John Campbell) presented an excellent paper to the Federal Reserve showing that earnings multiples possessed substantial ability to predict future rates of return. Since these multiples were then at all-time highs, the work implied a likelihood of low or even negative returns. This work influenced Federal Reserve Chair Alan Greenspan to make a famous speech questioning whether the stock market was at bubble levels and whether investors were exhibiting “irrational exuberance” in view of the economic outlook. The stock market rallied strongly for four years thereafter, and long-term investors who bought stocks after the speech earned generous rates of return.


texts: Economic interpretation of Returns to Scale

texts:
There are three possible types of returns to scale: increasing returns to scale, constant returns to scale, and diminishing (or decreasing) returns to scale. If output increases by the same proportional change as all inputs change then there are constant returns to scale (CRS). If output increases by less than the proportional change in all inputs, there are decreasing returns to scale (DRS). If output increases by more than the proportional change in all inputs, there are increasing returns to scale (IRS).

What are the economic interpretation of constant returns to scale, decreasing returns to scale, increasing returns to scale? In other words, what means and how it can be interpreted if the economy has a specific type of returns to scale?
Thanks!


texts: Is inequality a micro or macro economics issue?

texts:
In a clear and comprehensive blog post, Tejvan Pettinger describes economics problems. He starts by making brief considerations on scarcity, enumerates the fundamental economic problems (what/how much produce, how to produce, whom to produce to) and then goes to specifics, commenting about micro and macro economic problems.
For me, it seems fair to conceptualize "microeconomics" as a bottom up approach for economy, in which the focus is the study of the behaviors and interactions of the economic agents (producers and consumers) facing scarcity, and "macroeconomics" as a top down approach whose goal is the study of the great economic aggregates like unemployment and inflation, for example. As such, it surprised me that Pettinger sees inequality as a microeconomic issue instead of a macroeconomic one: aren't macroeconomic tools intended to stimulate growth or redistribute income by means of monetary/exchange/fiscal policies? Isn't the goal of macroeconomics policies to grant country-wide sustained economic growth to benefit the society as a whole? In a way, isn't microeconomics the "Invisible Hand Science", according to which everyone including you and I seek our own benefit and helping the society by accident in this process?
Hope you guys can shed a light on that doubt of mine.


texts: How do I analyze an economic model with no variable costs?

texts:
I'm somewhat new to economics, and I'm working on a strange model: It involves webmasters of web pages acting as producers of clicks that can be consumed by other webmasters, who pay per click.
I'm running into a bit of an oddity, where the "producer" webmasters seem to have no variable costs at all. For example, they would simply incur a cost upfront for setting up the SEO on a web page that acts like a feeder to the web page of the "consumer" webmaster. Clicks from producer to consumer then follow, but the number of these clicks is fairly independent of any additional labor of the producer webmaster. Thus, the only cost, which is the cost of the SEO, acts like a fixed cost.
How do I analyze such a model?


texts: How do central banks regulate the money supply to avoid inflation?

texts:
It is a tricky problem. Historically, poor control money supply led to inflation. Out of control money supply led to hyperinflation. Central banks seem to do a wonderful job in recent years with modern economies seeing low inflation despite quantitative easing.

How do they do it?


texts:
Sorry, I forgot to mention that in this case, the demand curve is above the LAC at the point where MR = MC. In other words, the price is set higher than the long-run average cost.
I am trying to wrap my head around the concept of production efficiency, and its application in a monopolistic market.
Many textbooks have a similar definition for production efficiency. The firm will reach its production efficiency if it produces at the lowest point of LAC.
But I am wondering:

Under monopoly, if the firm somehow decides to produce at the lowest point of LAC(where also MR = MC), will it achieve production efficiency?


texts: Leontief Tableau Économique (produit net)

texts:
I’m doing some practice questions and I found this one about calculating produit net. I know that produit net or surplus is the amount that has to be paid to the landlords, and which becomes available at the start of the whole process all over again.

I also know that 1/2 of the expenditure revenue goes to the productive sector (farmers) and 1/2 goes to the sterile sector. Farmers produce 100% of it, and the sterile sector sends 50% to the farmers. Basically a zig zag table.

My questions: what does the attached table mean (why is there a purchasing industry and a producing industry), and what is the produit net?

Thanks


texts: When a tax is imposed on the sellers, the price of the good rises. So, why doesn't the demand curve shift?

texts: A tax imposed by the government on the sellers would drive up the price of the good. I understand that the supply curve will shift upwards due to this but the won't the demand curve also shift downwards due to the increase in price of the good?


texts: Why is marginal cost not the cost of producing the last unit?

texts:
I am slightly confused about this wikipedia article. en.wikipedia.org/wiki/Marginal_cost

It states that marginal cost is not the cost of producing the next or last unit.

Why is this the case? I thought that was precisely the definition of marginal cost.

I also hear marginal cost defined as cost of the last unit. What is meant by this? If quantity is increased by 5, is the marginal cost the cost of the 5th unit only?


texts: 2010 flash crash: cause and rationale for illegality

texts:
A British trader has been arrested on accusations of having triggered the 2010 "flash crash" that saw the Dow plummet by 600 points in 20 minutes. This is reported, for example, here (BBC), or here (FT, paywalled). In these reports, it is claimed that the crash was triggered by some sort of irregular trading in a type of futures contracts called eMinis.

Can someone explain

What exactly is it that the trader is alleged to have done, how did this allow him to make irregular profits, and what is the mechanism by which he was able to single-handedly move the entire equities index?
If the trader participated only in legitimate voluntary trades via the normal market mechanism, what exactly is the behaviour that is being considered as potentially illegal here, and what is the rationale for this illegality (i.e. how can the authorities distinguish this seemingly illegal behaviour from normal market trading activity)?


texts: What happens when I leave out empty cells in regression?

texts:
I'm using Stata 14.1 to do a regression, and I got a matsize too small error. It gave some more output to tell me possible reasons for this problem, and I think this was the reason that applied to me

If you are using factor variables and included an interaction that has
lots of missing cells, either increase matsize or set emptycells drop to
reduce the required matrix size; see help set emptycells.

Yes, I am using factor variables (one for each state in the US and Washington DC), and yes there are a lot of empty cells.

I'm trying to figure out which option is better, drop empty cells or increase the matrix size so it can include all the factor variables.

It has help articles on how to do both of those things: drop empty cells or increase matsize. It's not the "how" but the "why" that I'm trying to figure out. What happens mathematically when I drop empty cells? (I probably won't understand the math, so if there's a dumbed down answer just about whether it's good or bad to leave off empty cells, that would probably be better.)


texts:
Terrorism in general, and suicidal terrorism in particular, is
  popularly seen as “irrational,” but many economists and political
  scientists argue otherwise.

This quote is from Terrorism: The relevance of the rational choice model by Bryan Caplan. This paper has been published in 2006 in Public Choice. In relation with the recent terrorist attacks in Paris (Nov. 15), is there any new (economic) development on the question of the rationality of terrorism?

Edit: the title is intentionally short but by saying “is X rational?" I definitely mean "Can X be rationalized?"


texts: Is it possible to pay the internal debt of the country and to cover the budget deficit by increasing taxes?

texts:
Say for example the US govt. is putting an extra tax of 10% on the incomes of the people earning more than the average income. To make it easier, only tax the people earning more than 110% of the medium wage.

Say for example that the US govt. is also putting an extra tax of 10% on the wealth of the rich - the individuals and families that own more than 300.000 $US

Gather all those money in two separate accounts so everyone can see how much money are collected.

And then use all the collected money to pay a part of the internal debt of the country (the internal debt is a part of the public debt, which is actually the debt of the country).

This looks like something that might actually work but I'm asking because there are a lot of complicated and sophisticated intricacies in the field of economics, or at least that's how the experts in economy make it look like.

So I'm asking if it's possible to pay a part of the debt of the country by increasing the taxes.

The people that sit on the top-half of the food chain might be affected by an extra 10% tax but for sure they will be affected much less than the poor people who would have to pay an extra 10% tax because without that 10%, the poor people might not even have the money to buy enough food for the family.

And the companies won't be affected at all. This tax is for private persons only. No extra taxes for the companies.

Those 10% money are spent at this moment by the top-half of the food chain and that creates jobs for sure. But giving it to the government and then paying the financial markets to cover the debt means the money get to the financial markets and they will also spend it or they will invest it, and that also generates pretty much the same amount of jobs.

In the end, by paying the debt, the money get back into the pockets of the rich who own the financial markets so they should not be affected at all. By the contrary - they should be happy for getting their money back - plus some nice profit.

Now let's imagine another situation - say the internal debt is insignificant but the country made a huge budget deficit this year. Is it possible to cover that budget deficit (or a part of it) using such a tax?

It looks like something that might actually work but there might be some flaws in that construction, so I'm asking if it is actually possible for the govt. to do something like this.


texts: Indifference curve - Does $dU = 0$ hold in higher dimensions? / Problem of integrability

texts:
In two dimensions, we have on an indifference curve that $dU=0$.
Does this apply to indifference objects in higher dimensions?
I was thinking that if $dU > 0$, then one is moving to a higher indifference curve/object
My Macroeconomics professor, in the first week of class, gave a microeconomics review. I asked if $dU = 0$ in higher dimensions. He said he would answer the question next time, and during the next class, he said it may not hold true in higher dimensions because of the problem of integrability.
I asked another economics professor in the department who said that $dU=0$ holds by definition of indifference curves/objects.
What is this problem of integrability, and what does it have to do with indifference curves?
Is it this one?
I've taken 2 courses of real analysis, 2 on probability theory and 2 on stochastic calculus (and 4 on statistics), but the mathematics I've encountered in economics is only up to basic linear algebra and separable ordinary differential equations (Actually the linear algebra's mainly just matrices. I hardly recall learning concepts like 'kernel' or 'eigenvalue' in economics, though I have learned uses for both in finance).


texts: Can the Fed raise the M1 money supply permanently w/o helicopter money?

texts:
I just read parts of an introductory economics book. I read about the monetary system in the U.S. and came up with the following question:

Can the Fed raise the M1 money supply permanently without having either to buy further Treasury bills or use helicopter money (i.e. to refrain from recieving the principal payment at maturity) ?

I think about the following model:

There is the Fed $F$ the companies $C$ the households $H$ and the banks $B$. We can partition the system into $\{F\}$ and $\{B,C,H\}$. At time $t=0$ there are $\alpha$ $\$$ in $\{B,C,H\}$ as currency i.e. as physical bank notes. No matter what happens in $\{B,C,H\}$ $\alpha$ cannot increase. Suppose $F$ wants to increase the money supply. As far as I know the Fed primarily uses open market operations (OMOs) to increase money supply. Let's try this. To simplify things let's consider a very simple bond.  Someone in $\{B,C,H\}$ issues a bond for  $\beta \$ $. The terms of the bond will grant the buyer a payment of $\gamma \$ $ at $t=1$ and $ \delta = \gamma - \beta > 0$.

So, as the Fed wants to increase money supply it undergoes an OMO, i.e. prints $\beta \$ $  and buys our bond. The money supply in $\{B,C,H\}$ at $ 0 < t <1 $ is $ \alpha + \beta $. So far so good. We could consider the money multiplication buy loans during $ 0 < t <1 $ but that would not change the situation at $ t > 1$. At $t=1$ the issuer of the bond i.e. someone in $ \{B,C,H\}$ has to pay $F$  $\gamma \$$. So, at $t > 1 $ there is less money ( $ \alpha - \delta$ ) in $\{B,C,H\}$.

So, to me all of that seems controversial. $F$ wants to increase the money in $\{B,C,H\}$ but effectively reduces it. Of course $F$ could disguise the situation by buying another bonds and thus increase the time until maturity but this does not really change the situation. So, this question comes up:

Can the Fed raise the M1 money supply permanently without having either to buy further Treasury bills or use helicopter money (i.e. to refrain from recieving the principal payment at maturity) ?


texts: Theoretical/Empirical Arguments for Migrant Workers in the US

texts:
Consider the events that are developing in the US with regards to labor-intensive manual work and migrant workers. If more and more migrant workers are banished from the work pool, it remains a highly contested topic as to whether US nationals will able to pick up the slack. Let's say we're presented with both sides of the argument:

(These are of course generalizations to a certain extent, and I don't pretend to speak for everybody; I'm just simply trying to highlight some of the major concerns of both sides of the aisle)

Liberal: "Rethink your judgment on migrant workers. Americans are too soft for dirty jobs. Why else would so many unemployed people turn down the opportunity to work during a recession?"

Conservative: "It's not that we're too soft to work, it's just that the current labor market has a systemic bias against us. Why should we work for wages that are not fair?"

Liberal Americans put forth a compelling case that migrant workers are not stealing jobs from anybody, they are simply filling the jobs that Americans don't want to do. While in the past, Americans worked in labor-intensive industries like steel and manufacturing, but today's technologically-integrated America is different. Essentially, saying Americans are too soft for dirty jobs. Recent agriculture labor shortages in California illustrate a point along these lines.

Meanwhile, the conservatives also have a strong case that migrant workers are competitors for low-skilled US nationals. The low-skilled demographic are often considered the losers of globalization, as they are out-competed by migrant workers who will work harder on the job for less pay. Conservatives also cite net income flows from local communities. Many migrant workers send the bulk of their earnings back to their home countries, and at the macro level, it all adds up, their local communities lose economic vigor and deteriorate.

My question is: Is there anything in theoretical/empirical economics that can be brought to bear for this debate?

That is my question, although I realize some readers may find it rather broad, so I've included a few optional specific questions that you may answer if you feel so inclined.

Are there moral hazards in place? i.e. People would rather rely on welfare than work in an orchard?
Is it a case of too much/too little regulation? i.e. Due to burdensome regulations, it's too expensive to hire legit workers, and the cheap but illegal migrant worker is preferred?
If there is a "fair" equilibrium price that attracts local Americans, will that even be affordable to agriculture / other relevant industry companies? Might they not just mechanize?

Note: If possible, please do your best to criticize both views in the answer, so that political affiliation bias will be weeded out a bit and it also will not make it appear as though one is "better" than the other.


texts: What happened when the money from share issuance is spent?

texts:
Let's assume that new bank is incorporated and it issued 100 000 shares with nominal value odf $100.
Let's also assume that all shares are sold for the same price, so bank now has 10 million dollars.
In equity section on balance sheet, there is now 10 million dollars of ordinary shares. Now let's assume further that 5 years has passed, the bank has spent all 10 million dollars for different purposes (R&D, expansion etc.) and now it doesn't have that money, but there are still 10 million dollar of ordinary share on its balance sheet.
If ordinary shares are vital part of bank's capital, how can they now respresent someting that can save the bank from bankruprtcy it problems occurs, when there is no money??? I'd understand if the bank wasn't allowed to spend that money, but it is used for various purposes.


texts: Policy rate and the mean of the stochastic discount factor: what is exogenous?

texts:
Let us fix the length of one period to be the tenor of the risk-free rate targeted by the central bank, e.g. 1 day. There exists a stochastic discount factor (SDF, a.k.a. pricing kernel).

I am confronted with what to me seems like the chicken-and-egg problem. The SDF is by definition determined by investors' preferences (utility function), but its mean, which is by definition directly related to the risk-free rate, is set exogenously by the central bank. Would someone know of a unified framework to resolve my concern? Is it a concern at all?


texts: Nash social welfare function with negative exponential utilities

texts:
I got one question about the Nash-SWF. Typically it is defined as the product of individual utilities, ie.
$$
NSWF:=u_1(x_1) \cdot u_2(x_2) \cdot u_3(x_3) \cdot ...
$$
For this to make sense, individual utilities are restricted to always being positive. Is there a way to adjust the Nash-SWF to work for utility fcts that are always negative, like $-e^{-ax}$? Meaning all individuals have the same utility fct. which is $-e^{-ax}$.

Thanks a lot!


texts: Rule for Number of Strategies in Bayesian Games

texts:
Is there a general rule for finding the number of strategies (denote as $S$) for each player in a Bayesian game? I think it's related to the number of types (denote as $T$) and the number of actions (denote as $A$). From the few examples I've come across, I've noticed the following:

2 actions, 2 types, 4 strategies
2 actions, 1 type, 2 strategies
3 actions, 1 type, 3 strategies

This could mean that $S=T \times A$ but it could also be $S=A^{T}$.
Any clarification would be appreciated.


texts: Are many of the traditionally oil dependent Gulf states really successfully diversifying their economies?

texts:
I've often heard the claim that many Persian Gulf states are successfully diversifying their economies away from oil (e.g. non-oil share of UAE's GDP is 71% and in Saudi Arabia, non-petroleum sectors account for 55% of GDP).

The IMF has the 2015 GDPs per capita of the UAE and Saudi Arabia at \$35392 and \$20139, respectively. If we naively multiply by 0.71 and 0.55, we get that their non-oil GDPs per capita are \$25128 and \$11076. \$25128 is greater than the GDPs per capita of countries such as Portugal and Poland, and \$11076 is greater than those of Mexico and Turkey.

I'm rather surprised by this, as I've always assumed that countries such as Portugal and Mexico would be well ahead of the UAE/Saudi Arabia in terms of development/education/technology etc.

Are the 71% and 55% figures (and similar claims for other Gulf states) misleading in some way?

i.e. Are most of the non-oil sectors in these countries still somehow mostly based on oil (and would they substantially shrink/collapse if the oil "ran out")?


texts: Why did the Federal Reserve change the data about USA GDP?

texts:
This is the data published on 20 March 2013 FOMC meeting:
(http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130320.htm)

20 March 2013,
Change in real GDP (actual):

year 2008: -3.3%
year 2009: -0.1%
year 2010: +2.4%
year 2011: +2.0%
year 2012: +1.6%

This is the data published on 18 September 2013 FOMC meeting:
(http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm)

18 September 2013,
Change in real GDP (actual):

year 2008: -2.8%
year 2009: -0.2%
year 2010: +2.8%
year 2011: +2.0%
year 2012: +2.0%

As you can see, the GDP data for year 2008, 2009, 2010 and 2012 that published on 20 March 2013, and the data that published on 18 September 2013 is different.
Why did the Fed change the data?


texts: Prediction Interval for $E(y|X_0)$ when model is in $ln(y)$

texts:
Let's suppose we have linear regression with dependent variable $ln(y)$. How would one find a prediction interval for  $E(y|X_0)$ ?

If we have $PI(E(ln(y)|X_0))$, is there a way to reach $PI(E(y|X_0))$?

Any help would be appreciated.


texts: Does bond yield always equal the prevailing bank interest rates?

texts: Does a bond's yield (principal and coupon rate) always equal the bank interest rate?


texts: How does investment have a negative impact on the current account (trade balance)?

texts:
NX ≡ (S-I) + (T-G)

  Read this as “the trade balance (net exports) is identical to the sum
  of net savings (savings minus investment) and the government’s budget
  surplus or deficit (taxes minus spending).” This is not a theory of
  what causes what; it’s an identity, different ways of expressing the
  same “what”.

I understand how savings, tax revenues and government spending may impact current account, but I don't understand how investment would negatively impact current account, it doesn't seem to be right or even make sense. How does Google investing millions in the local economy contribute to the trade deficit?


texts: Why can two functions represent the same preferences?

texts: I wonder why two functions can represent the same preferences?


texts:
I'm new to this subject, and I'm looking for papers on measuring the 'quality' of institutions and their possible role in the development of a country.

ANy help would be appreciated.


texts: What can explain increasing exports after default episodes?

texts: I am going through a paper on sovereign default by Mendoza and Yue (2012), in which defaults are explained in terms of how firms that use foreign intermediate inputs lose access to international credit markets once the governement defaults on its debt. This means that after a default production decreases and therefore the model predicts that exports should decrease, but whenI look at periods of default of Argentina, Ukraine and Panama, the data tells exactly the opposite: exports increased in the wake of the sovereign default. What can explain this? What papers can I look for?


texts: Econometrics - Need help interpreting results

texts: My absolute t-value is greater than t-critical value. This means that I can reject my null hypothesis which was that $\beta_1\leq 0$. Therefore, $\beta_1\gt 0$ and my alternative hypothesis is correct. However, my data has a negative slope. which tells me that $\beta_1\lt 0$. What am I missing here?


texts: Correct Calculation of Balassa Revealed Comparative Advantage (with full trade data)

texts:
The typical approach to computing RCA (Revealed Comparative Advantage) is the Balassa definition:

$RCA=\frac{\frac{X_cp}{\sum_{p=1}^{P}{X_cp}}}{\frac{\sum_{c=1}^{C}{X_cp}}{\sum_{c=1,p=1}^{C,P}{X_cp}}}=\frac{Product Export Share in Country C}{Product Export Share in World Trade}$

However, given disaggregated product level trade data between origin (i) and destination (j) countries there are some lines in the data that aren't always attributed directly between two countries, and may have an Areas, nes partner such as:

1962, USA, United States, ., Latin America NES, 0011, 34.298

In this case the USA is exporting $34.298 to Latin America NES. Given this relationship we know the US has exported some items (with productcode 0011) to Latin America but we don't know it's exact partner country j.

When summing over j, to construct Total Country Exports it is possible to include all of these items as you sum over j, despite the fact they will never appear in the numerator of the RCA expression (as we are not typically interested in Latin America NES and keep countries only).

Question

When computing the denominators of the RCA expression should we:

Include these in the aggregate values Total Country Export = $\sum_{p=1}^{P}{X_cp}$ and Total World Export = $\sum_{c=1,p=1}^{C,P}{X_cp}$
Discard these values and only aggregate values (across j) based on those that we can properly measure and will appear at some point in the numerator. (i.e. only considering trade between defined countries)


texts:
The model specification is:

$$D_{ij} = A + aP_{ij} + bY_{ij} + cN_{ij} + e_{ij}$$

where:

$i, j$ = $i$-th year, $j$-th month,
$D$= demand (outgoing minutes)
$P$ = average price of call,
$Y$ = average income per capita,
$N$ = number of base stations.

During the 5-year period under examination, a tax has been levied on telecom gross revenues for two years. Is it reasonable to include instrumental variable such as amount of revenue/profit which could have direct effect on price? If not, perhaps you have any other suggestions.

Any guidelines would be very appreciated.


texts: What is the Gross Domestic Product (GDP)?

texts:
I suppose GDP is supposed to create a measure of a country's wealth/welfare, something easily indexable.

But how exactly is it composed? And is its composition disputed? How good is it at measuring a country's economic well-being?


texts:
The classical definition of Price of anarchy is the ratio of decentralised optimal utility to the centralised optimal utility. This concept is used to quantify how inefficient is it when agents behave selfishly, in comparison with a situation where a central planner takes optimal actions.

My question: why cannot Price of anarchy be defined as the difference between the two solutions? In my setting, I have a number of log based functions in the utilities. For example, in a network setting defined on a graph $G$, the central planner's utility function is $U_s=f_s(G)+\sum_i \log(l_i)$ and the individual firm's utility is $U_i=f_i(G)+\log(l_i)$, where $l_i$ are loss terms for node $i$. Having a difference as PoA helps me eliminate idiosyncratic losses and I am left with $f_s(G)-\sum_i f_i(G)$, and I have a means to compare dependence of PoA on network structure.

I am greatly benefited by having a difference in place of ratio. Is it fine to define that way? Is there some other term for the difference?


texts: Allocative efficiency -- correlation between MB and p in populace with wealth inequality

texts:
I was reading a paragraph in an economics textbook that was talking about
resource allocation, and felt that it missed an important point, leading to
a conclusion that I disagreed with.
I was hoping that someone could either explain why I'm wrong, or point me to
alternate resources that talk about this facet of the problem.

My textbook asserts that a competitive market would produce an efficient
allocation of resources.
Resources would be moved from less profitable products to more profitable ones,
and this would necessarily increase the monetary value to consumers of the
total products sold.

I understand the reasoning, but I question that total monetary value to
consumers can be related to total satisfaction of consumers when applied to a
large populace.

I accept the implicit assumption that the amount a single actor is willing to
pay for something would be directly proportional to the amount of satisfaction
they expect to get from it, but don't think this property can't be generalised
to a system of people with different total wealth.

As an example, a beggar would not be willing to spent \$30 on a good steak
dinner while a millionaire might.
One would not reasonably use this fact to argue the millionaire gains more
satisfaction from the meal than the beggar, but rather that it would require
more expected satisfaction to get a beggar to part with \$1 than a millionaire.

Applying this observation to how markets determine a price, we can see that a
products price (and by extension its profitability) is not solely determined by
its utility.
Rather it reflects the products utility combined in some way with the wealth of
its consumers.
A simplistic view might say

(price a consumer is willing to pay) = (wealth of consumer)*(expected satisfaction)

and so

(price of a product) = (wealth of consumer base)*(expected satisfaction)

In the above both the price and satisfaction represent their marginal values.

Working from that conclusion we can say that while allocating resources from a
less profitable product to a more profitable product will increase the monetary
value of products sold to the entire populace, we say the same
about the total satisfaction of the populace.
It may simply be that this moves satisfaction from a poorer section of the
populace to a richer section.

i.e. in a situation where different products can be supplied to different
sections of the populace, a products price can no longer be used to directly
infer its utility.
Hence optimising for monetary value to all consumers is not necessarily
optimising for total consumer satisfaction.

Just to note:
The paragraph in the textbook never explicitly drew a conclusion between
monetary worth to all consumers and total satisfaction, but there were phrases
like "\$20 worth of consumer satisfaction".
It's this conflation between satisfaction and monetary value over an entire
populace that I don't follow.

EDIT:
I re-read my question, and thought I didn't make it clear what I was asking:

It's:

1) Is there an obvious flaw in my argument?

2) If not, does anyone know of textbooks/articles that look into this (especially any that include data).


texts:
what is the difference between microeconomics and microfinance?

I cannot understand the difference between the two terms


texts: How much impact does memory have on risk pricing?

texts:
Have studies been done that demonstrate the limits of human memory on reputation in the Iterated Prisoner's Dilemma?

i.e. at what point (on average) does a player start to "forget" the actions of a previous opponent?


texts: CES v. Leontief Aggregator in Production

texts:
Consider a production process with two distinct capital types such that there is a capital aggregator. You could view $k_v$ as a more versatile capital (e.g. can be converted into many different production processes) as opposed to $k_u$ which is a unique factor of production exclusive to a particular production process. Hence $J=\{v,u\}$.

  A CES aggregator is:  ($\gamma$ is substitution coefficient, $\sigma_j$ is factor share such that $\sum_\limits{j\in J}\sigma_j=1$)
  $$k\equiv(\sum_{j\in J}\sigma_j k_j^\gamma)^{\frac{1}{\gamma}}.$$

Similarly,

  a Leontief aggregator is:
  $$k\equiv\min\{\frac{k_v}{\sigma_v},\frac{k_u}{\sigma_u}\}.$$

My Question:

  When and why (i.e. economic intuition) is it appropriate to use one aggregator over the other? Are there other aggregators that are also commonly used?


texts: Why does the Fed control interest rates?

texts:
The Fed more or less controls interest rates using open market operations, but why?

Why are interests rate not controlled by supply and demand?


texts: Does investing in the stock market contribute to economic growth?

texts:
I am morally opposed to economic growth:  I think that for the good of our planet we need to be shrinking human impact in pretty much every way, not increasing it.
If I invest in the stock market, I am placing a bet that growth will continue for some time.  I think this is a reasonable bet to place, despite my opposition to it.
However, does my investment actually contribute to economic growth?  In particular, could anyone give an analysis of the likely impacts of either

Debt elimination (ex: paying off mortgage early)
Keeping the money in a savings account.
Buying government bonds.
Buying index funds.

on economic growth?


texts:
I'm looking for some bibliography for International Macroeconomics/Finance. Any suggestions?

Any help would be appreciated.


texts: Is an EU single currency still a trade advantage in 2019?

texts:
When the single currency was planned, there was no internet and there all currency exchange was manual.

Today the web can automatically convert prices using multiplication of the numbers in the price field, and robotic cash exchange can count and exchange currencies better and cheaper than a human exchange.

Does the UK suffer an considerable economic handicap from having not adopted the Euro? Is the single currency concept nearly obsolete?


texts: Spatial Durbin model in Stata - How it is estimated?

texts: Can someone explain to me how the estimation of the spatial Durbin model is made in Stata ? The documentation of XSMLE command (for spatial panels) says that for dynamic cases the estimator are based upon the article of Yu et. al. (2008). But I have not found references in the article to the estimation process of the Spatial Durbin model.


texts: Why will the holder of a broad-based index fund, by definition, achieve the average return for the market?

texts:
A Random Walk Down Wall Street (2015 11 ed, but an 2019 ed. is upcoming). pp. 271 Bottom – 272 Top.

    All “smart beta” strategies represent active management rather than indexing. Capitalization-weighted portfolios are the market. If you believe a subset of securities will give you superior returns, you are counting on some “dumb” investors to hold portfolios producing poorer returns. Some “smart beta” advocates have been quite explicit in suggesting who these dumb investors might be. They claim that the investors in traditional capitalization index funds are the dumb beta investors, since by holding the broad index they will be holding a number of overvalued growth stocks. But that argument must be false. $\color{red}{\text{The holder of a broad-based index fund will by definition achieve the average return for the market.}}$ If “smart beta” funds generate above average returns, it can’t be at the expense of traditional index-fund investors—it must be at the expense of all active managers who do not hold the market portfolio.

For simplicity, suppose that a country’s economy has only 2 types of ETF:

i. 1 broad-based, whose return I'll call $r_B$ +

ii. 1 Smart Beta one that's a subset of securities without some (overvalued) growth stocks, whose return must be higher than the broad-based fund's (say $2\% + r_B$).

Then the average return of ETFs is $1\% + r_B$, which nobody achieves (as my imaginary economy has only 2 types of ETF).

So how's the red sentence true?
How's the bolded sentence true? Wouldn’t fund ii's higher return 'be at the expense of traditional index-fund investors'?


texts: I was reading an article from 2015 stating that 1% of the world has half of the world wealth. They have several figures such as the world's billionaries have around 7 trillions dollars or the global world wealth pyramid which shows a percent of population by percent of the total wealth etc. but I can't see anywhere a figure of the total wealth of the world. Which is it?


texts: Deciding the winner in a Product-Mix auction

texts:
I am trying to understand how does Klemperer's Product-Mix auction work.
As I understand, given a supply I want to sell and a group of bidders, an auction system should determine who receives the products and at which price.
In a Product-Mix auction, there is a single auction to sell the entire supply and each bidder should bid for each bundle of articles simultaneously. Then if we consider the price space (the set of all possible prices of the articles, that is, the set $\mathbb{R}^n$ where $n$ is the number of kind of articles) each agent bid allow us to do some nice pictures in the price space and by analyzing this pictures we get the prices for which there is a distribution of the supply between the agents in such a way such that each agent its utility (a competitive equilibrium).
Nevertheless, there may be multiple different ways to distribute this articles maximizing the utility as above. So in practice, between all this different optimum ways to distribute the articles, how does we decide which one we pick? We just do it randomly?
As an example, suppose we have a house with three rooms, a big room, a medium room and a small room, and we want to rent the rooms between three agents $A$,$B$ and $C$. We then ask each agent to bid simultaneously for each room and they bid as follows:
\begin{array}{|c|c|c|c|c|}
\hline
\text{Agent} & \text{Big room} & \text{Medium room} & \text{Small room} & \text{No room} \\ \hline
 A & 400 & 300 & 200  & 0 \\ \hline
 B & 450 & 350 & 150  & 0 \\ \hline
 C & 400 & 350 & 250  & 0 \\ \hline
\end{array}
Then for the price 400\$, 300\$ and 200\$ there are two possible ways of distributing the supply. We can give the big room to $A$, the medium room to $B$ and the small room to $C$ or we can give the medium room to $A$, the big room to $B$ and the small room to $C$. How we decide between the two?


texts: Effects of wartime rationing on British life expectancy?

texts:
From The Economist (23 May 2020):

  In Britain during the 1940s life expectancy shot up by seven years, thanks to a wartime rationing system that ensured everyone had nourishing (if dull) food.

I was surprised to read the above sentence. It seems to suggest that the wartime rationing system was the leading or even sole cause of a seven-year increase in life expectancy in Britain in the 1940s.

So, I wonder if there have been actual studies by economists/demographers/social scientists on the effects of wartime rationing on British life expectancy and what they say?

Dataset from CLOSER:


texts: Understanding the Diewertt Cost Function

texts:
The Diewert cost function (as described in Microeconomic Analysis by Hal Varian 3rd Edition) takes the form of:

$$c(w,y)=y\sum_{i=1}^k\sum_{j=1}^kb_{ij}\sqrt{w_iw_j}$$

Varian goes on to say (page 209)

  For this functional form, we require that $b_{ij}=b_{ji}$. Note we can also write this form as:
  $$c(w,y)=y\left[\sum_{i=1}^kb_{ii}w_i+\sum_{i\neq j}\sum_{j \neq i}b_{ij}\sqrt{w_iw_j}\right]$$
  Since the first part of the equation has the form of a Leontief cost function. this form is also known as a generalized  Leontief cost function.

What phenomenon is this cost function coming to describe? Is there an example of what this cost function represents?


texts:
How is "opportunity cost" an useful concept? Even when it does exist?

What use does it serve?


texts: LS book (Recursive Macro Theory). Chapter8: Complete Market

texts:
I am reading LS book, on Chapter 8 - Complete Markets (3rd version). There is an example on page 264 that I am quite confused.

I attach the picture of the example here under.

I don't understand why we have a history (0,0,0,...,0,1,1)? since if $s_t=0$, then $s_{t+1} = 0$ for sure, right?

Or the authors means the history here is in order $(s_t, s_{t-1},....,s_1,s_0)$,
so it makes sense since we know that $s_0=1, s_1=1$, but isn't it quite weird, since we usually write a history $h_t=(s_0,s_1,...s_t)$ right?

Anyone has an idea? Really appreciate your help!


texts: How to derive likelihood functions for non-linear model for ML estimation

texts: When a model is linear, one can use Kalman filter to get likelihood function and use ML techniques. While nonlinear Kalman filter exists, it is suboptimal. What is the standard way to get likelihood function and apply maximum likelihood(ML) methods when a model is non-linear and not linearized?


texts:
I am looking at Norway's economy, and I'm trying to make sense of some of the data I see. Norway's economy has a very close relationship to crude oil, and in 2014 crude oil had a massive drop. Looking at the inflation, exchange rate (USD/NOK, EUR/NOK) and interest rates, my questions are the following:

Is it a correct assumption that the the central bank started decreasing the interest rate, so that the damage to the economy (coming from the low crude oil price) is minimized?
Is it correct that a lower interest rate led to a weaker currency and thus higher inflation (2015, but mostly in 2016)?
What could be the reason that inflation has dropped significantly recently? (I am asking this since the interest rate has remained the same, though the currency has strengthened a bit).


texts: Help improving this definition of a "game"?

texts:
My professor defined a game as follows:

a set of $n$ players
a set of strategies $s_i$ for each player $i$
a set of payoffs $p_i$ for each player $i$
turn-taking: sequential or simultaneous
repetition: $k$ rounds, where $k\geq1$ and $k \in \Bbb{N}$

I have three problems with this definition:

He didn't define turn-taking mathematically, so I feel like it's a vague definition. There should be like an index of possible turns with max value $n$. But I'm not sure how to write it formally.
He doesn't define how we map from strategies selected to payoffs. Presumably, the set of payoffs should include a value for every possible combination of strategies selected. But there should be a way to state this formally as well.
He doesn't define what a strategy is. I suppose one could simply say that a strategy is the object we map from in the domain to an element in the set of payoffs (ie codomain). In that sense, anything that can be valued is a strategy, ie a possible action.

My Question:

Can someone offer a more complete definition than the one given? Specifically make sure it improves upon the concerns I mentioned.


texts:
So i have this question:

After spending 3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of 6 million. This investment will be depreciated straight line over 5 years to a value of zero, but when the project comes to an end in 5 years the equipment can , in fact, be sold for 500,000. The firm believes that working capital at each date must be maintained at 10% of the next years forecasted sales. Production costs are estimated at 1.50 per trap and the traps will be sold for 4 each. Sales forecasted are given in the following table. The firm pays tax at 35% and the required rate of return on the project is 12%. What is the NPV?

The image attached is the answer to the problem under the form of a table.

The only thing i do not understand in this calculation is why , under year 5 in the table, in the capital investment row, it says that the capital investment is 325. Where is this number coming from ? Thanks!


texts: Estimating probability of Central Bank's interest rate changes

texts:
Recently, I came across this article, which offers a simple model for estimating the probabilities of interest rate cut/hike from a central bank. This is done by using market data, especially normal market rates and forward rates. Unfortunately, this paper's two most important equations (3.2 and 3.3) have confusing and inconsistent notation and I have not managed to replicate the example in it. My goal is to do something like the Fed's market probability tracker. Unfortunately, the papers the Fed provided are way too complicated for my purposes.

My question is - are there any papers out there estimating this? Preferably the model should be as simple as possible. Any scripts (R/Python/Matlab) that do this would also be appreciated.

Thanks for help!


texts: How does Google price the items on Google Play?

texts:
I am a fledgling computer science researcher working in intersection of economics and computation. Please excuse me if this question seems out of place to the administrator.

I am currently studying different pricing models and studying the "optimal" way or price to sell items. I have noticed that on Google Play there are movies which one could rent or buy. Also, for movies for similar popularity I noticed that there is often a huge difference in their price. (about 10 euros). Conventionally, one looks at the valuation distribution for an item. However, that won't explain this difference in cost. There may be issues of purchasing copyrights too. However, more generally, how do companies like Google price these digital items? Do they update these prices regularly based on sale information? Is there any prior work about how can one go about doing this?

I am just looking for directions so any help is greatly appreciated.


texts: Proximity-concentration hypothesis: homogeneous firms and symmetric countries

texts:
Hi everyone I am running into a stone wall and don't seem to be able to solve this, can someone show me the steps how I can insert 1 into 2 and get 3.

$B=\frac{f_E+f_D}{φ^{(σ−1)}*(1+τ^{(1-σ)})}$

$π = φ^{(σ−1)}*B+φ^{(σ−1)}B-f_E-2f_D$

$\frac{2f_D}{f_E} = τ^{(1-σ)} -1$

I am trying to understand how the symmetric model of the proximity-concentration is derived. Would love to show you guys my steps but to be honest I haven't gotten much further than
$π = φ^{(σ−1)}*\frac{f_E+f_D}{φ^{(σ−1)}*(1+τ^{(1-σ)})}+φ^{(σ−1)}\frac{f_E+f_D}{φ^{(σ−1)}*(1+τ^{(1-σ)})}-f_E-2f_D$
and then setting $π = 0$. The paper sets $π<0$ but for the purpose of question and my issues setting $π = 0$ difficult enough.
Appreciate any and all help.


texts: Parameter value for a CES production function

texts:
Consider a firm with the following CES production function, which utilizes only two production factors (capital and labor) whose prices are, respectively, $r > 0$ and $w > 0$:

$$ y = \gamma \cdot \left\{ \delta \cdot K^{-\rho} + (1-\delta) \cdot L^{-\rho} \right\}^{-\frac{V}{\rho}} + 100\epsilon $$

where $\gamma > 0, V > 0, \rho  \geq -1$ and $0 < \delta < 1$.

a) Determine the value of the parameter $\epsilon$ and justify your answer.

Here's my thought: based on the "no free-lunch" property, a firm cannot produce while using zero inputs, which would mean that:

$$ y(K=0,L=0) = 0  \implies \gamma \cdot \left\{ \delta \cdot 0^{-p} + (1-\delta) \cdot 0^{-p} \right\}^{-\frac{V}{p}} + 100\epsilon = 0  \Leftrightarrow \epsilon =  0 $$

However, for that to be valid, $-\rho > 0 \therefore \rho < 0 $, because otherwise we would have a division by 0. So should the correct definition of the interval where $\rho$ belongs be $-1 \leq \rho < 0 $ ?

On the same topic, can a production function ever have a constant term? I'd think not because that would violate the "no free-lunch" property.

I appreciate any inputs!


texts: Why does BC Hydro want us to use less power?

texts: I live in British Columbia, Canada, and we have a hydro electric company called BC hydro that supplies our power. They run ads encouraging us to use less power. I have been wondering why they would do this as money we spend on power is their profit. What is their incentive for us to use less? From an economic perspective, this doesn't make sense to me. Any explanation for the rationale behind this would be appreciated.


texts:
In a DSGE model, how can I add a disturbance/shock in the consumption of households?
For example given my utility function
$$ U(C,H) = \frac{C_t^{1-\theta}}{1-\theta} - \frac{B}{\eta} H_t^\eta,$$ where C is consumption and H is work hours, can I simply add a white noise disturbance term $\xi_t$ :
$$
U(C,H) = \xi_t  \frac{C_t^{1-\theta}}{1-\theta} - \xi_t \frac{B}{\eta} H_t^\eta
$$
Or is it better to add a demand shock $u_t$  to the IS curve, as in
$$ x_t = E_t x_{t+1} - \sigma( i_t + E_t \pi_{t+1} ) + u_t?$$
where $x$ is the output gap nad $\pi$ the inflation


texts: When do trades between two countries not result in gains for either of them?

texts:
So are there any circumstances where two countries trade with each other and they both do not gain anything? is it possible? and if you could also explain why that is the case? I have looked around and haven't really been able to find any answers.

Thanks in advance


texts: Why is market absorption of issued US Treasury Bonds (with the Fed purchase plan) a problem?

texts:
Financial market reports suggest that there are uncertainties about the Federal Reserve's ability to absorb new US Treasury Bonds issued in larger quantities to support the US government's growing budgetary requirements (i.e. the pandemic support of the economy).
This hypothesis is bolstered by the example of 2018:

...real yields rose and stocks and corporate bonds got clobbered until
the FED reversed its tapering exercise and started buying USTs in
size.

Questions:

Why can't the Treasury and the Federal Reserve agree upon a
controlled issuance and instant procurement of UST bonds "straight
from the printing press"?
Why subject the market to the ambiguity of
being able to partake in this exercise, which is specifically aimed at funding
the budget through the Fed's resources?


texts: Does any international organization (such as IMF) provide data on capital control / financial openness?

texts: I've read some literature on measuring capital control / financial openness, but I am wondering if there is any data directly collected by international organizations like IMF that measure capital control.