texts:
I have a question regarding the impact of inflation on exchange rate between trading countries.

Let's assume a hypothetical situation where the UK and the USA trade with each other. The USA import goods from the UK and the UK exports goods to the USA.

Assume the exchange rate £1=$5 at the beginning. The UK is selling one widget to the USA for £10. Now let's imagine an inflation of 100% happened so that the UK prices this widget £20.

Now, my reasoning is that £ should weaken against dollar so that £1 = \$2.5.
So inflation weakens country's currency.
My reasoning is that this is logical that this should happen because now £1 is worth less than it was before the inflation (with the same amount of pounds you could buy twice as much before the inflation than you can now) so £1 should cost \$2.5 instead of \$5. Is my reasoning correct?


texts: Log-linearization of Euler equation with an expectation term

texts:
There are a few online resources available to help with log-linearization (e.g., here  or here). However, log-linearization where an expectation is involved
is a little tricky because the log can't simply "pass through" the expectation operator.
Could somebody help with the algebra in this example?

I have the Euler equation (equation 1)
$$
1 = E_t \left [ \left \{ \delta \left (\frac{C_{t+1}}{C_t} \right )^{-1/\psi}
\right \}^\theta
\left \{ \frac{1}{1 + R_{m,t+1}} \right \}^{1 - \theta} 1 + R_{i, t+1}
\right ]
$$
where $\theta = ( 1 -\gamma)/(1 - 1/\psi)$. I'm trying to derive an expression for
the risk-free rate and an expression for the equity premium. How should I go about doing this?

It seems from the second link above that I should start by replacing the
variables of interest like so $C_t = c e^{\tilde C_t}$. Then following the steps given,
it seems like I should arrive at (equation 2)

\begin{align}
1 = E_t \left [
\left \{ \delta \left (\frac{\tilde C_{t+1} + 1}{\tilde C_t + 1} \right )^{-1/\psi}
\right \}^\theta
{}
\left \{ \frac{1}{(1 + R_m)[\widetilde{(1 + R_{m,t+1})} + 1]} \right \}^{1 - \theta} \cdot \\
\cdot
[(1 + R_i)[\widetilde{(1 + R_{i, t+1})} + 1]]
\right ].
\end{align}

But where do I go from here?

EDIT:

I have copied equation 1 directly from the notes that I have. It is probably the case that the term on the right, $1 + R_{i,t+1}$, should be in parentheses, $(1 + R_{i,t+1})$. In my initial attempt at log-linearization I have treated it this way.
In equation 2, I have followed the steps in the instruction that can be found in the second link at the beginning. So, $R_i$ and $R_m$ without time subscripts are these values in the steady state.
$R_m$ is the return on the market portfolio and $R_i$ is the return on asset $i$.

EDIT 2:

Thanks for the useful comments.
So, from what I have gathered so far, I should get something like this:

\begin{align}
1 &= E_t
\left [
  \delta^\theta (1 - \frac \theta \psi (\tilde C_{t+1} - \tilde C_t )
  (1 + R_m)^{\theta - 1} (\theta - 1)
  \left (
    1 + \tilde R_{m,t}  \frac{R_m}{1 + R_m}
  \right ) \right .\\
  & \left . \, \cdot
  (1 + R_i)
  \left (
    (1 + \tilde R_{i,t} \frac{  R_i}{1 + R_i}
  \right )
\right ]
\end{align}

Then this would imply that the risk-free rate is found as follows:

\begin{align}
1 &= E_t
\left [
  \delta^\theta (1 - \frac \theta \psi (\tilde C_{t+1} - \tilde C_t )
  (1 + R_m)^{\theta - 1} (\theta - 1)
    \left (
    1 + \tilde R_{m,t}  \frac{R_m}{1 + R_m}
    \right )
  (1 + R_f)
\right ] \\
1 &= E_t[ m_{t+1} (1 + R_f)] \\
\frac{1}{E_t[m_{t+1}]} &= 1 + R_f.
\end{align}

Is this correct? And now, to finish the question, how would I find the
equity premium?


texts: What effect would converting the lowest denomination note to a coin be?

texts:
In New Zealand our lowest denomination note is a $5 note.

For perspective, a can of coke costs $1.50 - $2.00, a Big Mac costs around $5.

The idea of a $5 coin is on the cards.

The question is - what effect does turning a note in to a coin have?

I imagine there would more of a piggybank effect (coins being lost, stuck in collection jars).

Are there any studies on what's happened when notes have been replaced by coins?


texts:
Very recently, the GBP has been raising against the Euro. I understand this has to do with the EU injecting €1.1 trillion until Sep 2016 and the elections in Greece.

My question is: when is this going to stop? I am uncertain as I don't know if the result of the EUR being much lower than GBP is also the result of speculation and, for that reason, it might not go beyond that.

Just today, I was reading about a specialist saying now was the best time, but that specialist was also a seller pushing for a long-term contract to buy EUR (currency.co.uk) so I am uncertain about his opinion. He mentioned 1.32 was great, but later 1.3465 was achieved!

What to expect then?


texts: How do you differentiate between a business expense and an investment for the purpose of profit reporting?

texts:
As I understand it, in a company, profit will be invested, either into capital assets or into projects.
How do you distinguish between an expense, and reinvesting profits back into company projects?
For instance, if Pfizer makes \$100B in revenue, spends \$80B on business expenses doing so, then spends the remaining \$20B on research for a new drug, would they have made \$20B in profit? or \$0?


texts: When gradient of utility function is a zero vector

texts:
In Advanced Microeconomic theory by Jehle and Reny is said that if $\mathbf{x^*}$ is a solution to the following maximization problem $\max_{\mathbf{x} \in \mathbb{R}_+^n} u(\mathbf{x}) $  subject to $\mathbf{p \cdot x}\le y$, then $\bigtriangledown u(\mathbf{x^*})=\mathbf{0}$
is possible but quite unlikely.

The question is why is it quite unlikely? I can think only budget constraint, but is it right?


texts:
I'm talking about bonds, stocks, and the sort.

I understand that an individual investor that's planning to invest, say, 50% of his savings, may require a higher expected gain to go for a riskier investment.

However, if risk can be diversified away, wouldn't people with enough money, even if they are risk averse, choose the investment opportunities with highest expected value and diversify among them? Wouldn't then any investment with higher-than-average expected value be flooded with money until they almost don't pay more?

Is it that...

most risky investment options are too correlated to allow for almost all of the excess risk to dissolve?
risk premiums only happen in markets with limitted access or that don't work like the ideal 101 market in a relevant way?
some other reason?


texts: Why did non-seasonally adjusted gdp usually drops on Q4 and Q1?

texts:
Yesterday, i stumble upon some of my country macroeconomic data, and i found some interesting pattern on quarter-on-quarter gdp growth, almost every Q4 and Q1 has a negative growth. After checking another country's data, i can't find the same pattern. later i learned that my country data was probably non-seasonally adjusted data, since when i search for non-seasonally adjusted(NSA) GDP for another country, they also show similiar pattern.
My question is :
Why did NSA GDP usually drop on Q4 And Q1, what causes this pattern?
Did this also mean we're usually in recession in Q2 (Since Q4 and Q1 growth are negative)? After the Q2 2020 macroeconomical data released, there are a lot news about our country entering technical recession, even if our Q1 yoy growth was still positive.
Are seasonally adjusted GDP growth are the same as Year-on-year GDP growth?
What data do we use to define recession? Seasonally adjusted one or Non-Seasonally adjusted one?


texts: Can there be sensible choice behavior that violates the Weak Axiom of Revealed Preference?

texts:
Following the notation of Mas-Collel, Whinston, and Green, consider a family of budget sets $\mathcal{B}=\{\{x,y\},\{x,y,z\}\}$. To make the example concrete, let's let

$x$ be a book
$y$ be a left shoe
$z$ be a right shoe

For motivation, let's suppose the individual prefers going for a walk over reading a book. However, to go for a walk, he needs two shoes. If he can only have one shoe, then he would rather choose the book instead.

Thus when faced with Budget set $\{x,y\}$, the consumer chooses the the book: $C(\{x,y\})=\{x\}$. However when faced with all three alternatives, he chooses the shoes: $C(\{x,y,z\})=\{y,z\}$.

As we constructed it, this choice rule $C$ violates the Weak Axiom of Revealed Preference:

  Suppose there exists some budget set $B_1 \in \mathcal{B}$ with $x,y
 \in B_1$ and $x \in C(B_1)$. Then for any $B_2 \in \mathcal{B}$ with
   $x,y \in B_2$ and $y\in C(B_2)$, we must also have $x \in C(B_2)$.

In our case, since $C(\{x,y\})=x$, then WARP would require $x \in C(\{x,y,z\})$ since $y \in C(\{x,y,z\})$. However, it seems we were able to motivate a sensible reason why $C(\{x,y,z\})=\{y,z\}$.

Side note: I have left prices of the goods out of this story. (Hopefully this is acceptable; to be fair, MWG's chapter on choice rules doesn't mention prices either. (I assume we should imagine the price of these goods are all 0, or all the same price -- would that be the right way to look at it?)

This example brings me to the question posed in the title: Can we have sensible choice behavior that violates WARP?


texts: Difference between Luxury/Premium/Value fashion segments? What does "value" mean here?

texts:
I was reading this article on Quartz: https://qz.com/1485141/just-20-fashion-companies-are-making-almost-all-of-the-industrys-profits/

I do not understand the following graph shown:

What does "value" segment mean? Someone please kindly provide the difference and explanation. Thank you.


texts: How to calculate price index for natural gas in India?

texts: Ministry of commerce and industry of India doesn't provide WPI index for Natural Gas. Is there a way to calculate the same?


texts: Solow model: effect on a sudden fall in population?

texts: my question is, what happens in the Solow model when a sudden fall in population happens? let's say a bomb killed many people.


texts: Why do most function images take the form of a curve?

texts:
I always see curves (such as in dark blue below) and not any other type of (function) image. May I get a reason for why it is always like that?

This figure is only for representation.


texts: How to self-study graduate level macroeconomics? Is there even a point?

texts:
As I had hoped to learn enough macroeconomic theory to get some research ideas, my goal at the beginning of this summer was to read through and complete the problems in an introductory advanced macroeconomics text (my first-year PhD macro courses left me more stunned than enlightened). I started with The McCandless's ABCs of RBCs, and quickly found that it was above my ability level when I reached problems I didn't even know how to set up, so now I'm trying Romer's Advanced Macroeconomics. I've gotta say that after having to consult the solutions manual several times through Chapter 2 out of 12, I'm feeling rather discouraged as the solutions involve methods that are not intuitive to me and not discussed in the text.

Is there even any point in someone with my skill level tackling such a task? I can't really see myself being a macroeconomic theorist after this, and it seems that the vast majority of empirical macroeconomic studies use reduced-form linear models backed by hand-waving arguments based on principles or intermediate theory, so I'm starting to doubt the utility of studying advanced theory at all.

I understand this may be an an "illegal" question here on Stack Exchange, so I won't protest if it's closed. But if not, does anyone have any tips for how to proceed?


texts: Cross price elasticity of demand vs Price elasticity of demand

texts: Is the cross price elasticity of demand between two goods always lower in magnitude than the price elasticities of demand of each good?


texts:
My partner and I are both undergrads. trying to complete an extracurricular research project and need to update parameters for our model. Our advisor is out of country and we have minimal/spotty contact with him.

We have constructed our own model and found most information (we are reproducing his work and adding a few new things) on our own but we aren't sure how to calculate. Here are the things we are looking for:

Everything below is for use in a limited participation model:

Beta Value for a discounted utility model - The current paper uses a beta value of .988. I know what this is and why we use it but I am not sure how to calculate this number. My assumption is that this is 1-real interest rate. Can anyone confirm this? I know his numbers are a bit outdated.

Capital depreciation rates - Again, I know what this is but am unsure of how to calculate an accurate value. Current model uses .025.

adjustment cost on capital - This is given as .01. I assume this is the cost associated with adjusting capital stock etc. Again...not sure how this was calculated.

standard deviation of technology shock - This is given as .0081. no idea how to calculate this.

Autocorrelation of technology shock -  given as .95. No idea how to calculate this.

These are the few things we are not sure how to calculate. We've read through his other papers also and found that he cites other work for the values he uses but are unable to find that paper to determine how that author calculated the values.

Does anyone here have any good ideas about how we might calculate these values so we can calibrate this model to the American economy?

Any help, suggestions, hints, tips, literature suggestions etc. are very very very much appreciated.


texts: Do current Central Banks need to target a monetary aggregate as they set interest rates for a target inflation?

texts:
On reading a textbook, the author state that after the 80's, and the serious consequences of thinking that inflation could be controlled by just targeting a monetary aggregate, modern central banks(CB) have shifted their paradigm to a targeting inflation by setting the interest rate.
My question is if the CB sets the interest rate, does he need to target M0? Or does the CB just print money according to money demand?

Any help would be appreciated.


texts: How is it possible that shipping of eBay items from China to US is 'free'?

texts: How is it possible that Chinese vendors are able to ship a small / light $3 part to a doorstep in the US for free?  When shipping items the opposite way via USPS it is often greater than the cost of the part making it cost infeasible to return.   Is shipping somehow subsidized?


texts:
I keep hearing that R-squared does not really matter in economics research and that due to the unpredictable human nature, economics research regressions tend to have low R-squared.

But how much is too low for even economics research?

I am asking this because one of the regressions I ran has an R-squared of around 1%. Is it still okay?

And, in general, what is a low R-squared in economics?


texts: Interacting covariates with the instrument in the first stage

texts:
If I want to run a 2 stage least squares (2SLS) regression with:
Relationship of interest: $Y = \alpha + \beta X + \varepsilon $, where $X$ is the endogenous explanatory variable of interest.
If I have an instrument $Z$ where I can safely assume that it is both relevant and fulfils the exclusion restriction, can I interact it with other variables in the first stage, that do not fulfil the exclusion restriction, as long as I control for these other variables in the second stage?
So I am thinking
Estimating the first stage: $X = \gamma + \delta_1 Z + \delta_2 W_1 + \delta_3 W_2 + \delta_4 Z*W_1 + \delta_5 Z* W_2 + \epsilon$, where the exclusion restriction only holds for $Z$ but not for the $W$s, to get $\hat X$
Second stage: $Y = \omega + \eta_1 \hat X + \eta_2 W_1 + \eta_3 W_2 + e $
So does this procedure allow me to kind of side-step the exclusion restriction? If so, is there any paper / book / article that talks about that?


texts: ratio independent time-invariant variable

texts:
I run the following function:
$$Y_{it} = a_0+a_1*X_{it}+K*a_3+\epsilon_{it}$$

where $X_{it}=M_{it}/N_{it}$ is a generated variable. I got data $Y_{it}$ for the period from 2010 to 2015. Due to data unavailable , I just got data $M_{it}$ and $N_{it}$(two resources) in 2010, $K$ is other control variables.

Actually, I run this
$$Y_{i2010-2015} = a_0+a_1* M_{i2010}/N_{i2010} +K*a_3+\epsilon_{it}$$

Is there any problem to run this model? Can I use coefficient $a_1$ to explain the allocation of resources?


texts: Formal terminology for positive and negative correlation between ability of workers for different jobs?

texts:
Say there are two occupations - A and B, and plenty of workers. Let's pick occupation A, and order workers from lowest to highest ability/productivity. Which is the formal term to describe the situation where the aforementioned order:

leads also to an ordering from lowest to highest in occupation B? Absolute advantage? Positive correlation?
leads to the exact opposite ordering in B, i.e. from highest to lowest? Comparative advantage? Negative correlation?
produces no particular order in B?

I am looking for formal terminology from labor economics, but I can't find it. So far I am using absolute and comparative advantage, but that is not exactly the definition used in international trade theory. References are greatly appreciated.


texts: Many or few variables when testing for Granger causality?

texts:
I am reading Levendis "Time Series Econometrics: Learning Through Replication" (2018) and there are two statements about Granger causality that kinda confuses me. The statements themselves are not confusing, but the implications.

"Granger causality is much harder to establish with more than 2 variables". So I guess few variables are better, and using just two variables are even more better.
"Tests of Granger causality are sensitive to omitted variables. Researchers should include all relevant variables in their analysis". So here, more relevant variables are better, I guess.

Can we add more relevant variables without jeopardizing Granger causality?


texts: How is hyperinflation categorized, and how is it fixed?

texts:
I have a few questions about hyperinflation that I’m really curious about:

I learned there are two types of inflation - demand pull and cost push. I was wondering if hyperinflation fits into the former category since printing too much money leads to increase in the money supply, lowering interest rates and increasing Investment and Consumption, moving the AD curve. So hyperinflation should be demand-pull right?
My textbook states that only with a strong credible fiscal policy can hyperinflation be fixed, but I don’t understand what it means. Does it mean that monetary policy is useless when it comes to hyperinflation? And does it mean that the solution to hyperinflation is “contractionary fiscal policy” or “expansionary fiscal policy?”


texts: Where's data on gross output and intermediate consumption for many countries from 1980-today?

texts:
Datasets on GDP and value added abound, but where do I find datasets on gross output and intermediate consumption for as many countries as possible with observations from 1980 onward?

Annual data for the total economy is fine, and OECD countries are most important.

I'm looking for a ready-made dataset, and want to avoid tedious dataset construction from multiple sources.


texts: Explaining mixed strategies for one-shot games

texts:
In the classic introduction to non-cooperative game theory, the mixed strategy for a player is taught as a distribution over strategy space for the player. The distribution essentially gives us the probabilities (say, discrete strategy set) with which a player should play the strategies in a Nash equilibrium.

However probabilities carry the notion of being frequencies and these essentially mean the long-run fraction of games in which the player should play the strategy. However the setting is a one-shot game and this is a contradiction.

How do we resolve the contradiction when explaining what a mixed strategy is?


texts:
How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium? What premises do they use to come to that conclusion?

For example, they write:

  "This suggests ... that if the government has no more information available to it than private firms ... it cannot make a Pareto improvement. This conclusion, however, is wrong. Taxes on goods or wages ... may change the extent of signaling"

But I don't see a logical (non-mathematical) explanation for their conclusion here. How can taxes change signaling to increase economic welfare?


texts: Statistics for IT jobs distribution over industries in 2021 or recent data before?

texts:
Own work done so far: After some googling, I think I must be doing something wrong. Is there no up-to-date infografic on that..? I can't find even not an article.
Formal Q&A question:

What is the current (estimated) distribution of IT jobs between industries? Latest available data as of January 4th, 2021. Ideally for Europe but global/US is also okay.


texts: Electric Vehicle effects on family and macro-economics?

texts:
What happens economically when cars last 1000,000 miles on cheap local energy?

EV's can save an average family 2000 dollars a year on energy costs, and 2000 per year on automotive investment.

That's equivalent to the national debt per capita figure of the West.

Does that mean the West will pay back its debt?

Will prices and taxes increase to reclaim civilian wealth spared by EV's for debts?

Will the car/lorry industries halve their revenues by producing thrice as durable vehicles?


texts: Do countries with high taxes end up with low government debt but high private debt?

texts:
I'm curious if my observation that some Scandinavian countries (Denmark, Sweden) have high taxes, low government debt, but high private (in particular high household) debt is applicable more generally elsewhere.

I see there's one paper which (using a panel of 33 OECD countries between 1995–2016) notes that

  the ratio of public debt to GDP displays a negative association with private debt

But it does not relate that to taxes (at least in its abstract). Nowadays there are countries, particularly some Eastern European members of EU, which have low government and low private debt, but also low taxes.


texts: Why is underpayment so prevalent? (23% of those who are 25 and are entitled to the UK's National Living Wage are underpaid!)?

texts:
Context: https://www.theguardian.com/uk-news/2018/nov/27/one-in-four-uk-workers-covered-national-living-wage-underpaid-low-pay-commission

Why is it that employers can seemingly get away without paying the full NLW? Surely they would be worried that their workers will observe their pay packets and realise that they are illegally underpaying them?

Lastly, a quote from the article above: "The figures from the Low Pay Commission may also include data errors, as well as cover some workers who receive benefits such as accommodation in lieu of pay." Legally, does the NMW have to be purely in monetary terms or can it take other remunerative forms (accommodation subsidies etc).


texts:
I have balanced panel data for around 130 countries, over three years. I ran a fixed effects regression using 'country' as my panel variable, and adding dummies for 'year'. I want to forecast the value of the dependent variable for the next 20 years, for only one country in particular. Could somebody suggest the best way to do this?

I am using Stata for this purpose.


texts: How do we prevent big companies conspiracy?

texts:
These days we can see a bunch of troubling trends.

Consumer goods are less quality.
Big companies merge.
Patent laws and strict requirements on appearance remove small entrepreneurs from the manufacturing business.

These problems had been subjects of dystopian sci-fi scenarios for many times. Even though it is profitable for a starting bussinessman to buy and sell as the supply and demand dictates, for a few big companies, ruling over the market it is profitable to keep the prices up.

What can lawmakers do about concluding conspiratorial agreements or merging big companies to keep the supply and demand principle?


texts: How to determine the price a monopolist will set when the demand curve the firm faces isn't known?

texts:
I'm reviewing the following question from my microeconomics course notes. I don't understand how to do part (b).

  A firm faces a perfectly elastic demand curve because the product it
  sells has a perfect substitute. The (inverse) demand function is
  $p=2$. Its production function is $f(K,L)=K^{1/4}L^{1/4}$.

  (a) Assuming input prices of $w=r=1$, show that the firm's cost
  function is $C(q)=2q^2$.

  (b) Assuming the firm operates as a monopolist, what price will it
  charge, what quantity will it produce, and what are its profits?

  (c) What is the deadweight loss from monopoly?

  (d) Would the answers to parts (b) and (c) change if the firm could perfectly price discriminate?

Part (a) is easy; I'm stuck on part (b).

If the firm faces a "perfectly elastic demand curve" $p=2$, then the firm isn't in a position to operate as a monopolist, right? A monopolist ought to be able to set a price, not have to accept the market price $p=2$.

If I assume the monopolist sets a price $p$ for quantity supplied $q$, then I can define the profit function

$$\pi(q)=p(q)\cdot q-c(q)=p(q)\cdot q-2q^2$$

Differentiating gives the first-order condition

$$q\cdot p'(q)+p(q)=4q$$

But I can't proceed without knowing the monopolist's demand curve (which, again, I thought couldn't be perfectly inelastic).

If I assume $p(q)=2$, then I can deduce that $q=1/2$. But this can't be right, because then I can't calculate a deadweight loss.


texts: What are some good books, explaining why the society and economy developed like it is through the history?

texts: It has always been fascinating to me why, out of so many other options, the society has developed in this way. So I was searching for resources which explain what chain of events-and why- from beginning of the civilization proceeded what we have today. Unfortunately, what I have found are either very specific or very technical. I hope you could help me.


texts: Why cannot I compare AIC values obtained from nonlinear least squares and the ordinary least squares?

texts:
I have a time series dataset on UK consumption. I can
(1) estimate an exponential trend
(2) take the logarithm of UK consumption, estimate a linear trend for this logarithm, and exponentiate the result
Why cannot I compare AIC values from these two methods?


texts:
Suppose we have a production function $f(z)=2$.

I am asked to determine whether the function exhibits increasing, decreasing, constant or no returns to scale.

For $t>0$, $f(tz)=2$.

I'm not sure about the answer: should I say the function exhibits no returns to scale whatsoever or take different values for $t$ ($0<t<1 \implies$decreasing returns to scale, $t=1 \implies$ constant returns to scale, $t>1 \implies$ increasing returns to scale)?


texts: Treatment of natural disasters and wars in consumption of fixed capital

texts:
Assets destroyed by natural disasters and wars are not included in consumption of fixed capital (CFC) in the US NIPA or the UN SNA.
Suppose though that the US decided to start including such asset destruction in CFC, and revised all past NIPA data to reflect this.
Certainly CFC will be revised upwards. My question is the following. Which of the following is correct?

A: Nominal GDP and nominal gross investment will stay the same, but nominal NDP and nominal net operating surplus will fall by the increase in CFC.
B: Nominal GDP and nominal gross investment will increase by the increase in CFC. Nominal NDP and nominal net operating surplus will stay the same.
C: Some mix of A and B.
D: Something else entirely.

In other words, is the same period investment undertaken to undo the natural disaster's destruction already included in gross investment (option A), or is it counted as intermediate consumption (option B)?
(It does not matter if the investment to undo the destruction does not happen instantly. In the second case, gross investment can end up being negative in the period of the disaster.)
I would have assumed it was obviously option A, but this sentence on the CFC Wikipedia page led me to doubt myself:

Ultimately, the distinction drawn between that portion of business operating expenditure included in CFC beyond depreciation, in contrast to that portion of operating expenditure included in Intermediate consumption may appear rather capricious, rather than theoretically justified.

A reference giving a definite anwer to this question would be particularly appreciated!


texts:
Banks are providing loans.

While granting a loan two scenarios can take place

The Loan is repaid
The Loan is not-repaid

The benefit from a re-payed loan is small profit. (Let's say 5% in general)
The loss from a not re-payed loan is huge loss. (you lost all your investments)

Are there formulas that can calculate the ratio of loss of (based on pseudo-numbers for example) or other theories related to this issue?


texts: Who is working right now? (coronoavirus)

texts:
Is there any research, graphs, or any formal (non-opinion) information on where I can get information on what people are working right now? I want to know, who is still collecting a paycheck.

I am a sales representative that sells knives, and does virtual appointments online (over the phone, video conference, etc.), but I really need to show people that are working. So, I imagine police and hospitals are working right through this coronavirus (COVID-19), but someone who works in the party industry in Las Vegas are probably OUT of work, as their jobs are not essentials, and aid in the spreading of the virus.

So, instead of being "I assume" or "I guess" these people are working, what are the statistics of who is working right now? Where can I find them? When I google "people working right now" or "people working coronavirus", I guess a bunch of unrelated news, saying "the affects of working at home", which is useless.


texts: Mechanism Design and Multidimensional Type Spaces

texts:
Is it possible to design a mechanism of agents with multidimensional types?

In particular, what if the type space has the following form:
$$\Theta_i=\{\theta_i\in\{{1,2,\dots, n}\}\times[0,1]:n\in\mathbb{N}\}.$$

So far, in my search, I haven't found any such example. Most papers either deal with discrete or continuous multidimensional types.

I'd appreciate any help or references. Thank you.


texts: Taking a mechanism as given, what goal functions can we implement?

texts:
Let $\theta_i$ be $i$'s private information about the state of the world, $\theta \in \Theta$, where $\theta = \times_i \theta_i$. Each agent reports $\hat{\theta_i}$ to a social planner, so that $\hat{\theta}$ is the reported state.

Typically, in mechanism design, we take a goal function, $f(\theta): \theta \rightarrow X$, where $X$ is the set of all possible outcomes, as given and look for mechanisms that implement it. By the revelation principle, we know to look for mechanisms under which incentives are such that, $\forall i$, $\hat{\theta_i}=\theta_i$. This usually manifests itself in incentive compatibility constraints.

However, there's a different (but related) question that could be asked. Suppose the social planner will directly make the choices, a vector $\mathbf{c}$, to maximize the social planner's utility function, $U(\theta,\mathbf{c})$, which is common knowledge. Individual agents have utility functions $u_i(\theta,\mathbf{c})$. Suppose also the social planner assumes the agents are truthful, so that $\theta = \hat{\theta}$. Then the social planner will choose $\mathbf{c}$ to solve:
$$ \max_{\mathbf{c}}\:\: U(\hat{\theta},\mathbf{c})  $$
Under what conditions on $U$ and $u_i$ ($\forall i$) will the social planner's assumption that $\theta = \hat{\theta}$ be valid?

Is anybody aware of papers that consider mechanism design from this angle?

A spiel on why this question is worth asking: In some environments, seemingly reasonable goal functions (or correspondences) yield impossibility results (i.e. no mechanism can implement it) or otherwise deeply unsatisfying results (e.g. the only mechanisms that can implement it are dictatorial). The classical example is, of course, Arrow's Impossibility Theorem. But if a client tells us her goal function, it's not all that helpful to simply respond to her: "Sorry, it can't be implemented." Rather, you might want to suggest what goal functions could be implemented. In the particular question above, I'm essentially taking a simple mechanism as given (the mechanism is simply that agents make their reports and the client/planner maximizes her objective taking those reports as true), and then asking for what objective functions, $U(\theta,\mathbf{c})$, that truthful reporting assumption can be valid. Note also that the $U(\theta,\mathbf{c})$ implicitly defines a goal function:
$$ x \in f(\theta) \iff x \in \arg \max_\mathbf{c} \:U(\theta,\mathbf{c}).$$


texts: Optimal Price and Quantity of Externality

texts:
I am trying to solve the following question:
Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility function and attaches a utility of $\phi(h) = -2h^2$ to the externality. The firm's profit function is $\pi(h)=120-2(h-10)^2 $. Suppose the consumer has the property right concerning $h$ and can sell the right to produce a quantity $h$ at some price $P$. The consumer's utility function from some combination $(h,P)$ is $u(h,P)= \phi(h) + P$. The firm's profit function is $\Pi(h,P)=\pi(h)-P$.

Suppose the firm can make the consumer a take-it-or-leave-it offer for an externality level $h$ at price $P$. If the consumer rejects the firm's offer the firm does not produce so the consumer's utility is 0. Compute the firm's optimal offer $(h_p^f,P^f)$ to the consumer.
Suppose the consumer can make the firm a take-it-or-leave-it offer for an externality level $h$ at price $P$. If the firm rejects the offer it cannot produce so the firm's profit is 0. Compute the consumer's optimal offer $(h_p^c,P^c)$ to the firm.

Edit: Approach using the hint from Herr K.

The consumer can reject the offer giving him a guaranteed utility of 0. Maximize the firm's profit subject to this constraint, $u(h,P)= \phi(h) + P = 0$. Solve this using Lagrangian method.
$$ Lagrangian = objective function + constraint  $$
$$\mathcal{L}(h,P,\lambda) = \Pi(h,P) + \lambda(\phi(h)+P)$$
$$\mathcal{L}(h,P,\lambda) = \pi(h) - P + \lambda(-2h^2+P)$$
$$\mathcal{L}(h,P,\lambda) = 120-2(h-10)^2 - P + \lambda(-2h^2+P)$$
$$\frac{\partial\mathcal{L}}{\partial h} = -4(h-10)-4h\lambda = 0 \rightarrow \lambda = \frac{-4h+40}{4h}$$
$$\frac{\partial\mathcal{L}}{\partial P} = -1 + \lambda = 0 \rightarrow \lambda = 1$$
$$\frac{\partial\mathcal{L}}{\partial \lambda} = -2h^2+P = 0$$

When we set both $\lambda$ equal to each other we get $1=\frac{-4h+40}{4h} \rightarrow h=5$. Plugging this into $\frac{\partial\mathcal{L}}{\partial \lambda}$ we get $-2(5)^2+P=0 \rightarrow 50=P$
Thus $h_p^f = 5$ and $P^f= 50$

We do the same thing but this time the objective function is the consumer's utility function $u(h,P)= \phi(h) + P$ and the constraint is the firm's profit function $\Pi(h,P)=\pi(h)-P$ = 0.

$$ Lagrangian = objective function + constraint  $$
$$\mathcal{L}(h,P,\lambda) = \phi(h)+P + \lambda(\Pi(h,P))$$
$$\mathcal{L}(h,P,\lambda) = -2h^2+P + \lambda(\pi(h) - P)$$
$$\mathcal{L}(h,P,\lambda) = -2h^2+P + \lambda(120-2(h-10)^2 - P)$$
$$\frac{\partial\mathcal{L}}{\partial h} = -4h -4\lambda(h-10) = 0 \rightarrow \lambda = -\frac{h}{h-10}$$
$$\frac{\partial\mathcal{L}}{\partial P} = 1 -\lambda = 0 \rightarrow \lambda = 1$$
$$\frac{\partial\mathcal{L}}{\partial \lambda} = 120-2(h-10)^2 - P = 0$$
When we set both $\lambda$ equal to each other we get $1=\frac{h}{h-10} \rightarrow 2h=5$. Plugging this into $\frac{\partial\mathcal{L}}{\partial \lambda}$ we get $120-2((5)-10)^2 - P=0 \rightarrow 70=P$
Thus $h_p^c = 5$ and $P^c= 70$


texts: Evaluation around steady state for a specific DSGE Model

texts:
The following equations are taken from Ravenna, walsh: "Optimal Monetary Policy with Unemployment and Sticky Prices" (2011).

(i)$$\frac{Z_{t}}{\mu_{t}} = w_t + \frac{\kappa}{q_{t}} - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{\kappa}{q_{t+1}}) $$

(ii) $$ w_{t} = w^u + (\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}}) $$

$ \phi $...  wage replacement rate

$b_t$... surplus bargaining share of a worker

$Z_t$... exogenous productivity shock ($\bar{Z}=1$)

$\mu_t$... retail price mark up

$\kappa$... post of posting a vacancy

$\rho$... Share of matches $N_{t-1}$ that loses its jobs in t

$q_t$... probability that a firm will fill its vacancy

$\lambda_t$... marginal utility of consumption

$\frac{1}{R_t} \equiv \beta(\frac{\lambda_{t+1}}{\lambda_t})$

$p_{t+1} \equiv \frac{m_t}{u_t}$... job finding probability with $m_t$ matches and $u_t$ unemployed ones

$\beta$... discount factor

$w^u = \phi w $

Given the last identity, (i) and (ii) could be used to jointly solve  for $\kappa$ and $w$. At least this is suggested in the paper by the atuhors.

(ii) $w_t = \phi w_t + (\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}})$

<=> $w_t = \frac{(\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E-t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}})}{1-\phi}$

Put into (i) to eliminate $w_t$

$\frac{Z_{t}}{\mu_{t}} = \frac{(\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}})}{1-\phi} +\frac{\kappa}{q_{t}} - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{\kappa}{q_{t+1}}) $

<=> $\frac{Z_{t}}{\mu_{t}}(1-\phi) = (\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}}) +\frac{\kappa}{q_{t}}(1-\phi) - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{\kappa}{q_{t+1}})(1-\phi) $

Rearrange and solve for $\kappa$:

$\frac{Z_{t} (1-\phi)}{\mu_{t} ((\frac{b_t}{1-b_t})(\frac{1}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{1}{q_{t+1}}) +\frac{1}{q_{t}}(1-\phi) - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{1}{q_{t+1}})(1-\phi)} = \kappa $

<=> $\kappa = \frac{Z_{t} (1-\phi)}{\mu_{t} \big(\big(\frac{1}{q_t}\big)\big[(\frac{b_t}{1-b_t})+(1-\phi)\big] - (1-\rho)\big(\frac{1}{q_{t+1}}\big)E_t\big(\frac{1}{R_t}\big)\Big[(1-p_{t+1})\big(\frac{b_{t+1}}{1-b_{t+1}}\big)+(1-\phi)\big]\big)}$

Evaluating this formula arount the steady state yields

$\bar{\kappa} = \frac{(1-\phi)}{\bar{\mu} \big(\big(\frac{1}{\bar{Q}}\big)\big[(\frac{b}{1-b})+(1-\phi)\big] - (1-\rho)\big(\frac{1}{\bar  {Q}}\big)\beta\Big[(1-\frac{\bar{M}}{\bar{U}})\big(\frac{b}{1-b}\big)+(1-\phi)\big]\big)}$

Since all this parameters and steady state values are well defined I am able to calculate the steady state value of $\kappa$ and hence the one of $w_t$ as well.

I wanted to simulate the related model in dynare. Having a look at the dynare code provided by the authors, I noticed that they made use of a totally diferent approach to calculate the steady state value of $\kappa$:

$AAk = \left[{\begin{array}{cc} 1-\phi(1-b) & -\phi b(1-\rho)\beta \bar{\theta}\\ 1-b & (1-\beta(1-\rho))(\frac{1}{\bar{Q}})+ b\beta(1-\rho)\bar{\theta}  \end{array} } \right]$

$BBk = \left[ {\begin{array}{cc} \frac{\phi b}{\bar{\mu}} \\ \frac{(1-b)}{\bar{\mu}} \end{array} } \right] $

$CCk = AAk^{-1}BBk$

$\bar{\kappa}=CCk(2)$

Where

$\theta_t=\frac{v_t}{u_t}$ measures the labor market tightness (relation of vacancies and job seekers)

I would like to know whether my derivation of the steady state value for $\kappa$ does make sense and how the authors of the paper derive it?
I have read the appendix to the paper aswell as the dynare code, but to be hones I do not have an idea of how they calculate $\kappa$.

The results of my calculation and the one of Ravenna and Walsh differ significantly.


texts: Is it viable to put a cap on personal wealth in the U.S.?

texts:
Setting a cap on personal wealth is a proposal that has been championed by several progressive politicians in the U.S. (Sanders, Ocasio-Cortez, etc.). From what I understand, they argue that by setting a hard limit on wealth, the government will be able to redistribute the excess to better support people below the poverty line.
From my research on this issue, I came across literature here and here which talk about estimating affluence lines by looking at income distribution. These measurements could then help decide how much wealth would be "transferred from the richest to the poorest with a view to ensure that the latter are able to meet their basic needs and participate in society".
My question then is, from an economic standpoint, would this be a viable solution?
I would appreciate if answers to the question could be supported by reputable sources or provide links  to further reading on this topic. I have no background in economics, but would like to be better informed on an issue that has entered political discourse.


texts: Does each stock exchange only trade in one currency?

texts: And if not, how are currency exchange rates accounted for?


texts: what in real terms causes one nations currency to be more valuable than another?

texts:
I would like to understand in atomic terms what makes the value of one nation's currency change with regard to another.  Read that, without citing complex terminology but in basic terms.

Obviously, if one nation does QE then it would follow that the value of that currency is devalued by the ratio of "easing" to the existing supply.

But in all other cases, suppose you have nation A and nation B and their currencies are initially 1-to-1.  What would make nation A's currency be worth more than nation B's currency, and what is the rationale behind it?

So for example, nation A becomes more efficient in manufacturing than nation B; but how would that make the currency of nation A worth more?  Efficiency is the only answer that comes to mind, so I appreciate further elaboration and hope this question has educational value.


texts: Does risk aversion cause diminishing marginal utility, or vice versa?

texts:
Let $A$ be the set of possible states of the world, or possible preferences a person could have. Let $G(A)$ be the set of "gambles" or "lotteries", i.e. the set of probability distributions over $A$. Then each person would have a preferred ordering of the states in $A$, as well as a preferred ordering of the lotteries in $G(A)$. The von Neumann-Morgenstern theorem states that, assuming your preference ordering over $G(A)$ obeys certain rationality axioms, your preferences can be represented by a utility function $u: A → ℝ$. (This function is unique up to multiplication of scalars and addition of constants.) That means that for any two lotteries $L_1$ and $L_2$ in $G(A)$, you prefer $L_1$ to $L_2$ if and only if the expected value of $u$ under $L_1$ is greater than the expected value of $u$ under $L_2$. In other words, you maximize the expected value of the utility function.

Now just because you maximize the expected value of your utility function does not mean that you maximize the expected value of actual things like money. After all, people are often risk averse; they say "a bird in the hand is worth two in the bush". Risk aversion means that you value a gamble less than expected value of the money you'll gain. If we express this notion in terms of the von Neumann-Morgenstern utility function, we get the following result through Jensen's inequality: a person is risk averse if and only if their utility function is a concave function of your money, i.e. the extent to which you're risk averse is the same as the extent to which you have a diminishing marginal utility of money. (See page 13 of this PDF.)

My question is, which direction does the causation run? Do the values of the von Neumann-Morgenstern utility function reflect the intensity of your preferences, and is risk aversion due to discounting the preferences of future selves who are well-off compared to the preferences of future versions of yourself who are poorer and thus value money more (as Brad Delong suggests here)? Or does the causation run the other way: does your tolerance for risk determine the shape of your utility function, so that the von Neumann-Morgenstern utility function tells you nothing about the relative intensity of your preferences?


texts: Why is the consumption line and 45degree line's intersection not the equilibrium income level?

texts:
The question is as below

The answer is A. I understand why it is A, but do not understand why it isn't C. Doesn't the point where the consumption line and 45 degrees line intersect represents the equilibrium income level?


texts:
This is definition of Radner Equilibrium from Microeconomic Theory (Mas-Collel, Whinston and Green - Third Edition).

I'm confused about two conditions:

$\sum_k q_k \cdot z_{ki} \le 0$ (in yellow)

The autors state that this is budget restriction. I wonder how the sum of transactions times the price could be different from zero: if Adam sells a stock for 10 dollars to Ben, the investment positions for Adam and Ben will be, respectively, -10 and 10, summing to $-10+10=0$

$\sum_i z^*_{ki} \le 0$ (in purple)

This is proposed as a feasibility condition. Why?


texts: If South America were to unite as one country would they become an economic superpower?

texts:
Often borders can hold back different parts of the world and if they consolidated together they could succeed so much more. What would be the pros and cons If South America were to break down their borders and develop together as one country?

Would this make Soth America a superpower and a leading country in GDP?


texts:
Consider a household which solves the following problem:
$$v(k,r,w)=\underset{c,l\in B{(k,r,ω)}}{\ {max}} \{u(c,l)\}$$
where $u : R_+^2 \rightarrow R$ is a strictly concave, twice continuously differentiable, strictly increasing function in its two arguments: consumption, $c$, and leisure, $l$. The constraints the household must obey in selecting $c, l$ are summarized by $B$:
$$B(k, r, w) = {\{c, l : 0 ≤ c ≤ rk + w(1 − l), 0 ≤ l ≤ 1\}}$$
Here, $k, r, w > 0$ are numbers over which the household has no control.
Prove that $v$ is concave in $k$ and that the derivative of $v$ with respect
to $k$ exists for ‘interior $k$’. Display a formula for the derivative of $v$.
What I was thinking for solving this is by following Benveniste & Scheinkman theorem on differentiability $ω : D → R$ defined on the neighborhood $D$ of $x_0$, i.e.
$D ⊂ X$ and $x_0 ∈ int(D)$ such that: $ω(x) ≤ v(x)$ and $ω(x_0) = v(x_0)$.
And $ω(.)$ is concave and differentiable, then $v(.)$ is differentiable at $x_0$ and $v'(x_0) =ω'(x_0)$.
I'm guessing we have to substitute c with $rk + w(1 − l)$ in the utility function, but I'm confused a bit with leisure. Because after that, I think we should just get the envelope theorem or not?


texts:
General equilibrium framework; two individuals, two goods represented in an Edgeworth box.

Is it true that if the preference are both strongly monotonic the Pareto set will go from the origin of an individual's axis to the one of the other's axis? By origin, I mean the points of the box where an individual has everything and the other nothing. The reason would be that the allocation of all goods to one of the single individuals is Pareto optimal.


texts: Difference between Maximum Output and Potential Output

texts: In macroeconomics, what is the difference between potential output and maximum output? Or they are simply equivalent concepts? If they are different, how can we graph it in comparison to LRAS on AD-AS model?


texts: Solving Euler Equation for standard DSGE Models

texts:
I am studying a rather standard DSGE Model with a standard Utility function $U = f(c_t, n_t, M_t)$ subject to a budget constraint. Now, tosolve the intertemporal optimization problem I have, or everyone has, to deal with an expectation term; often similar to $E_t \left[\lambda_{t+1}\right]$, where $\lambda_t$ is the standard Lagrangian multiplier. Is there an anlytical trick to solve this? It seems to me the that usually the Expectation is just erased (without a justification) or studied using MLE estimators or Kalman Filters and surrogates.
Thanks to whoever can enlighten me on the issue.
Cheers

Edit 1:
$\max_{c_t, n_t, i_t, M_t, K_t, B_t}{\mathbb{E}_t}\left[ \sum_{t=0}^{\infty} \beta^t \left( \log{(c_t^i)} - \gamma_i(n_t^i)^{2}+ \log \left(\frac{B_t}{P_t} \right) \right) \right]$
under the constraint:
$\frac{M_t}{P_t}+ c_t + i_t +  \frac{B_t}{P_t(1+r_t)} \leq u_t n_t + \frac{Q_t}{P_t}K_t + \frac{B_{t-1}}{(1+\pi_t)P_{t-1}} +\frac{M_{t-1}}{(1+\pi_t)P_{t-1}}$
The issue is wrt to a term which comes up in both the maximisation wrt to Bonds and Money: $\beta {\mathbb{E}}_{t}\left[\frac{\lambda_{t+1}}{(1+\pi_{t+1})}\right]$ - how could I solve it? (with theother terms it would lead $ c_{t}^{-1}=\beta {\mathbb{E}}_{t}\left[\frac{c_{t+1}^{-1}}{(1+\pi_{t+1})}\right]$


texts: Interpretation of Nash equilibrium as a potential stable point of a dynamic process

texts:
I'm reading an article called "The Nash equilibrium: A perspective" by Holt and Roth, and the below paragraph caught my attention.

When the goal is prediction rather than prescription, a Nash
equilibrium can also be interpreted as a potential stable point of a
dynamic adjustment process in which individuals adjust their behavior
to that of the other players in the game, searching for strategy
choices that will give them better results.

Is this paragraph referring to repeated games, or can this view of the Nash equilibrium be thought to apply to single-shot games as well? It mentions "game" (i.e. singular). However, I don't see how you can adjust strategies in a single game. On the other hand, if it is saying that a single-shot game is equivalent to a hypothetical series of steps that are taken, then that would be a very interesting take on what constitutes a "game", and one which I would love to know more about.


texts: What does Yanis Varoufakis mean by "surplus recycling mechanism"?

texts:
Yanis Varoufakis, the current finance minister of Greece, talks about a "surplus recycling mechanism", a term he coined and uses to describe (as I understand it) a relief valve for economies running a surplus.

While I haven't read his book, I watched some of his talks and read his blog posts. I couldn't quite figure out what he means by this. Could someone please explain what he means by "SRM", and why he considers it important, crucial even, to prevent major recessions?

Here's what I've figured out so far. The surplus being talked about is the trade surplus. That is, countries which export more goods than they import run a surplus, and get a net influx of cash (or, in the past, gold). This cash can either be hoarded, or reinvested. Internal expenditure is ignored as irrelevant, as only the interactions between countries are being looked at. If hoarded beyond a certain breaking point, bad things happen. A surplus recycling mechanism compels a country to reinvest the cash overseas.

Or so it seems. Is my understanding of what "SRM" means correct? Also, if so, according to Varoufakis (or Keynes, who apparently had the exact same realisation around WW2 time), how exactly does hoarding without bound cause bad things / recession?

It would also help to know whether Varoufakis' ideas / interpretations are widely accepted by mainstream economists, currently being debated, or are a fringe/minority view.


texts: How is the GDP growing when nothing else seems to be?

texts:
We've had strong GDP growth all three quarters this year. To me, that would indicate that, in at least some areas, we should be seeing growth. However, from my extremely ignorant armchair, it doesn't look like that's happening.

Wage growth has held steady, the DOW, S&P 500, and NASDAQ are all roughly even year-to-date, and the deficit has grown 17%. Even the trade deficit is growing. This confuses me. Though not perfectly correlated, I thought the GDP would at least be a strong indicator of these other financial components (or the other way around).

To grossly (pun unintended) oversimplify my point: it sounds to me like the value of America has gone up, but there's somehow less money in America.

Am I missing something? How can the GDP be consistently growing at a rapid rate when nothing else seems to be?


texts: Is it likely as automation continues to make more jobs obselete, starvation and poverty levels will rise very badly?

texts:
I wanted to know facts, thoughts and such since this article (which was big news that trended this week) popped up: http://www.nbcnews.com/tech/tech-news/robot-may-take-your-job-next-few-years-n499556

I know "History always made NEW jobs when technology advanced...I feel like it's getting so advanced the new jobs, even repairing robots, will be done by robots and that is what is different this time.  When the tractor came along there were no robots just humans to fix it.. I am a writer/journalist. However, these days a pencil and paper aren't enough. To survive we must adapt so I am learning online video and podcasts as well. No need for humans to work=no jobs for humans=no way for most humans to earn money= no way for the humans to feed themselves or their families or even provide warmth. Essentials for just living and not dying in poverty.

I have started learning programming again through Codeacademy and research on Google, plus old books I had from a few years ago. Working on HTML, CSS, JavaScript (taught together) and some Java too. I know having a good understanding and practice of these languages will help me and others adapting to the future, but needless to say some people have it harder than others because of health issues or where they were born into.  Been reading Investopedia.com as well to learn more. The job at a factory assembling or even as a truck driver is all some people have and use to make very good livings from it. With technology advancing in things like robots, computer software and even 3D printers, how exactly will the economy NOT collapse if we keep losing jobs...while still growing in population?

Will it be likely we see increases of starvation, homelessness or communism?


texts: Successes and limitations of New Keynesian DSGE models?

texts: What are some good review papers that discuss the successes and limitations of current state of the art (New Keynesian) DSGE models assuming rational expectations? Probably some of these reviews can be found in the boundedly rational expectations (RE) literature. Especially a comparison to some (S)VAR results and some well established patterns in the macrolevel data would be nice. The limitations of RE as such are well known, but to me it's unknown what the difficulties are with models assuming RE in explaining the data.


texts: Forecasting quarterly EUR/USD exchange rate

texts:
My aim is to forecast the one-quarter ahead EUR/USD exchange rate. I have constructed a regression model with the following as explanatory variables: exchange rate in the previous quarter, EUR/USD futures price, American and European GDP growth rate, inflation rate, return on stocks, interest rate on 3-month govt. securities, current account balance, net financial account balance and dummies for the inversion of EU and US yield curve. All the explanatory variables are at one-quarter lag. The input data file could be found here.

I am getting spurious results - all these variables are coming out to be insignificant but surprisingly the R^2 is more than 90%.

Is OLS not a good technique for forecasting exchange rates? If not, then which other techniques could be used?


texts: Mechanism Design: Proving that the expected utility is differentiable

texts:
Given a direct mechanism, we define a buyer's expected utility $u(\theta)$ conditional on her type being $\theta$ by $u(\theta)=\theta q(\theta)-t(\theta)$, where $q:[\underline{\theta},\bar{\theta}]\to[0,1]$ and $t:[\underline{\theta},\bar{\theta}]\to\mathbb{R}$.

We also define that a direct mechanism is incentive-compatible if truth-telling is optimal for every $\theta\in[\underline{\theta},\bar{\theta}]$, i.e., $$u(\theta)\geq \theta q(\theta')-t(\theta'),\quad\forall\theta,\theta'\in[\underline{\theta},\bar{\theta}].$$

LEMMA: For an incentive-compatible direct mechanism, we want to show that for all $\theta$ that $u$ is differentiable, we have $u'(\theta)=q(\theta)$.

PROOF: Consider any $\theta$ for which $u$ is differentiable. Let $\delta>0$. Then by incentive compatibility, we have the following:

I don't understand how from incentive compatibility it follows the first and second inequality 2.6 and 2.8. How can we use the same $\theta$ in the proof while the definition clearly states $u(\theta)\geq \theta q(\theta')-t(\theta'),\forall\theta,\theta'$?


texts: Substitution effect on investment due to tax credit

texts: Suppose we are in an economy with only two kinds of investment, business investment and residential investment. Suppose also that government gives tax-credit on business investment. Will there be a substitution effect like the one happens in microeconomics where the demand curve for residential investment is shifted downwards and the demand curve for business investment is shifted upwards? I mean, a textbook would say there will be an upward shift for business investment demand curve and no changing in residential investment curve. Any comments will help!


texts: How do you achieve quantative tightening?

texts:
In order to achieve quantative tightening the US Government is letting debt expire and not renewing it.

What does this actually mean in practice?

Presumably once money is made it is essentially impossible to remove it completely from supply?


texts: How to find the discount rate at which two deals are equally attractive?

texts:
Dealer A will sell me a car for \$20,000 with \$2,000 down and the remaining $18,000 paid back over 36 months at a rate of 8% compounded monthly.

Dealer B will sell me the same car for \$19,500 with \$4,000 down and the remaining $15,500 paid back over 36 months at a rate of 10% compounded monthly.

(I assume these interest rates are APRs, since having them be monthly rates results in you paying more in interest than the price of the car.)

I'm asked to find the discount rate at which these deals are equally attractive. I assume this means the rate at which if I were to forgo buying a car and deposit amounts equal to the payments instead, I would end up having the same present value for both deals.

But when I try to calculate this I run into problems. I calculated the monthly payments for both deals, but then when I try to equate their present values and solve for the discount rate, I get that there is no positive discount rate for which these two deals are equally attractive. I've checked my math over and over and I'm sure it's correct so I must be thinking about the problem incorrectly. Anyone have any ideas?


texts:
At this ZH link (paranoid blogger warning), the free documentary mentions that using an old measure of inflation, which was used during Paul Volcker's years at the Fed, inflation has been much higher than reported.  In fact, their chart, in some cases appears to be double what's reported.  The documentary implies that this measure of inflation actually included assets bubbles, like housing, which helped Volcker and company prevent too much market enthusiasm.  I also found this CNBC link, which shows the same.

Is this measure still tracked?  I've been Googling to find it and haven't had much luck (and Shadow Stats doesn't appear to be this calculation, but I might be wrong?), but I had no idea the measurements were changed and I'd be very interested in comparing the two.  Thanks!


texts:
I am having trouble understanding the meaning of the real value of an economic quantity.

The concept is easy to grasp: take a year as a base and adjust for inflation by pricing a commodity with the prices from the base-year.

As I understand it, the real value of, let's say, an orange is, or should be, close to its intrinsic value. It measures the how we value an orange by its potential. This intrinsic value is dimensionless (?).

My difficulty is to reconcile the fact that humans do not think in real terms: we observe and value everything via its nominal value.

In the hypothetical case of comparing two objects that have the same use (let's say, oranges from X country and orange from Y), we always use its nominal value to determine what to buy.

What could be an example that could convince me that the real value is a useful metric to analyze economic data?

What is the philosophical reason to use real vs nominal value?


texts: What is the purpose of the local non-satiation assumption in the first welfare theorem?

texts:
The profit maximization assumption implies
$$\text{if } x_i \succ x_i^* \text{ then } p_ix_i > p_i w_i$$

Okay so this just says if the agent is utility maximizing / rational, then if he doesn't choose a bundle strictly preferable to his bundle then it must not be affordable.

Why is the local non-satiation assumption needed to then say

$$\text{if } x_i \succeq x_i^* \text{ then } p_ix_i \geq p_i w_i$$

Why isn't this just automatic from the profit maximization assumption? If we know $x_i \succ x_i^* \implies p_ix_i > p_i w_i$, isn't it obvious that $x_i = x_i^*  \implies p_ix_i =  p_i w_i$ and so $$\text{if } x_i \succeq x_i^* \text{ then } p_ix_i \geq p_i w_i$$


texts:
From what I understand in an economic downturn the wages are "sticky".
This results in increased unemployment.
To combat this the central bank according to monetarism lowers the interest rates and "prints money" (QE).
But how about the return on investment, is that not also "sticky"?
As an example say that I see that I get 0% interest rate on my savings in the bank. I get upset. "Last year I got 3%" I may think.
So I move my money into the stock market in the form of index funds.
Saving in the bank is safe. I was guaranteed my money back + interest rates.
Having my money in the stock market is less safe. The stock market may crash.
So due to the "sticky" nature of return on investment I have increased my risk to maintain a certain percentwise return.
Say millions of people do the same. Since the index funds are market cap weighted
they have to buy the most stocks of the companies with the largest market cap: Apple, Microsoft, Facebook etc.
So the price of the most valuable stocks go up even further.
As a result of this the pricing of these stocks in particular but also the stock market as a whole may increase to unsustainable levels and we could have a bubble?


texts: Why does LRAC not connect the minima of SRAC curves?

texts:
Can anyone please provide an intuitive explanation and proper mathematical reason for non-intersection of SRAC and LRAC at the minimas of SRAC?
I am seeing conflicting [1] [2] answers on the site regarding this. My textbook (Chapter 10, page 355) too does not do a great job in explaining the graph:


texts: How are workers harmed, from firms' payroll tax revenue aimed at reducing workers' tax?

texts:
Source: p 130, Question 6.5, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw
= (page unknown), Question 6.5, Principles of Microeconomics, 4 Ed, 2008, by N Gregory Mankiw

  p 125, Case Study: a payroll tax [...] is a tax on the wages that firms pay their
  workers. ... When a payroll tax is enacted, the wage received by workers falls, and the
  wage paid by firms rises.

  $5.$ A senator wants to raise tax revenue and make workers
  better off. A staff member proposes raising the
  payroll tax paid by firms and using part of the extra
  revenue to reduce the payroll tax paid by workers.
  Would this accomplish the senator’s goal? Explain.

  Given Answer: Reducing the payroll tax paid by firms and using part of the extra revenue to reduce the payroll
  tax paid by workers would not make workers better off, because the division of the burden of a
  tax depends on the elasticity of supply and demand and not on who must pay the tax. Because
  the tax wedge would be larger, it is likely that both firms and workers, who share the burden of
  any tax, would be worse off.

I reddened the transfer of tax revenue from firms, and yellowed workers' lost wages. Why are workers worsened, by the transfer of tax revenue from firms (the red as above) intended to repay workers' lost wages (yellow)? The workers receive extra money, right? Please advise if I erred, but I think Question 5 can be graphed as above (I modified Figure 8, p 126).


texts: How are ties broken in a second price sealed bid auction?

texts: Say there are two people who evaluate an object at 5 dollars and a third who evaluates it at 4 dollars playing a second price sealed bid auction. The first two bid 5 dollars and the third bids 4 dollars. How is the tie broken and how much do they pay?


texts:
Does a monotonic transformation of a homothetic utility function imply the preference relation on the set of consumption bundles is still homothetic?

Obviously, if a utility function on a set of  consumption bundles is homothetic, then the preference relation is homothetic.


texts: The effect of Monetary Policy on Asset Price Inflation

texts:
My macroeconomics professor told the following:
A decrease in interest rate causes that consumers rather spend their money on investments (stocks, houses) than put the money on the bank, and the increase in demand for stocks and houses causes asset price inflation in return.

However, if I try to search for a scholarly source saying the same thing, I cannot find anything. Is the above reasoning a solid one?

Thank you very much in advance!


texts: Demand derived from Cobb-Douglas utility, interpretation, check

texts:
I derived demand, given a Cobb-Douglas utility function but I am not really sure if I did it correctly. I am especially struggling with the sum signs and the subscripts of $i$ & $j$. It would be really great if someone could check. I want to maximize utility for 2 goods, here $j$ and $i$.

$\ u(x_i)=\prod_{i=1}^n x^a_i       $

$\ s.t.:M=\sum_{j=1}^n p_jx_j      $

$\ L= \sum_{i=1}^n a_ilogx_i+\lambda(M-\sum_{j=1}^np_jx_j) $

$ (1)\frac{\partial L}{\partial x_i} = \frac{a_i}{ x_i}-\lambda p_i=0$

$ (2)\frac{\partial L}{\partial x_j} = \frac{a_j}{ x_j}-\lambda p_j=0$

$ (3)\frac{\partial L}{\partial \lambda} = M-\sum_{j=1}^np_jx_j=0$

from (1) and (2) it follows:

$ \frac{p_i}{x_i} = \frac{a_i/x_i}{a_j/x_j}=\frac{a_ix_j}{a_jx_i}$

$ x_j = \frac{p_ja_jx_i}{p_ja_j}$

$ x_j$ into (3)

$ M = \sum_{j=1}^np_j(\frac{p_ja_jx_i}{p_j/a_j})=0$

$ x_i=  \frac{a_iM}{\sum_{j=1}^na_jp_j}$

Furthermore I would like to interpret what happens if we have an efficency shock for good $i$. Meaning, good $i$ becomes cheaper. This leads to an increase in relative income. So $M$ increases which leads to an increased demand for good $x_i$, rest hold constant. Is that correct?


texts: EmpirIcal evidence on effects of price floors and ceilings

texts:
In introductory microeconomics, when studying partial equilibrium, we are introduced to the idea that a price floor will cause excess supply and a price ceiling will cause excess demand.
How strong is the empirical evidence for these results?
I recently read this article: https://www.urban.org/urban-wire/strengths-and-weaknesses-new-study-seattles-minimum-wage-increases that discusses a paper that found that raising the minimum wage does cause labour sold to fall. It also focuses on the limitations of the paper's methodology while also remarking that the quality of the data used is extraordinarily high. It also comments that most of previous research find little evidence for a negative impact on labour sold.
What is the overall empirical consensus/ leaning in the empirical literature regarding price floors and ceilings? Are they found to be as inefficient as described in introductory textbooks? If not, do more advanced theoretical models take that into account?


texts: Field experiments on labour market discrimination: do sizes of randomly assigned groups matter?

texts:
In traditional field experiments on racial discrimination, two identical resumes differing only by name or ID photo are sent to randomly selected firms. A statistical test is then run on the number of interview offers received by each resume to determine if any difference in the number of interview offers received between the resumes holds true in the population.
I am curious whether, if in the event that each resume is sent to a different number of companies (e.g. one is sent to 300 firms and the other 310), results that show a statistically significant difference in the number of interview offers received on one resume compared to the other will be invalidated. My intuition is that there may be a tendency for bias to be introduced as the resume that is assigned to a greater number of firms has a higher chance of being selected. Would appreciate comments on whether this is accurate.


texts: How much is an asset worth that produces a constant income?

texts:
Say you have an asset that produces for you £1k per year profit (adjusted for inflation) at a constant rate? (The proverbial immortal goose that lays golden eggs).

Logic would say it's potential is infinite.

But for an individual of age 30 it is only worth up to £50k in their lifetime. And they may care less about what happens to it after they die.

But to a company who buys it, companies can live essentially forever.


texts:
Akerlof's 1970 paper models the utility of two trading groups as

$$
U_1 = M + \sum_{i=1}^n x_i \\
U_2 = M + \sum_{i=1}^n \frac{3}{2} x_i
$$
where $M$ is the consumption of good other than cars, $x_i$ is the quality of the $i$th car, and $n$ is the number of cars.

The quality of the cars held by group one have a uniformly distributed quality $0 \leq x \leq 2$ and the price of goods other than the cars is unitary.

Income for the two groups is denoted $Y_1$ and $Y_2$.

The paper goes on to give the demand for cars for type one traders:
$$
D_1 = Y_1/p \quad \quad  \mu/p > 1 \\
D_1 = 0 \quad \quad  \mu/p < 1
$$
The supply of cars from type one is
$$
S_1 = pN/2 \quad \quad p \leq 2
$$
and their quality is $\mu = p/2$.  The paper states that to drive the expressions for supply and quality, the uniform distribution of car quality is used.  How is this done exactly?


texts: Confidence Intervals for Elasticity in Simple Linear Regression

texts: I'm pretty sure this is a very simple question that I am missing something obvious. I have a simple linear regression with multiple independent variables. I want to calculate the elasticity (no problem - $\frac{\partial y}{\partial x} \cdot \frac{x}{y}$), but also report the confidence interval for the elasticity. I know it's straightforward to compute the confidence interval for $\beta$ ($\hat{\beta} \pm t^{*}_{\alpha} \cdot \sigma_{\beta}$ ). But for the confidence interval for the elasticity, would it be the same range? Or do I need to account for the transformation ($\beta * x/y$)?


texts: Calculus and Indifference Curves in an Urban Economics Example

texts:
I am reading the paper 'The Structure of Urban Equilibria' by Jan Brueckner.

It uses a monocentric city model, where all consumers earn income $y$ at the centre of the city. They buy $q$ housing for a price $p$ at distance $x$ from the centre, incurring transport costs $tx$.

Consumers have a utility function:

$v(c,q)=v(y - tx - p(\phi)q(\phi),q(\phi))=u$

where $\phi=x,y,t,u$

The budget constraint is:

$c = y - tx - pq$

The tangency condition implies:

$\frac{v_1(y - tx - pq, q)}{v_2(y - tx - pq, q)} = p$

where the subscript 1 denotes partial differentiation w.r.t. the first argument etc.

The paper then discusses how $p$ and $q$ vary with $x, y, t$ and $u$.

If $\phi=x,y,t$, we stay on the same indifference curve. I find it relatively straightforward to find $\frac{\partial{p}}{\partial{x}},\frac{\partial{p}}{\partial{y}}$ and $\frac{\partial{p}}{\partial{t}}$.

If $\eta$ is the slope of the income-compensated demand curve, then $\frac{\partial{q}}{\partial{\phi}} = \eta\frac{\partial{p}}{\partial{\phi}}$.

Now to allow $u$ to vary. The budget constraint swings out to meet a new indifference curve, determining the new $p$ and $q$.

I can find $\frac{\partial{p}}{\partial{u}}$. Totally differentiate the utility function w.r.t u:

$\frac{d}{du}[v(y - tx - p(\phi)q(\phi),q(\phi))= u] = v_1(-\frac{\partial{p}}{\partial{u}}q-p\frac{\partial{q}}{\partial{u}})+v_2(\frac{\partial{q}}{\partial{u}})=1$

Since, by the tangency condition $v_2=pv_1$:

$v_1(-\frac{\partial{p}}{\partial{u}}q-p\frac{\partial{q}}{\partial{u}}+p\frac{\partial{q}}{\partial{u}})=v_1(-\frac{\partial{p}}{\partial{u}}q)=1$

So $\frac{\partial{p}}{\partial{u}} = \frac{-1}{qv_1}$.

The paper then quotes:

$\frac{\partial{q}}{\partial{u}} = [\frac{\partial{p}}{\partial{u}}-\frac{\partial{MRS}}{\partial{c}}\frac{1}{v_1}]\eta$

I don't know how to derive this. I'm guessing the first term in the square brackets is a substitution effect and the second term is an income effect.

Please help me understand this last expression $\frac{\partial{q}}{\partial{u}} = [\frac{\partial{p}}{\partial{u}}-\frac{\partial{MRS}}{\partial{c}}\frac{1}{v_1}]\eta$ and how to derive it.


texts: The effects of Quantative Easing (QE) on FX rates?

texts:
What are the effects of quantitative easing on the foreign exchange rates?

If the central bank starts buying debt denominated in domestic currency, I would think that the market would be flooded with domestic currency, making it less valuable with respect to other currencies.

Are there any other effects which I'm not taking into account?

Any help would be appreciated


texts: Does the Italian national debt really go all the way back to Mussolini's excessive prewar spending?

texts:
The WWI & WWII debt is  quite well defined in the UK for example and quite shocking how many years it took to pay off.

Somebody told me that the Italian debt crisis really goes all the way back to Mussolini's excessive prewar spending and in 2011 Berlusconi defended Italy's debt crisis as he argued it went back to the war and was just the way the country runs.

What is the true reason? Given that a country such as Russia managed last year to pay off all the Soviet debt it seems quite strange that a G7 economy like Italy could have a debt going back to Mussulini's era starting in the twentys.

Obviously a countries debt is made up of many things such as public spending and in all countries but chronically in some corruption. But there often is an isolated or small number of decisions, policy or event that accountants for the beginning of the problem.

P.S is this question perhaps for the history stackexchange?

Some historic/economic background is summaried here: https://en.wikipedia.org/wiki/Economy_of_Italy_under_fascism


texts: Dynamic programming and Difference equations applications

texts:
I'm asked by my teacher to prepare a presentation with economic applications of Dynamic Programing (Bellman Equation) and Difference equations. I'm not sure what this things are used for in economics so if someone could give me some topics I would be glad.
Sorry for my use of the language. I'm not a native speaker.


texts: Game theory with rational and irrational players

texts:
Are there game theoretic models where one player is rational and the other is irrational (i.e., plays with behavioral limitations)?

The motivation for this question is that behavioral economics has documented how people often make choices that don't maximize expected utility, but those irrational people might be interacting with near-rational computers or organizations. I've never seen a game theory model that has both an expected utility-maximizing player and a behavioral player.


texts: Is weak global economy always a "headwind"?

texts:
In the most recent (Mar. 20, 2019) FOMC Press conference, Powell said this:

  So, global economy was a tailwind for the United States
  in 2017.  That was the year of synchronized global growth, and we
  began 2018 expecting and hoping for  more of the same. What happened
  instead is that the global economy started to gradually slow,  and now
  we see a situation where the European economy has slowed substantially
  and so has the  Chinese economy, although the European economy more.
  And just as strong global growth was a  tailwind, weaker global growth
  can be a headwind to our economy.

Question

His logic makes sense, and yes this is a world of interconnected financial markets, but I still wonder is Powell's assertion axiomatic here with the larger community of economists?

Just merely playing devil's advocate, I would suspect that because of the Eurozone troubles in recent years, this helped the dollar stay stronger than it would have otherwise, citaris paribus. Not to say that currency valuation is everything, but is there really no counter argument for Powell's stance?


texts: Measuring "Intangible Utility" (reference request/methodological discussion)

texts: I was just listening to some music and I found myself thinking about how I might measure the utility I experience from listening to it. I know there has been a lot of work done with measuring utility gained through altruism, but has there been any work done in economics (or any other fields) regarding measuring 'intangible utility'? Any references or methods would be greatly appreciated, thanks!


texts: Is special case of utility function in "Intertemporal Substitution in Macroeconomics" also a special case of a Ramsey growth model utility function?

texts:
So in RBC and Ramsey-derived utility function, the following is usually the form of utility:

$$u(c,l) = c^{1-\sigma}(1 + \omega(l))$$

where $\omega(l)$ is arbitrary function of $l$, labor, that satisfies $u_c>0$, $u_l <0$, $u_{ll} \leq 0$ and $u_{cc} < 0$. $c$ is consumption.

In Mankiw/Rotemberg/Summers paper Intertemporal Substitution in Macroeconomics (link: http://scholar.harvard.edu/files/mankiw/files/intertemporal_substitution.pdf), utility function of following is used to test RBC model:

$$u(c,l) = \frac{1}{1-\gamma}\left[\frac{c^{1-\alpha} - 1}{1-\alpha} + d\frac{l^{1-\beta} - 1}{1-\beta}\right]^{1-\gamma}$$

As a special case, not considering multiplicative and additive constants, a special case of
$$u(c,l) = \frac{c^{1-\alpha}}{1-\alpha} - \frac{l^{1+\beta}}{1+\beta}$$
can be considered.

Now for the third utility, it seems that third utility must be special case of the first utility functional form, but I cannot see how this is possible.


texts: Reason for Economic Slowdown in Western Nations

texts: Why do the U.S and other major Western Countries (e.g, Canada, Germany, in contrast to India, Australia, and China) have stagnated GDP growth? Comparing the GDP growth in the post-2000s from the 1990s and previous decades, the trendline seems to go down. Government debts have also increased by a lot among many countries. Is there a reason applicable to all of these nations that explains this?


texts: Prove that variance of a portfolio cannot exceed variance of individual assets

texts:
When reading on Markowitz's portfolio theory, I stumbled across the fact that in a market with two risky assets, if no short selling is not allowed, the variance of a portfolio consisting of the two assets cannot exceed the variances of the risky assets individually. That is:

$${\sigma _p}^2 \le \max \{ {\sigma _A}^2,{\sigma _B}^2\} $$
Where A and B are two different assets.

Could you kindly prove this statement, and possible provide some intuition for why this is the case?


texts:
Most introductory international economics textbooks use the Uncovered Interest Rate Parity condition for deriving bilateral exchange rates. In other words, it is solely interest rate differential brought about by monetary policy that cause exchange rates to fluctuate, as investors demand/supply more attractive currency, which then adjusts exchange rate till the return in both currencies are equalized.

The question is- how do trade in goods affect this phenomenon? For instance, say China increases money supply, effectively decreasing interest rate, and this causes flight away from China towards American dollars, causing the American dollar to appreciate. China then benefits by improving its Current Account position. However, as the Chinese exchange rate has depreciated, Chinese goods are now cheaper, so more people will demand Chinese goods. Would this not have an offsetting effect on the depcreciation as people now demand the Yuan more?


texts: Derive the market demand function and market supply function

texts:
In the second page of this paper Gjerstad et al derive the market demand and the supply for assets using the data shown in Table 1.
The table is
The demand function they find is $Q = 94 – 0.4 P$ and the supply function is $Q = P/15 – 1$
I cannot understand how the functional form they find relates to the data in the table: can someone help me understand how do they derived it?


texts:
In the context of the Diamonds-Mortensen-Pissarides models, there was a reasoning why a separation shock cannot fit business cycles. I think it was brought forward by Shimer, but I could be wrong.

Could someone summarize why separation shocks don't fit the data (besides that it is a decrease of vacations and not an increase of separations that that we observe in crises), and perhaps even reference the original paper?


texts: Still don’t understand why a trade deficit must be financed by foreign borrowing (even after reading other answers)

texts:
Maybe my understanding of how the real world works is now clouding my ability to understand the theoretical because I aced this stuff in college, but now can’t wrap my head around it.  Yes, I’ve read all the similar questions but I still don’t see a clear answer to the question.  I’m guessing I’m getting tripped up the semantics but could use some help in figuring this out.
Why exactly does a trade deficit require foreign borrowing?  If I decide to buy some French wine and go to my banker for a loan, who in turn creates a demand deposit, increasing the money supply, why does my purchase of French wine require foreign borrowing?  A bottle of French wine to anyone who can help me understand this!  Thanks.


texts: Is it better to actively or passively offer to sell rare items at high prices?

texts:
In a massively multiplayer online video game, I have had the experience of attempting to sell a rare item on the game's forum, bumping the thread for a while before giving up for many months, and then being contacted by someone who came across the old thread (despite its reduced visibility) and reached out to me to negotiate a transaction.  I have since wondered whether, for psychological reasons, my abandonment of the thread counterintuitively increased the likelihood of an interested party making contact.  For example, actively bumping a sales thread over a long period without success could function as negative social proof that would further detract potential buyers.
Has there been any research done on this?  In particular, I am interested in the scenario of low probability offers; rare products being offered for higher-than-historical prices, undertaken with the hope of finding a buyer with an unusually high preference for the product relative to currency.  Is there a higher likelihood of finding such buyers by displaying continual effort to maintain the visibility of the offer (thread bumping), or letting the offer sink deep into reduced visibility and waiting for an interested party to stumble upon it via search?


texts: Bellman Equation with Two Discount Factors

texts:
For the following social planner's problem
$$
\max \mathbb{E_{0}}\sum_{s=0}^{\infty}\beta_{1}^{s}(\alpha U(C_{s}^{1}))+\beta_{2}^{s}((1-\alpha)U(C_{s}^{2}))
$$
$$
s.t.\ \text{some constraints including C, K, N, etc.}
$$
There are two different households with different discount factors, $\alpha$ and $1-\alpha$ are assigned weights for HH types 1 and 2, respectively. Is the following Bellman equation a correct formulation to solve the planner's problem?
$$
V(K) \equiv \max\ \alpha U(C^{1})+(1-\alpha) U\left(C^{2}\right)+\beta_{1} \alpha \mathbb{E} V\left(K^{\prime}\right)+\beta_{2}(1-\alpha) \mathbb{E} V\left(K^{\prime}\right)
$$


texts: Can one single payment contain multiple Merchant Category Codes (MCC)?

texts:
Some payment cards can be limited for certain purposes only (e.g. for paying only for food, or only for car fuel). When you try to pay for a different purpose, the system rejects the payment.

I understand that this may be implemented by using MCC:

  A Merchant Category Code (MCC) is a four-digit number listed in ISO 18245 for retail financial services. MCC is used to classify the business by the type of goods or services it provides. MCCs are assigned by merchant type (e.g. one for hotels, one for office supply stores, etc.) or by merchant name (e.g. 3000 for United Airlines).

I pay in the supermarket and I have e.g. food, toiletries and light bulbs in my shopping cart. Does the payment terminal communicates with the card provider multiple MCCs based on the type of goods, or is there one single MCC assigned to the merchant (based on their most common goods) and only this is sent for payment authorization?

From the definition on Wikipedia

  MCCs are assigned by merchant type

I would understand that the MCC is assigned to the merchant. On other side, based on my shopping experience, I am sometimes not able to pay with such a card for all the goods.

E.g. if the card is limited to food (a type of card used for employee benefit) and my shopping cart contains food and toiletries, the card pays for the food only.

Can one single payment contain multiple MCCs? Or is there another mechanism employed?


texts:
These days, we hear again and again about the so-called "need" for economic growth. But how do countries actually grow economically? That is, why/how does their GDP increase over time?
Related, what are policies that are believed by economists to interact the most with growth? And what are these channels of interaction? I'm not looking for dogmatic answers on this part, make sure that you state the causal chain as neutral as possible and link references when possible.
See also

What is the relevance of economic growth?
What is the Gross Domestic Product (GDP)?


texts:
My undergraduate Thesis includes mainly filtering process evaluation. Due to the word limit (low limit), I just realised I have to include more filters than Christiano Fitzgerald (CF) and wavelets.

I consider the following filters:

hodrick prescott
Baxter King
Butterworth
trigonometric regression

Since it's an evaluation of filtering processes, I don't really care if a filter is better or worse, rather than the justification. I cannot find any resource which compares directly filters.

Could you explain to me the pros and cons of those filters in comparison with CF? I would appreciate if there is any resource, but it is not mandatory.


texts: How do you perform economic analysis of a country?

texts: I have no academic background in economics except for one class I took in engineering school. In this recent crisis of coronavirus, I would like to know how my country is doing overall and how deep in the water we are going to be in the future. What are parameters I should be looking at and how can I get a better understanding of the economic situation in my country. What would be best place to start the research? Thank you.


texts: Which areas of mathematical knowledge are required for understanding different genres of theoretical economics literature (and at which level)?

texts: I would like to know which mathematical skills are most important to understanding different types of theoretical economics literature. An ideal answer would list disciplines used for different 'genres' of literature; for example: "Mathematical finance requires elementary linear algebra and stochastic calculus" (is this accurate?).


texts: Inferior goods, monotonic utility and strict concavity

texts:
Is it possible to have an inferior good under the assumption of a utility function which is strictly monotonically increasing and strictly quasiconvex?

I do not think so, but I could not find a formal proof.

*My underlying idea is that whit an inferior good, there exist a point where the utility consuming less of one good is better and then its derivative negative at that point, moreove, I think that this behaviour would break the concavity shape.


texts: Will China's GDP be greater than the USA's and Europe's combined?

texts:
A newspaper said in 2080 China can be a developed country, with a bigger population. Does that mean China's GDP is going to be bigger than the USA's and Europe's combined?

Also, is this possible even though China's land area per person is smaller?


texts: How successful will OPEC's predatory dumping strategy be?

texts:
Since the fracking industry in the US has started to grow rapidly, I have heard increasing reports that OPEC is attempting some form of predatory dumping in the hopes of making the fracking industry in the US unprofitable.
How successful do economists predict that OPEC's dumping strategy will be?  For example, does OPEC have a large profit margin and the fracking industries a small profit margin (making fracking an unprofitable enterprise quite easily under some form of predatory dumping) or are the profit margins close enough to make any predatory dumping infeasible in the short-run?


texts:
I'm looking at this website which looks like it's calculating the national US debt every second.
Is this really "realtime", or is it just an extrapolation?
And if it is extrapolation, what model is it based on?


texts: How exactly do Participatory Notes induce volatility into the economy?

texts:
I was reading up on participatory notes. Wikipedia defines these as "instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India - SEBI."

The same article and few other references described the kind of volatility P-Notes can induce into the stock market. All that I managed to understand from this is that the SEBI, in trying to lay ground rules for trading in P-Notes actually managed to rake up the bear sentiment (Expectations at work here, yes?) and actually brought upon the crisis, no matter how short-lived.

I want to know what in fact could have possibly happened had the crisis lasted longer. Could this have had lasting bearing on the working of the economy?


texts: Link between supply of domestic assets and monetary policy

texts:
From Treasury's Oct'2016 FX policies report:

  Switzerland’s economic policy situation is distinctive given its relatively small stock of domestic assets, which limits monetary policy options to address persistent deflation in the context of significant safe haven capital inflows.

What is the link between stock of domestic assets and monetary policy options?


texts:
Specifically, in the RIMS II model espoused by the BEA, capital spending in a region induces job creation therin, based off of specific multipliers.

Where do these multipliers come from, and what do they mean?


texts: How does a govt surplus increases investment?

texts: From the closed economy equilibrium condition $I = S + (T - G)$, how does exactly a surplus (which I assume would be used for paying debt) increases investment in the same amount? I ask that because if the govt pays $(T - G)$ - assuming a surplus - to the public with a marginal propensity to consume equal to c, savings (and thus investment) would increase in $(1-c)*(T-G)$ and not $(T - G)$ (which is, of course, bigger). Am I losing something here?


texts: Can someone please recommend a book or a chapter from a book which provides a good and clear explanation of price theory. How prices are determined what they reflect and how they serve as allocaters of resources.


texts: reference request - dynamic discrete time optimization methods

texts:
Next semester I am taking business cycle theory course. I emailed my teacher and he replied that I need firm understanding of dynamic discrete time optimization methods. I am gonna study mainly from Sydsaeter / Hammond Further math. Yet I even need to catch up with static optimization, but I have Winter break.
My question is, could you please recommend me some good sources (net / textbooks) for dynamic discrete time optimization methods? Rather introductory. Thank you


texts: How to efficiently study and learn Economics?

texts:
I read there are a couple of questions asked in this regard, but I am not quite satisfied with the provided answers.

I am currently doing my master's degree (expecting to pursue a PhD) in Economics, and I have been very exposed to the Mas-Colell and the book of Advanced Macroeconomics by David Romer. Just reading the books, and taking notes, I end up rewriting each book myself again.

Therefore, I want to ask what it means to you to study Economics, how is it possible to learn economics, without actually memorizing (since I think that is my problem, I try to memorize everything)? What is an efficient way to take notes (in class or from the textbook), going through the textbook and actually understanding what is being exposed?

I hope my question is appropriate for this space, just to have a little discussion if there was someone who went through similar while pursuing graduate studies.


texts: Will BRICS countries be the leading innovation countries 20 years from now?

texts:
I wonder about the question given in the title.

What could be arguments against this statement?

Considering China and Russia: Both countries have an authoritarian political system. I claim - and please correct me if you think otherwise - that an authoritarian system hinders innovation. I would assume that universities are not free in their choice of topics to perform research on. Why is this bad for innovation? Not sure here, just a feeling. I would also say that innovation requires creative thinking and that an authoritarian system often comes with fear of stating one's own opinion and that this somehow doesn't yield the mindset necessary for innovation. Well, you can tell I am not very certain with this argument. Can you help me with it?
Considering India and Brazil and South Africa: Wealth is very unequally distributed in these countries. And I feel like this is also hindering innovation. A large portion of their population will not have free access to education, already reducing the number of people that technological innovation can come from.

I know that this is a question which doesn't have the  one ultimate answer. So should I be in the wrong forum for it, I apologize for it. Otherwise, I am excited and happy to hear your comments!


texts:
Consider an exchange economy with two individuals and 2 commodities. The endowments of the commodities are 1 each. Which one of the following are Pareto Optimum.

a. {$\frac{1}{2},\frac{1}{2},(\frac{1}{2}\frac{1}{2})$} b. {$(\frac{1}{4},\frac{1}{4}),(\frac{1}{2}\frac{1}{2})$} c. {$(\frac{3}{4},\frac{3}{4}),(\frac{1}{2},\frac{1}{2})$} d. None of the above.

I have a hunch that it is d. I am assuming that preferences are perfect complements and hence all the options from a to c will give the two individuals lesser utility. Hence d. Is this the right way to go about it. If not, please help?


texts: If Eurodollar never leaves U.S., then what do we mean by bring eurodollar on shore

texts:
We already know that Eurodollar never leaves U.S. But then what do the media mean when they say bringing U.S. dollar offshore (eurodollar) onshore? Isn't it always onshore? (Let us omit the real physical cash)

Also, the Fed website says that both Eurodollar and Fed funds liability do not have reserve requirement. My question is how can banks in the U.S. hold eurodollar liability? I mean, eurodollar is defined to be U.S. dollar deposited off-shore or IBF. So doesn't that mean U.S. based banks cannot have Eurodollars by definitions? And since eurodollar does not leave the U.S., its borrowing in Eurodollar market in its off-shore branch is actually simply a transfer of Fed reserve from the lender's bank's U.S. bank to the borrower who is a U.S. based bank. Then the liability of the U.S. based borrower shows up as time deposit due to its off-shore branch. So I think this is how banks borrow from Eurodollars market. But the above question remain.

Any comment is appreciated.

http://libertystreeteconomics.newyorkfed.org/2015/05/the-eurodollar-market-in-the-united-states.html#.VjvTKIQt82Z


texts:
In a recent paper, Edelman et al. examine (amongst other things) how discrimination on AirBnB varies with the characteristics of hosts. First, they conduct a field experiment which involves sending a large number of fictitious applications, some of which are associated with African-American names and some of which are not. Then, they regress whether an applicant is accepted on the guest race, a host characteristic and the interaction. For example, they regress acceptance on guest race, host race and the interaction of the two. The idea is that if African-American hosts (for instance) are less likely to discriminate, then the coefficient on the interaction term should be non-zero since the effect of receiving an application from an African-American should depend on whether the host is African-American.

So far, so good. However, given that host characteristics are not randomly assigned, we should control for them. Otherwise, we might find that African-Americans are less likely to discriminate even though the real explanation is that they tend to offer expensive properties, and people who offer expensive properties are less likely to discriminate (made up example to illustrate the point). They seem aware of this, since they throw in various host and location characteristics as controls. But wouldn't it have been better to use the interactions of these covariates with applicant ethnicity as the controls? After all, we want to control for the fact that people with certain characteristics might respond to African-American applicants differently, and this means controlling for interaction effects.