texts: Can the US dollar collapse and what are steps that I should take in the event that this happens?

texts:
A friend of mines says that the US dollar is so "heavily intertwined" in other nations that if the US Dollar was to become worthless then that would have a major impact on the world.

However with the little to no backing in gold and division of the US dollar by digital currency as well as referring to history, isn't the US headed down hill?

There is the argument that the US dollar was able to buy more in the past however it seems to be proportional; the dollar bought more however we made less as a normal wage eg. cents versus dollars.

For example, other countries buying our food producing land, concrete factories being owned by other nations when our highway infrastructure needs repair, small factories closing and machinery being auctioned at little to no cost.

So... I was thinking about starting to save in Euros and perhaps looking into Bitcoin which I understand is volatile but it is rare and capped...

Any thoughts on this?

Further I am not heavily into economics (that's probably pretty obvious) so if you can fill in any additional gaps I missed, I would appreciate that.


texts: What is the intuition behind projecting stochastic discount factor into the vector space spanned by the payoff vectors?

texts: It makes sense to stochastic discount factor as a function of impatience and marginal utility of consumption, but what is the rationale to project it into the vector space spanned by the payoff vectors?


texts:
In relation to an ordinary employee, the Prime Minister of Australia pays?
a) the same marginal tax rate
b) a higher marginal tax ate
c) a lower marginal tax rate

My answer for this was a), as it was explained to me that 'marginal tax rates' refers to the tables that are used to calculate tax, but others are debating whether it is b), as the Prime Minister typically falls under a higher tax bracket than others. Would someone care to explain?


texts: How would gross world product look like if fossil fuel is treated as capital and not as income?

texts: The idea to treat fossil fuel as capital is found in the first chapter of the book "Small is Beautiful: (A Study of) Economics as if People Mattered" (1973) by E. F. Schumacher. Is there recent research following this idea?


texts: Congruence of GDP as calculated by production and by consumption

texts:
Here I've read the following (translated by Google)

GDP can be calculated in two ways: firstly, by origin, that is, by
estimating the value of all goods and services produced, and secondly
by the use side, that is, by recording total
expenditure on consumer and capital goods, including external trade
(the difference between the value of imported and exported goods and
services).
These two calculations are always congruent, as consumption
adjusted for net exports corresponds to production.

I wonder about one thing: What about all the products being produced but never sold and used: food, clothes, printed media, to name just a few. They appear only on the one side, not on the other. So how can the two numbers be congruent?
And if they are not congruent: Which of them is finally published e.g. by the German Statistisches Bundesamt?


texts: what is the interpretation of $\beta_{ij}$ in the translog production function?

texts:
The translog production function is defined as the following.
$$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j $$

I know it is a approximation of the CES production function and simplifies to  being a logged general cobb douglas production function when every $\beta_{ij}=0$.

however in cases where every (or even a single) $\beta_{ij}\neq0$ what interpretation does it take on?

i.e. I know $\alpha_i$ is interpreted as an "output elasticity", what is $\beta_{ij}$ interpreted as?


texts: What is the term for 'forgone cost' as 'opportunity cost' is for 'forgone profit'?

texts:
For example, suppose I made \$100 from an investment. If I'd had deposit the same amount of money in the bank I would have get \$60 of interest. Then the 'forgone profit' or 'opportunity cost' in this example is \$60, and the economic profit is \$40.

Now let me use another example. Suppose I would need to spend 1 hour to make a spreadsheet for my homework assignment, but I instead spent 1.5 hours to write some VBA code and the code generates the spreadsheet programatically. Then the 'forgone cost' or '_____' in this example is 1 hour, and the economic cost is 0.5 hour.

What is the right term that can fit in the _____ in the 2nd example above ?


texts: How does market work when there are few buyers and few sellers at the same market?

texts: If I understand it right, correct term for such situation is bilateral oligopoly.


texts:
Or as Tobin (1992) put it: "How Can Money Have Positive Value in Exchange?"

Money, however, is an embarrassment to value theory. According to standard theory, something can have positive value only if it generates positive marginal utility in individuals’ consumption or positive marginal productivity in the making of goods and services that do generate marginal utility. The embarrassing puzzle is sharpest for fiat money. All of its value comes from the fiat that makes it money. Fiat money has no intrinsic non-monetary source of value. It cannot be eaten or worn or be used in any other way that generates utility for consumers, except a few numismatists. Nor can it contribute to the production of things that consumers do value. It can be produced at zero social cost. Yet it is a scarce commodity for any individual agent. Why is it worth anything at all? That the institution of money is of value to the society as a whole as a public good does not automatically give it value to individuals in market exchanges.

Is there today any consensus answer to the above question?


texts:
For example: if a bond got a 1% coupon, and tomorrow is the maturity date, so tomorrow I will have 101.

So, in my opinion a bond price should tend to notional+coupon, because today I want this amount of money to be at par. Where I am wrong?


texts: Supply curve for a competitive firm with constant MC

texts:
I know that for a perfectly competitive firm, the supply curve is given by $p=MC \ge AVC$, where $AVC$ is the average variable cost.
Now I get really confused when the $MC$ comes out to be a constant. How do I determine the supply curve in that scenario?


texts: Stiglitz 1976 on irrelevance of corporate financial policy

texts:
In this paper, Stiglitz gives a verbal argument as follows:

  Let  us  consider  verbally  what  actions  of the  individuals  are required  to  offset  various  actions  by  the  firm.  Assume  the  firm decreases  its  dividend  payout  ratio.  This means  that  it  has  more  retained  earnings,
  so,  if  the  two  basic  financial  accounting identities  are to  be  satisfied,  either  it  must borrow  less  (perhaps  it  even  lends)  or
  issue fewer new shares. To  make  up for the loss  in  dividends,  i.e.,  to  keep  the  same consumption  path,  individuals  buy  fewer new  shares  in  the  firm  or  buy  fewer  new bonds.  Assume  the  firm  simply  issued fewer  shares.  In  one  case,  the  value  of  the equity  grew because  of issuing  new  shares, in  the  other  case,  the  value  of  the  equity
  grew  because  of  retained  earnings.  From the  point  of  view  of  the  stockholders,  the two  are perfectly  equivalent.  This  change in  dividend  pay-out  ratio  thus  leaves  the debt-equity  ratio  unchanged. On the  other
  hand,  if  the  firm  decreases  the  number  of bonds  issued,  it  will  lead  to  a lower  debt-equity  ratio.

I could understand the logic up to this point. But I don't seem to get what follows:

  Then  individuals  borrow  on their  own  account.  One  can  think  of  it  as if  the  individual  takes  the  proceeds  of  the loan  to  purchase  the  increased  equity  in the  firm  (since  the  two  are  exactly  equal, this  is only  a convenient  way  of looking  at it;  since  all  funds  are fungible,  there  is  no real  connection  between  the  two).  The increased  borrowing  by  individuals  exactly  offsets  the  decreased  borrowing  by firms  so  markets  continue  to  clear.  Similarly,  if  the  firm  decides  to  issue  more three-year  bonds  and  fewer  five-year bonds,  the  individual  can  undertake  exactly  offsetting  actions  in  his  own  portfolio.

Dividend get reduced, the planned consumption is reduced at that period. The investor wants consumption, what the investor does is to borrow from from the market for the consumption. But why can this be viewed as the individual takes the proceeds of the loan to purchase the increased equity in the firm?


texts: Finitely repeated Prisoner’s Dilemma with switching cost

texts:
I'm doing this finitely repeated Prisoner's dilemma with switching costs but I have trouble showing the fact that $\varepsilon$ had to be $1 < \varepsilon < 2$. I do see why and  that it is a subgame-perfect Nash equilibrium, but how do I show it.
My approach:
Consider deviations by player 1, given that player 2 sticks to his strategies in his subgames following histories that end in each of the four outcomes of the game. (By symmetry the below would also account for deviations by player 2 if player 1 sticks to his strategies).
We know that this game is played $T$ times. Let $m$ denote the number of cooperation stages (i.e. number of times the strategy profile $(C,C)$ has been played), let $n$ denote the number of punishment stages (number of times the strategy profile $(D,D)$ has been played), and let $T = m + n +1$. If the players cooperate $T$ times they get $3$ in payoffs. Thus, we can write
$$3T=3(m+n+1)$$
If player 1 deviates at any stage of the game he'll get a payoff of
$$3 \cdot m + (4 - \varepsilon) + 2 \cdot n$$
For the deviation to be profitable for player 1 the deviation payoff has to be greater than or equal to the cooperative payoff. That is,
$$3 \cdot m + (4 - \varepsilon) + 2 \cdot n \geq 3m + 3n + 3$$
We can simplify this
$$n \leq 1 - \varepsilon$$
And this is where I'm stuck. What am I supposed to interpret from this? That when $\varepsilon \in (1,2)$ then the number of punishment stages is negative?
Another question I have is: Assume that the question above got answered. Is that enough? Or do I need to show something more? Because I'm well aware that playing $(C,C)$ $T$ times is a SPNE and playing $(D,D)$ $T$ times is also a SPNE and either way there is no profitable deviations.
So, to summarize: I would like to know if I'm approaching this problem in the right way. I would like to get some help on how to move forward from where I got stuck. And if the above would be enough to show what the problem is asking for.
Many thanks in advance!
[Update]----------------
Below is my updated attempt on a solution with some inspiration from M.J. Osbourne and the feedback I got from @Herr K..


texts: Example of information structure in a one-player Bayes Correlated Equilibrium

texts:
Model

Consider a game where a decision maker (DM) has to choose action $y\in \mathcal{Y}$ possibly without being fully aware of the state of the world.

The state of the world has support $\mathcal{V}$.

When DM chooses action $y\in \mathcal{Y}$ and the state of the world is $v\in \mathcal{V}$, she receives the payoff $u(y,v)$.

Let $P_V\in \Delta(\mathcal{V})$ be the DM's prior.

The DM also processes some signal $T$ with support $\mathcal{T}$ distribution $P_{T|V}$  to refine his prior and get a posterior on $V$, denoted by $P_{V|T}$, via the Bayes rule.

Let $S\equiv \{\mathcal{T}, P_{T|V}\}$ be called "information structure".

A strategy for the DM is $P_{Y|T}$. Such a strategy is optimal if it maximises his expected payoff, where the expectation is computed using the posterior, $P_{V|T}$.

Question

Suppose that the DM discovers that the state of the world, $v$, is a number in $[a,b]\subset \mathcal{V}$. Can this be written as an information structure (i.e., a distribution of a signal)?


texts: Why does a stronger currency have a tightening effect on economic conditions?

texts:
http://www.economist.com/blogs/buttonwood/2015/12/central-bank-predictability

  Ever since 1987, banks have been willing to cut rates when markets
  have wobbled. Driving down bond yields has been an explicit aim of QE
  (and pushing up stockmarkets an implicit one). Currencies move in
  anticipation of interest rate divergence (hence the strength of the
  dollar this year) and a stronger/weaker currency has a
  tightening/easing effect on economic conditions.

A related question is what exactly is meant by tightening effect on economic conditions. This term is meant loosely in financial media and I do not know exactly what it means.


texts: Long run equilibrium price under perfect competition

texts:
I have a problem related to Ricardian rent.
I have one firm, let's call it X firm, and all of the other firms in the market. All firms have to pay some transportation costs due to their land except for X firm.
I also know that their cost functions are first degree polynomials, meaning that their marginal cost and average cost is equal to a constant number(Different than each other of course as X firm doesn't have to pay any transportation costs.)
How can I obtain the equilibrium price using only this data? I couldn't evaluate the single firm's affect on the price, does it have any influence over the price?


texts: Where to find more detailed data for International Comparison Program 2011?

texts:
According to the World Bank PPP conversion factors, in 2014, 0.86 SGD could buy as much stuff in Singapore as could 1 USD in the USA (presumably Averagetown, USA).

The market exchange rates in 2014 varied from 1.24-1.32 SGD per USD. This means that according to the World Bank, 0.65-0.69 USD could buy as much stuff in Singapore as could 1 USD in the USA. In other words, price levels were 31-35% lower in Singapore than in Averagetown, USA.

Anyone who has lived in both countries recently will find that impossible to believe, at least based purely on personal anecdotes.

So I was trying to find the data on which these numbers are based. In particular, detailed data like prices of specific goods that were used to form these PPP comparisons.

It seems like they come from the International Comparison Program (ICP) 2011. But the most detailed data I could find about the ICP 2011 was this Excel spreadsheet, which has no such information.

Anyone knows where I can find the detailed data (prices of specific goods, how they were weighted, etc.) on which these World Bank PPP conversion factors are based?


texts: There is a paragraph about the history of credit rating agencies that I don't understand

texts:
"For a few decades, ratings were nothing more than private assessments, no different from any other form of consultancy provided to investors.
Born out of a need in the burgeoning industrial world of the late nineteenth century, the power of credit agencies increased with the shift affecting the financial industry in the interwar period, especially the banking sector.

Traditionally, banks had been the primary source of funding for firms and corporations. They were the link between lenders (mostly private savings, i.e. deposits) and borrowers.
Credit defaults (and the risk thereof) were shouldered by them and usually did not affect depositors.
Therefore banks ‘acted as hybrid institutions of collective action, between the state and the market’, controlling the risk and reducing ‘the uncertainties for the political authorities, as well as for borrowers and lenders’.

Yet the increased downward pressure on capital costs experienced during and after the Great Depression incentivized direct market participation for banks (in form of financial and investment products) and eventually decreased their role as mediators between lenders and borrowers.

As a result, such ‘disintermediation’ transformed banks from agents of self-regulation to market participants.
The decentralization of capital allocation (away from banks), directly connecting borrowers and lenders, accentuated the problem of asymmetrical information in the market and thereby strengthened the role of rating agencies."

What does "decreased their role as mediators between lenders and borrowers " mean when it is already said that "credit defaults (and the risk thereof) were shouldered by them(banks) and usually did not affect depositors."
What does "the increased downward pressure on capital costs* experienced during and after the Great Depression incentivized direct market participation for banks" mean?
That cheap credit turn banks into investment firms?
What does the "the decentralization of capital allocation (away from banks)" mean?
I think it means that the now investment firms, formerly banks are now trying to sell people bad performing stock on their books, while their consumers are trying to get loans ?


texts: Is the use/consumption of natural resources considered an externality per se?

texts:
On a finite planet natural resources are rival goods by definition, i.e. if one agent uses/consumes a natural resource it becomes unavailable for other agents.

Mankiw defines an externality as "the uncompensated impact of one person’s actions on the well-being of a bystander".

--
EDIT:

To illustrate my question imagine an isolated island that hosts two agents: Alice and Bob. Every year the agents are replaced with new agents Alice1 and Bob1, Alice2 and Bob2, etc. The only natural resource on the island is a tree that yields three fruits per year. The agents need two fruits as sustenance and plant the third one to grow a tree for Alice1 and Bob1 to enjoy the following year.

A third agent, Chris, visits the island and offers a massage. Alice values the massage at \$50 and Bob at \$40. The market clears at \$40.01 and Alice receives the massage. Even though the massage is a rival good, Bob can hardly argue that the massage given by Chris to Alice causes a negative externality since it does not affect him other than that he would have liked to have a massage at a lower price point.

However, during his visit Chris also needs to eat.

Case 1: Alice who is harvesting the fruits sells Chris the fruit that Bob would have eaten.
Does the sale of the second fruit by Alice to Chris cause a negative externality for Bob?

Case 2: Alice sells Chris the third fruit available that year and shares the proceeds with Bob. Consequently Alice and Bob cannot plant it and when Alice1 and Bob1 arrive at the island the following year there is no fruit tree and they perish.
Does the sale of the third fruit by Alice and Bob to Chris cause a negative externality for Alice1 and Bob1?


texts:
I am interested in two variables $x, y$. Their (observed empirical) standard deviations are $\sigma_x$, $\sigma_y$. I know the elasticity of $x$ w.r.t. $y$ is $\eta_{x,y}$.

Let $x$ be fully determined through $y$, which is the only source of randomness. Is it true that

$$ \frac{\sigma_x}{mean(X)} = \eta_{x,y} \cdot \frac{\sigma_y}{E[y]}$$

?

I can't find anything on this relationship, but it appears that appropriately scaled  standard deviations of two variables should be connected through their elasticity.


texts: Doubts in modelling the Arthur(1991) paper: Designing economic agents that act like human agent

texts:
I am implementing Arthur's paper "Designing economic agents that act like human agent: A behavioral approach to bounded rationality" from 1991 in JAVA and I am having a problem understanding one part of the paper:

At one point it says: triggering actions randomly on the basis of their strengths and I don't know what this means.

The algorithm is described as follows:

1.) Actions are represented as $a = (1,2,...,A)$, these values represent the mean and all the actions have a fixed standard deviation. The mean of an action and its standard deviation help in plotting the normal distribution. The payoff of an action, which is unknown before is drawn after the action is chosen from the above described normal distribution.

2.) Ever action has a certain value of strength ($S(t)$) associated with it, the strength depends on prior beliefs (in my case it depends on prior skill set). The current sum of these strengths is C(t).

3.)At every time $t$ I calculate the probability vector $p(t) = S(t)/C(t)$

4.) Choose one action from the set according to the probability

5.) Update the strength of that action (point 3, page 354)

6.) Renormalized (point 4, page 354).

The problem occurs at point 4: choose an action according to the probability, what probability?

I don't know how to translate this statement into code.


texts: Why is the Cobb-Douglas production function so popular?

texts:
As relatively novice quantitative analyst/ Cost analyst, Ive been asked to estimate the level of a given organizations productivity more than once, and then forecast for the next couple of periods. The place I work at is a relatively small non-profit (around 30 people) dedicated to food bank donation distribution and volunteer solicitation, so Im not sure if firm size has something to do with this.

Most of the time I've been asked for specific units and not percentage changes or elasticities, so I'm forced to present one of two production functions.

$$f(x_1,...,x_n)=\Sigma_{i=1}^n\beta_i x_i$$
$$f(x_1,...,x_n)=\gamma \min(x_1,...,x_n)$$

Yet when I read  economic literature I see the cobb douglas (or some variation of it like the stone-gerry)  being used all the time.

I know it has the property of mathematically showing diminishing returns to scale for a single factor of production, however Im having difficulty seeing it in my line of work. Is it a production function exclusive to manufacturing of real goods?


texts: Does the PBoC work like the Fed in having meetings where they discuss changes in monetary policy?

texts: The Fed has a specific schedule to its meetings about changing the Fed Funds Target Rate, does the PBoC perform the same as well?


texts: What do you call a system in which the payer is not the decision maker?

texts:
Is there a name for a system in which the person/entity who makes the buying decision is not the same as the person/entity who pays?

Specific examples of this might be situations which arise in insurance but you could also say a date in which a male is paying for a female (or vice-versa) might qualify.

EDIT:
My interest in the problem arose a couple of years ago when I came down with shingles.  My doctor prescribed an anti-viral and I noted that my insurance covered almost the entire prescription cost.  I think I paid about \$10 but the full price was listed somewhere as around $250.  I then pondered the idea of whether or not I would have bought the prescription if I were faced with the entire \$250.  I was honestly pretty torn, leaning towards probably not.  But this overall experience made me ponder how the demand curve is augmented by the situation.

My interest here is primarily in the demand side effects of this kind of a situation.  My example of the date was an attempt to broaden the scope beyond purely an insurance based question.


texts: Does the sudden spike in the US jobless claim pose systemic risk to the US unemployment insurance system?

texts:
There has been an unprecedented short-term increase in US unemployment owing to the Covid-19 crisis.

  Initial jobless claims soared to a seasonally adjusted 3.28 million in the week ended March 21, according to the Department of Labor. That is the highest number of initial jobless claims in history, since the Department of Labor started tracking the data in 1967. The previous high was 695,000 claims filed in the week ending October 2, 1982.

I understand that the $2T stimulus includes extra money for the jobless, perhaps so that they don't start looking for new jobs immediately, i.e. so they stay at home, because hitting the pavement right away in search of a job might actually negate the social distancing efforts employed in combating the epidemic.

An article on Vox (before the stimulus passed) claimed rather alarmingly that

  Recessions have happened in the past, but they come on slowly. The kind of sudden stop in economic activity that we are looking at is well outside the realm of anything we’ve experienced. And it’s going to break the unemployment insurance system unless Congress takes some quick steps to inject funds and change the rules.

Is that a rubbish claim, or can the system really "break" from too many claims and I mean financially (i.e. server issues aside)? Because I'm not quite seeing how the stimulus package "fixed" the system; it did make it sweeter for the insured though.


texts: Why is the Stock Market Cap / GDP ratio on FRED well out of date?

texts:
FRED posts the Buffet Ratio here:
https://fred.stlouisfed.org/series/DDDM01USA156NWDB
But it ends in 2017, anyone know why?


texts: How to calculate inflation rate in order to perfom VAR model?

texts:
For an assignment I need to perform a VAR model on the three variables real GDP, short term interest rate and inflation. While for the first two variables I have not any problem, I am struggling to understand how to obtain a reliable "inflation" time series to be used for the  model.

An expression I found on "Vector Autoregressions" by James H. Stock and Mark W. Watson is:
$$
\pi_t = 400 \ln \left(\frac{P_t}{P_{t-1}}\right)
$$
where $P_t$ is the chain-weighted GDP index.
However, I don't understand the reasoning behind this expression (why 400?) and I'd prefer to avoid using the chain-weighted GDP index since is an index I don't know very well.

I'd like to start from the GDP deflator. I tried with some reasoning to obtain an useful expression and I came to the conclusion that maybe a good variable is:
$$
\pi_t = \frac{DEF_t -DEF_{t-1}}{DEF_t}
$$

Is that correct? Which is the best series to use as inflation for the VAR model?


texts: Beliefs about equilibrium paths with overlapping strategies

texts:
This is a basic question, but I cannot find the answer to it. In short, equilibria are often conditioned on a specific strategy. E.g., given A's strategy, B updates her beliefs to xyz. My problem is that often an action could be a part of the equilibrium path for many different strategies, so how does B know which strategy A is following?

Below is an example that might clarify the question.

Consider a classic signaling game (2 types, 2 actions) à la Spence. Suppose furthermore that there are two equilibria: one pooling, one separating. In the pooling eq., say, both types of senders send "Low". In the separating, the "Strong" type sends High, the Weak type sends Low.

The part that I struggle with is: how does the receiver know what equilibrium path they are in? For example, say the receiver observes "Low". If we are in "pooling world", then the receiver's posteriors are just going to be her priors. If, however, we are in "separating world", then she can update to p(Weak|Low)=1. But observing "Low" alone does not tell the receiver what strategy the sender is following, so how can she possibly update her beliefs? It seems to me that she would need to have beliefs not only about types, but also about strategies being followed.

Sorry if this is idiotic, but this has puzzled me for a while.


texts: If I have a model with taxes on consumption denoted $\tau$ should I write the utility function as $u(c)$ or $u((1-\tau)c)$? Thanks


texts: How does interest rate impact exchange rate?

texts:
When I’m using the forward exchange rate formula based on non-arbitrage theory, it tells me that a positive interest rate spread (i_domestic > i_foreign)would cause the forward exchange rate(units of foreign currency that I get for each 1 unit of domestic currency I pay) to be lower than the spot exchange rate, indicating that a positive domestic-to-foreign interest rate spread would lead to depreciation of the domestic currency.

However, people keep saying that if the domestic Central Bank decides to raise the domestic interest rate, it would make the domestic currency to appreciate as international investors would be more willing to pour their money into the domestic market(selling foreign currency for domestic currency) due to a higher yield. This is saying domestic interest has a positive relationship with the exchange rate(units of foreign currency that I get for each 1 unit of domestic currency I pay).

So I’m confused about how these two different approaches give contradictory results. Can someone please explain this to me?


texts: Labour Saving vs. Labour Augmenting - what is the difference?

texts:
It seems reasonable to say that technology generally increases output per unit of labour.  Therefore in any factory which has installed new technology one can reasonably expect that for the same output one is likely to need less employees than before (or perhaps the firm will retain the same number of employees but output will increase).  Therefore, in either case, the output per employee has increased.  Therefore one could say that labour has been saved by the new technology.  One could also say that labour has been augmented by the new technology as each worker is supported by the new technology and is now more productive.

My question is: do we have clear definitions of these two terms and what is the difference?


texts: Why would a digital Yuan (or some other national currency turned into a CBDC) "help fast-track international settlements" in that currency?

texts:
I'm trying to understand the basis of this claim

As the main mode of transaction in the world's second biggest economy, China's currency should be a natural contender for the spot. However, the U.S. dollar still accounts for 88.3% of all international settlement transactions while the renminbi has only 4%. Digitization of the currency will help fast-track international settlements using the currency and help make it more popular among international traders.

I guess it might actually depend on the technical form the CBDC ('digital Yuan' or whatever) actually takes. Presumably, if it can be stored abroad without any bank account, i.e. just a digitally (and possibly chain-)signed certificate, then this (storage part) may be easier.
But it still raises the issue: how does e.g. a US consumer get their hands on digital Yuans with which to pay something that they buy directly from China (e.g. via Alibaba)? Any exchange that would sell those digital Yuans that would have to take dollars in, no?
I'm guessing that it has something to do with 3rd party countries, e.g. someone in the Eurozone could just exchange euros for digital Yuans, is that the gist of it?


texts: Why GDP is converted to 2010 $US constant in international studies?

texts:
GDP is a widely-used macro control variable in finance-related papers, especially for international studies. I am wondering what is the reason why GDP is converted to $US 2010 as noted by WorldBank.
From my understanding, in international studies, they convert every currency-related variable to the US dollar to be comparable by using the exchange rate every year. However, I do not understand why they convert to the US dollar in a fixed year when it comes to GDP, and why the chosen year is 2010 in this case?


texts: Can a currency crisis be the proximate cause of a debt crisis?

texts: I'm just curious whether there are any historical examples of a currency crisis in a country (speculative attacks leading causing a sudden devaluation of currency) leading directly to a debt crisis?


texts: Effects of ACA individual mandate vs AHCA surcharge

texts:
The US Congress is currently considering a new healthcare bill, the AHCA, which would replace the existing healthcare bill, the ACA.

One of the major changes is the way each bill encourages people to maintain health insurance coverage:

ACA existing law: (in general) if you do not have health insurance for part of the year, you pay an additional tax based on how long you were not covered.
AHCA proposed law: (in general) if you have a lapse in coverage for more than 63 days, insurance companies are allowed to charge you up to 30% more for 12 months.

I am not an economist, but IMHO, the goal of these provisions should be to both encourage people to obtain coverage if they don't have it, and also discourage people from ending coverage if they do. It seems to me that the current ACA meets both of those goals, however, the proposed AHCA does not encourage people to obtain coverage once they have lapsed for 63 days. In fact, the AHCA appears to discourage people from obtaining coverage once they have lapsed for over 63 days. Of those in the group that have lapsed, those that need the coverage the most (regardless of price) are still going to purchase insurance, so this would increase the density of high cost people in the overall pool, leading to increased premiums for everyone.

Is the above analysis correct, and if so, why would this change be proposed? (I find it hard to believe that the economists involved in writing the bill would have simply overlooked this.)


texts: Why would microeconomics be considered more "objective" than macroeconomics?

texts:
I can imagine the following reasons for this:

conflation of positive vs normative economics in macro
micro phenomenon is less complex (or smaller): thus easier to create reliable models for

Thanks


texts:
If I have a game that goes as follow:

Player 1 is the row player and player 2 is the column player. I think that the Nash Equilibria should be (10, 5) and (5, 10), since neither of the player has incentive to unilaterally deviate given the other's strategy. But then the dominant strategy, I thought, for both player is to always invest. Does this mean that the stable outcome is actually (5, 5) and that it is inconsistent with the NEs, which should be stable? (I only work with pure strategy here)


texts: I know that if the coupon rate on a bond is larger than the yield-to-maturity, then the price must be higher than the par value. Yet I have the bond price equation $P=\frac{c}{y}\left(1-\frac{1}{(1+y)^T}\right)+\frac{Par}{(1+y)^T}$, and I wonder how I manipulate this equation to show that what I mentioned above is correct. Grateful for any tips to solve this.


texts: Troubleshooting Utility Maximization with the Lagrange Method

texts:
I'm trying to solve a utility maximization problem through the Lagrange method.
The utility function is something like $u(x,y)=x+B(y-a)$.

However, I'm running into problems as x and y do not come up in the First Order Conditions. I was wondering if anyone had an intuitive explanation as for why, and how to get around it?


texts:
I'm aware that certain terms in economics have precise definitions that don't necessarily line up with our intuition about what they mean. I'm currently writing a paper that heavily relies on the concept of scarcity, and I'd like to make sure I am using the term properly. Currently I have this sentence written:

  Suppose widgets are a scarce resource that are distributed among
  agents

Then I rewrite this mathematically as $\mu = \sum\limits_{i=0}^n x_i$ where $x_i$ is the number of widgets agent $i$ has. I don't see any problems with this myself, but I'd like to make sure that economists view this as orthodox. Are there any references that I could use to verify this? Is this accurate? What is the precise definition of scarcity?

Edit

A Dictionary of Economics states scarcity is: "The property of being in excess demand at a zero price. This means that in equilibrium the price of a scarce good or factor must be positive" This is the most authoritative source I've found so far, but this doesn't seem like a rigorous definition to me - it clearly isn't mathematically defined. Am I wrong about this?


texts: GDP calculation on selling house at a profit

texts:
This question may appear to be naive, however, since I am having problems understanding it, I had to resort to ask it here.

How will the sale of an old house at a profit affect the GDP?
Let us say I bought a house in 2010 for $ \$100,000$. Depreciation per year was $ \$10,000$, hence in the year 2015, the house should have been worth $ \$50,000$. However, in the same year (2015), I sold the house at a price of $ \$80,000$  (thus a profit of $ \$30k$). Certainly the $ \$50k$ won't be added into the GDP of the year 2015 because it is nothing but just a sharing of the expenses, but, what's bothering me is the profit of $ \$30k$.
Since this is a kind of "value added", how do I incorporate it in the expenditure and income models of the GDP? Should I consider it as an investment made by the business?


texts:
More of a two part question. In the current system (Fiat only currency), why is a Federal Reserve Note booked as a liability (on the Fed balance sheet), but a Coin is not booked as a liability by the Treasury? What is the difference? What liability does the Fed have since it doesn't actually have to redeem the notes for anything (other than another note?)

Also, what does it mean to say that the notes are 'obligations' of the US Government?


texts: Literature on the effects of third-party certification on industrial dynamics?

texts: Is there any comprehensive theoretical studies on how third-party certification adoption may affect industrial performance/dynamics of an industry?


texts: What is the standard error on quarterly GDP figure?

texts:
The government and media seem to judge whether it is in a good economy right now based on its quarterly GDP figure.

However, I wonder how its figure is trustworthy. Even if the quarterly GDP is +1.2%, the actual figure should be +0.3 to +1.9% in 95% CI. Or -0.8% to 3.0%. Or something like that. But the point is that it should never be at the exact point, especially given that the figure is frequently updated later.

So how much standard error is it considered to include?


texts: Where do the rich and poor live in a city? (Calculus)

texts:
I am reading 'Cities, Agglomeration and Spatial Equilibrium' by Ed Glaeser.

People live in a monocentric city, where consumers of heterogeneous income $y$ work at the centre of the city. They buy $H(y)$ housing for a price $p(d)$ at distance $d$ from the centre, incurring transport costs $t(y)d$ as they commute to work.

Consumers have a utility function:

$U(C,H)=v(y - t(y)d - p(d)H(y),H(y))$

The budget constraint is:

$C = y - t(y)d - p(d)H(y)$ where C is consumption net of transport and housing.

The tangency condition implies:

$\frac{U_1}{U_2} = p(d)$

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

By the spatial equilibrium assumption, $\frac{dU}{dd}=0$: there are no rents to be gained by changing location.

$\frac{dU}{dd} = U_1(-t(y)-p'(d)H(y))=0$

$\therefore p'(d)=\frac{-t(y)}{H(y)}$: the price of housing declines with distance $d$.

If the income elasticity of housing is greater than that of transport (i.e. $H(y)$ increases in $y$ more than $t(y)$ does), the rich (higher $y$) will live in the suburbs. Mathematically, the denominator gets larger than the numerator and the price gradient is less steep. The willingness to pay declines less with distance for the rich.

The book then defines the income associated with each distance $y(d)$ and differentiates again to find the 2nd order condition, $p''(d)>0$.

The book states that this is:

$p''(d)=\frac{t(y)H'(y)-H(y)t'(y)}{y'(d)}>0$

But I believe this is incorrect an should be:

$p''(d)=\frac{(t(y)H'(y)-H(y)t'(y))y'(d)}{H^2(y)}>0$

Am I correct?

Also, how can you ignore the fact that $y=y(d)$ when calculating the 1st order condition then introduce it when you differentiate to find the 2nd order condition?

Should you not state $U(y(d)-t(y(d))d-p(d)H(y(d)),H(y(d)))$ and differentiate twice?


texts:
Question on the choice of boundary in the CUSUM test when we make some resampling
We are considering to make a CUSUM test for some economical time series $=(_1,..,x_n)$. Suppose  contains many noises which need to be removed in some ways. Simply speaking, the CUSUM test considers the empirical process,
$W_n = \frac{1}{\sigma \sqrt{n}} \sum_{i=1}^{n} (x_i - \mu)$
and check if it hits the boundary corresponding to the Brownian bridge. In practice, for execution of the CUSUM test, we utilize an R package, strucchange. Now we have a question. The question is related to the scaling of boundary since we are considering to make a resampling or filtering raw data, and perform a CUSUM test, again.
Question is as follows: Do we need to make any rescaling the boundary when we make a filtering data? For instance, should we need to multiply the original boundary by $\frac{1}{\sqrt{m}}$ (m: sample length)? Since we are using the open source R package, strucchange in performing the CUSUM test, it is not so clear if we need to take care of such a rescaling factor of the boundary function.


texts: Does the Federal Reserve have conditions attached to the money that's created and distributed to major banks?


texts: Linear Regressions: When to expect the residuals to NOT have conditional mean 0?

texts:
Suppose that $Y, X,$ and $U$ are random variables such that the regression $$Y=\beta_0+\beta_1X+U$$ is the best linear predictor of $Y$ given $X$.

My question is, when can we expect $E(U|X)=0$? I know that this conditional expectation is usually assumed to have mean $0$ for OLS and under other specific cases this is also true (such as when $X$ is binary). But why is $E(U|X)=0$ be generally not true (for example, when $X$ takes on other values besides $\{0, 1\}$) and are there any ways that we can modify it to make $E(U|X)=0$?


texts: I have read the too big to fail Wikipedia and as far as I understand, a company is too big to fail (and thus will receive government bail-outs) if it's failure has a significant impact on an important industry or the economy as a whole. Is my understanding correct? For example, a company such as Snapchat would not be bailed out because while it is worth a lot of money, its failure does not hurt the United State's infrastructure or the economy as much as GM's failure.


texts: Are billboards beneficial for the economy? Why?

texts: Billboards cost money to make and don't really seem to significantly benefit anyone other than billboard-makers. A company c putting up billboards presumably increases profits from the resulting increased number of customers, but don't competing businesses' billboards decrease c’s profits by decreasing its number of customers? I don’t see why the total amount of consumption would change, so wouldn't the total amount of business remain roughly constant? So, are billboards economically beneficial or not? Why?


texts: Regressing one impulse response on another

texts:
I have estimated the impulse responses of several variables to a shock. Now I would like to know to whether interest rates affect the responses of some of the variables, say GDP. I have an idea of regressing the impulse response coefficients of GDP on the response coefficients of the interest rates and see whether it gives a significant result.
I could not find papers about this method in literature. Do you know any paper that utilized this method? Would it be a right methodology?


texts: converting sum of consumption basket to integral

texts: In our lecture, first we had expenditure of consumption basket as $\sum_{i=1}^{n} p_{i}c_{i} $ but later my professor converted it to $\int_{0}^{1}p_{i}c_{i}di$. I want to understand how she did this? And how can I differentiate $\int_{0}^{1}p_{i}c_{i}di$ with respect $c_{i}$


texts:
How would you algebraically write a perfectly elastic supply?

Will it be infinite at price = 4? (The choice of the number 4 is completely arbitrary)


texts: If PPP Exchange rate is 0.291, what does that mean?

texts: I've normalised deflators for countries A and B. If the Price level of Country A/ Price level of country B = .291, does that mean that on average for every dollar a person in Country B spends, for the SAME thing in country A it only costs about .291?


texts: Is there some definition about risk sharing?

texts:
I was searching for a definition of risk sharing and I have found the following:

$\underline{Definition:}$ Risk Sharing — also known as "risk distribution," risk sharing means that the premiums and losses of each member of a group of policyholders are allocated within the group based on a predetermined formula. Risk is considered to be shared if there is no policyholder-specific correlation between premiums paid into a captive, for example, and losses paid from the captive's reserve pool.

I am confused with the term "captive". What is the exact meaning of this term? Is there any other reference about seome definition of risk sharing?


texts: How this ex ante game induce a uniform distribution for interim stage?

texts:
In an article (see here) from the blog leisure of theory class, it is shown, in an interim stage for a Baysian game, we could run into a technical problem that the induced belief space for a player could be a uniform distribution on a countably infinite type space, which can't exist.

My question is how is it the case in that setting?

For example, let $a=\sqrt 2$, the nature choose $x=0$, for player 1, of course, $\sqrt{2} \mathbb Z$ is countably infinite, but how the induced distribution $p(\sqrt{2} \mathbb{Z} \mid x=0)$ is uniform? It seems to me it's trivial that $p((0, \sqrt{2}) \mid x=0) =p((0, 0) \mid x=0) = 0.5 $.


texts: Existing metrics for amounts of leverage used in financial sector

texts:
My current understanding is that excessive leverage caused the Great Recession.

Are there existing metrics for measuring the levels of leverage currently used in the US financial sector (lending, investing, bonds, etc.)?


texts: Sources of the endogeneity of money in New Keynesian economics (Woodford)

texts:
I am trying to wrap my head around Woodford's "Interest and Prices" so I have a question regarding the source of the endogeneity of the money supply in his models.

The Post Keynesian view is that loans create deposits which (through full accommodation of the central bank) create reserves, that is both the monetary base and bank created credit are endogenous variables.

Now, in New Keynesian models, in particular those using the Neo-Wicksellian framework (referencing Wicksell's cumulative process), the supply of money is also endogenous. As far as I understand it the stock of money plays no particular role but changes in it are captured on its effect on prices (an implicit quantity equation so to say).
My question relates to the source of the endogeneity. Woodford acknowledges the ability of banks to create book money by making loans but does he also subscribe to the view that this then determines the stock of reserves?
Simply stated, are Post Keynesian and New Keynesian views on the endogeneity of money, ignoring monetary neutrality, the same?

Thanks in advance


texts: Why recent crises all started with a housing bubble?

texts:
I was writing some notes about the last economic and financial crisis and I noticed that all these recent crisis start with a housing bubble. Beside the 2007-08 US's one, also Japanese crisis in the beginning of the 90s and Spain's crisis, just to cite a couple of them, all have started by housing price boosting.

Why are all recent crisis starting with a housing bubble? Is something related to modern economies or just a coincidence?


texts:
I found the axis on the following graph of crude oil prices over 1950-2015 from MacroTrends surprising.

The y-axis labels are 20, 40, 60, 80, 100, ...but they are not equidistant. Why?


texts: The centralized shift from barter to currency economy

texts:
Suppose some ancient king of small bronze age city-state wants to introduce universal currency instead of barter that is currently in overwhelming practice in his kingdom. In order to smooth the shift, he wants to impose such intial prices that will correspond to current barter rates, for example, if ten pounds of fish are usually exchanged for one one pound of olive oil, that one pound of olive oil shall cost 10 times more than one pound of fish, etc. So king order his scribes to conduct a survey in order to determine traditional barter rates of all crucial products in the kingdom. In result, the following table was created:
$\begin{bmatrix}
k_{11} & k_{12} & ... & k_{1n} \\
k_{21} & k_{22} & ... & k_{2n} \\
... & ... & ... & ... \\
k_{n1} & k_{n1} & ... & k_{nn}
\end{bmatrix}$
In this table $k_{ij}$ is number that express barter how many units of product j are usually given for one unit of product i. Of course, $k_{ji} = \frac{1}{k_{ij}}$ and for all $i$, $k_{ii}=1$. The idea was to find the cheapest commodity, establish its price as 1 and assign all prices accordingly from exchange of this commodity. However, it was discovered, that some of barter relationships are not in equilibrium. In other words, you can exchange commodity A to commodity B to commodity C and finally back to commodity A end up with significantly more or less than you started. King wants to achieve equilibrium for initial prices with minimized disruption to existing economic relationships in the market, thus the set of prices $P = \{p_1,p_2,...,p_n\}$ should satisfy the following properties:
1)$\sum_{i=0}^{n}\sum_{j=0}^{n}(k_{ij}\frac{p_j}{p_i})=n^2$
2)$\sum_{ij}(k_{ij}\frac{p_j}{p_i}-1)^2$ has minimum possible value of all that satisfy the first condition.

The first condition basically says that arithmetic mean $k_{ij}\frac{p_j}{p_i}$ is 1.
The second condition minimizes mean variance of individual  $k_{ij}\frac{p_j}{p_i}$ from this desired value.

Is there any mathematical approach used in economics that can express prices for given set of rates explicitly (up to common scaling factor, of course)? King's story is just for flavor, don't overanalyze it.


texts: Determinants of economic growth in ARDL model - nominal or real variables?

texts:
I'm investigating the determinants of economic growth of my country. Some of them are of long term other are of short term. For that I'm trying to construct an ARDL model, but I'm confused about the right variables to choose and whether I implement them in difference in level or difference in logarithm.

I found out that we use the logarithm of real GDP in differences which tend to represent the growth rate. The explicative variables are foreign direct investment credits to private sector education spending health spending.

My question is: if I'm using real GDP as a response variable, do I have to use deflated explicative variables? Or it's better to  use nominal GDP and nominal explicative variables?


texts: How do I confirm that the constraint set wL + rK < Q is convex

texts:
Suppose a firm produces Q units using labour (L) for which the wage, w>0 and the price of capital (K) is r>0. It cannot employ negative amounts of its factors: L $\geq 0$, K $\geq 0$.

The firm's constraint can be written as $wL + rK$ $\leq Q$

How does one prove that such a set is convex? We know that if a constraint is convex, some vector, z = $\lambda x + (1-\lambda)y$ lies within the set.

Suppose I choose
$$z_1 = \lambda L_1 + (1-\lambda) L_2 $$

$$z_2 = \lambda K_1 + (1-\lambda) K_2 $$

where $\lambda  \exists [0,1]$

z = L + K

$$wz_1 + rz_2 =w[\lambda L_1 + (1-\lambda) L_2] + r[\lambda K_1 + (1-\lambda) K_2] $$
$$=\lambda[wL_1 + rK_1] +(1-\lambda)[wL_2 + rK_2]$$
$$\leq \lambda Q + (1-\lambda)Q$$
$$= Q$$

Thank you.


texts: Does the GDP contribution of a service sector represent the gross profits of that sector?

texts: I couldn't find a simple answer to this question: does the dollar contribution of a service sector represent the gross profits of that sector? For instance, the GDP contribution of the financial sector of the US economy is 1.26 trillion dollars. Is that all of the profit? Or does it represent the profits + the wages paid to workers?


texts: The problem of transformation: what is it all about?

texts:
I've just learned Marxist concepts that

Value= cost + wages + owner profit

But I do not understand what the transformation problem is and what problems exists because of this. Would someone mind to explain it with examples? Also can someone tell me the Marxist and non Marxist solutions?
P.S.Can someone clarify for me whether or not

Value is fixed as in after the job is done (e.g., worker did $6 of work)

and

Value is equal to price


texts:
$U(x,y) = x + 4y$, I tried to find demand function for good x, so I did utility maximization.
max $U(x,y)  = x + 4y $ subjects to $P_x.x + P_y . y = I$
and I found the $Px /Py  = 1/4$, so $4Px = Py$.
Plug it in budget constraint I found $P_x.x+4P_x.y = I$
My Question is when I write demand function for good x, should it be $x = I/P_x$ because I said $y = 0$
So, Can I say that there is corner solution?


texts: Specification bias - estimated variance is biased estimator of true variance of error term

texts:
Consider the two models $ (a)  y = X\beta + u $ where $X$ is $n \times K$ and (b) $y = Z\gamma + \omega $ where $Z$ is $n \times r$.
Under classical assumptions (and $Z$ and $X$ are non-stochastic) if model (a), that is $y = X\beta + u$ is the true model, show that $E(\sigma^{2}_{\omega}) \geq \sigma^2_u$ and explain the implication of your result.

I can do it in two cases when $r>k$ (overfitting) or when $r<k$ (underfitting).

Is there any short way of doing this, without cases (because for both overfitting and underfitting variance is biased)? So, what I am asking is that can they be clubbed so that result doesn't depend on relationship between $r$ and $k$?


texts: Meaning of $dF(z)$ in expected utility framework

texts:
Background: from a Microeconomics course,

  $F$ is a cdf. In other words, if $F$ has a density function $f$, then
  $$F(z)={\int_{-\infty}^z f(x) dx}  $$

  Write the Bernoulli utility function $u: \mathbb R_+ \rightarrow \mathbb R$ such that the preference is represented by
  $$U(F) = \int u(z) dF(z)$$

  If $F$ has density $f$, then $U(F) = \int u(z) f(z)dz$

I am unfamiliar with the notation $dF(z)$, and don't quite understand what this means. Can someone help?


texts:
Are interest rates the cause of economic growth?

For example there is no money in the system and bank a is lending company A a loan Y with X interest.

how can company A pay back the loan Y with interest X when the system is just loaded with loan Y?

My conclusion is the Loan Y can only be paid back with interest when the economic is growing by other loans?


texts: Benveniste-Scheinkman condition gives derivative that still depends on the value function

texts:
What I mean by the title is often, if we have a value function like
$$V(K,I) = \max_{K',I'} F(K') +\beta V(K',I')$$
the First order conditions will give us something that depends on the derivative of the value function, say $V_1(K',I')$. We deal with this by using the B-S condition to find $V_1(K,I)$, then advance it one period?

What about when $V_1(K,I)$ still depends on $V_1(K',I')$, though? (see $(*)$ below for an example, if you wish to skip the setup)

Here is an example. Note that subscripts denote derivatives, the number in the subscript being the input with respect to which we are taking the derivative. The exception to this is negative subscripts, such as $I_{-1}$, where the subscript denotes being one period in the past (in the case of $-1$). A prime denotes being one period in the future (t+1), and two primes denotes being two periods in the future.

Back to the problem: We have value function
$$V(K,I_{-1}) = \max_{I,K'',C}u(C) + \beta V(K',I) \\
\text{ s.t. } C+I \leq f(K) \\
\text{ and  } I =K'' - (1-\delta)K'
$$
So basically we have a simple model with investment that takes two periods to build. $f(K)$ is our production function.

The FOC's give
$$
u_1(c) = \lambda_1 \text{, $\lambda_1$ is the multiplier on the first constraint }\\
\lambda_2 = 0 \text{ multiplier on second constraint is zero} \\
\beta V_2(K',I) = -\lambda_1
$$
Now to get $V_2$ we use the B-S condition, which gives
$$V_2(K,I_{-1}) = \beta V_1(K',I)$$
because $K' = I_{-1} + (1-\delta)K$ from the second constraint. Use the BS condition again and get
$$V_1(K,I_{-1}) =f_1(K) + (1-\delta)V_1(K',I) \tag{*}$$, again, because $K' = I_{-1} + (1-\delta)K$

The previous equation is my question To reiterate, we use B-S condition to find the derivative of the value function, but in $(*)$ the B-S condition depends on what we are trying to find. How do we handle this?

I feel like $V_1(K'I)$ may just be $1$, or $0$, but then that makes $V_2$ be $\beta$ or $0$, which seems wrong...


texts: Why aren't we seeing carbon taxes in practice?

texts:
(See also a version of this question under politics, https://politics.stackexchange.com/questions/48764/why-arent-we-seeing-carbon-taxes-in-practice)

It seems that there are many advantages to carbon taxes, including pricing in the environmental cost and generating revenue (that could offset other taxes).  So why are we not seeing them in practice, at least not very much of them?  I can think of some reasons below, but I don't know which of these if any actually play a significant role in practice and/or are actually well motivated.  Am I missing anything?  Is there any good study of this?

Too difficult to implement / will generate an underground carbon economy. This would be a concern with many taxes, but it seems we should be able to have a pretty good handle on where carbon enters the economy given the necessary physical volumes and processing.
Will hurt economic activity.  But it seems that this can be addressed by using the revenue to stimulate economic activity / reduce distortionary taxes.
Will create too big of a shock to the economy with unpredictable consequences.  But the tax could be gradually introduced according to a schedule.
Unfair to industries that will suffer from this tax.  But we generally don't seem inherently very concerned about disruption of industries (e.g., taxi industry) and it is hard to argue that such action would come as a surprise at this point.  Also, again, the tax could be gradually introduced according to a schedule.
Will economically hurt people who can't afford it.  But this could be addressed by using the revenue intelligently (or by targeting only certain types of carbon, e.g., airline tickets).
Politically hard to sell.  Even if it is in their interest, too many citizens will reflexively complain about, for example, high gasoline prices.  But would they really feel this way when combined with, for example, a check made out from the government distributing the revenue in a basic-income sort of way?  Or is there some other effective way to clearly present it as not just an additional tax from a greedy government?
Industry is politically too powerful.  It will attack/reward politicians based on their actions and launch massive public relations campaigns.  But is it really that powerful or is that exaggerated in people's imagination?
Even though many of the above aren't actually true, citizens and/or politicians are unduly worried that they are true (or simply not well educated about the option), are risk averse, and therefore they don't pursue this route.


texts:
There are two firms in a Cournot duopoly that face inverse demand $P = \alpha - Q$, but one firm has total costs $c_1*q_1$ and the other has total costs $c_2*q_2$ with $c_1 < c_2$. I want to show that firm 1 will have greater profits and produce a greater share of market output than firm 2 in equilibrium.

Intuitively that makes sense to me because if one firm is more cost efficient they should be able to produce more and capture more of the market, right? I'm just having trouble showing this mathematically. I've gotten to the point of writing down profits for each: $Profit_1 = (\alpha - Q)q_1 - c_1*q_1$ and $Profit_2 = (\alpha - Q)q_2 - c_2 * q_2$, but taking derivatives with respect to the q's doesn't get me anywhere. Would appreciate some help


texts: Situations where revelation principle may not hold

texts:
Revelation principle is a powerful statement regarding Bayesian Nash equilibrium. However it may not hold always, as where players do not fully know their preferences, or when preference elicitation involves cost.

What are other situations where revelation principle is not applicable? Are there papers which have circumvented these issues with alternate versions of the principle?


texts: Synonyms for One-to-One Matching Mechanisms

texts: I am trying to find a more elegant usage of wording for one-to-one matching and I am need of some thoughts from others. Bilateral matching? Any help would be respected.


texts: Selling price of a widget at competitive equilibrium

texts:
Let's suppose that it costs producers a minimum of y dollars to produce a widget (it may actually cost more, depending on the producer, but that is the bare minimum). In a competitive equilibrium, where there are several producers of this identical widget, would the selling price of the widget be $y?

Please explain your reasoning.

EDIT:

I have arrived at the selling price of $y based on this algorithm.


texts: Operational Definitions of Spatial Equilibrium and Location Choice

texts: How scholars usually operationalize the concept of spatial equilibrium and location choice?


texts: Marginal propensity to consume and multiplier effect

texts:
Recently I had a conversation with a certain person (call her X) about the marginal propensity to consume (and about the multiplier effect).

With marginal propensity to consume I mean $c_1$ as a part of aggregate income (Y). For clarity let's say: $$Y_t =c_0 +c_1Y_{t-1} +I-G$$
with $c_0$ as autonomous spending; I as Investments and G as government spending. For simplicity lets say $I$ and $G$ are exogenous. The model can be found in every macroeconomics text book, e. g. Blanchard.

The conversation went something like this:

X: "Why do you use a value of $c_1$=0.1?"

Me: "This value is equivalent to empirical results done by many different studies for example: this"

X: "You don't really think that marginal propensity to consume is that small. It should be something like $c_1$=0.9. Are you sure that you don't mean $1-c_1$=0.1?"

At this moment I was pretty shocked by the response of person X and didn't really know what to say because the answer was so straight forward and forceful.

After thinking about this conversation I came across some (at least in my mind) strange contradictions:

at first I thought to myself: "ok let's look at the original source of this function i. e. the book from Blanchard (Macroeconomics 5th edition). As it turns out in the appendix he is "estimating" the marginal propensity to consume and get's a value of 0.77
then I thought to myself: "but wait a minute. If $c_1$ is that high the multiplier would be huge with 4.34" which can not be realistic
another thing that was going through my mind is the aspect of the permanent income hypothesis which basically states that consumers smooth their consumption over their lifespan. Based on this approach a high value for $c_1$ is also unrealistic because this would lead to a high volatility of consumption
I know that there is a difference between a permanent change in income (Y) and a temporary change but I don't really think in either of both cases a value of $c_1=0.8$ can be justified

My question is the following: What is the the current view on the marginal propensity to consume?


texts: Difference between direct and indirect utility

texts: What is the difference between direct and indirect utility? Following  the advanced microeconomics textbook Jehle and Reny I can not understand either the intuition or the math definition. It confuses me.


texts: Categorisation of Harmonised System codes for economic analysis

texts:
I work a lot with Harmonised System Codes (https://en.wikipedia.org/wiki/Harmonized_System). In a nutshell, the Harmonised System (HS) provides a way to record all goods based trade in and out of a country. Countries also impose tariffs (taxes) and other conditions on goods based off the HS system.

The problem with the HS system is that some of the groupings are not "free standing", meaning that they have words such as "not elsewhere specified", or "includes goods other than those under this HS code."

As a consequence, some analyst will introduce a grouping system on top of the HS. For example, they say that this chunk of HS codes will be summarised as "beef and veal", these codes as "cars" etc. However, many analyst also don't declare what the groupings mean when they publish their research.

There is a Standard International Trade Classification (SITC)(https://en.wikipedia.org/wiki/Standard_International_Trade_Classification) but this does not match well with the HS codes.  This means I can't group HS codes by SITC, report the trade values and tariffs in a database.

My question whether the community has come across any grouping system that works with the HS coding system? From my research, I noticed that DG Agri has this system but it is only for agricultural products.
https://ec.europa.eu/agriculture/sites/agriculture/files/trade-analysis/statistics/outside-eu/2015/product-classes-details_en.pdf

Also on agriculture, the World Trade Organization has a single grouping for "Agriculture" (using Annex 1 of the Agreement on Agriculture) but doesn't split the groupings any further.


texts: Which market category does this sustainable product belong to?

texts:
I'm currently working on an assignment, which is making an export plan for a product aimed at Asia. However I can't define the market of my product.

My product is basically an artificial riverbank; a mat made of coconut fibers with pre-grown plants in it, which can be easily placed on riverbanks to add more green and biodiversity to the place. It's completely sustainable and meant for urban areas.

To export it, I need to find market info. I can't find the import value or any solid statistics to describe the market of this niche product. I basically want the definition of a market where there is a lot of info and statistics, which I can "relate" to this product.

Like for example: it's easy to find the import value for 'fruit' in Japan. To which category could my product belong to? (or is the closest to? outdoor plants,.. any ideas?)

not even sure if this is the right forum to ask this stuff, but thank you very much anyway!


texts: Indicator variables over unequal periods?

texts:
I'm comparing the volatility of capital flows using a panel data regression. I would like to examine changes in volatility over different periods (e.g. before financial crisis, financial crisis, unconventional monetary policy and tentative recovery periods) using dummies. However, this periods are of unequal length, would this do anything to invalidate this comparison?

Any ideas would be much appreciated !

Kind regards


texts:
The opposite of a budget deficit is a budget surplus
But what is the opposite of public debt?
Instead of govt/state being in debt, having the government have extra money to keep or to lend it to banks or companies.
Say the extra money are kept Instead of being lent. What is the name of such a surplus?
It would be the sum of the budget surplus for the curent year and all the years before.


texts: Why the treasury is buying back its treasury securities during the coronavirus economic crisis?

texts: I have read today that the treasury of my home country (not the US) started to buy back a significant amount of its Treasury securities (bonds, notes ...) from their owners. My question is what happens at a microeconomic scale after the Treasury redeems back its treasury securities ? I've actually read that Central Bank along with the Treasury both agreed and decided to do so before starting printing any new money, I wonder thus why? and why this timing in particular? Why do they have to spend money in order to print new money?


texts:
How did Turkey manage to create a springboard for its defense industry so fast?

TFX program costs USD 10bn
S-400 purchase costs USD 2.5bn
Turkey targets 30% hike in military spending next year

How is Turkish economy handling the pressure of so much defense purchase?


texts: What is technology in the Ricardo model?

texts:
I've been reading about the Ricardo and Heckscher-Ohlin models. I'm having trouble following what makes a worker in the former able to produce more or less of a given good.
So e.g. suppose a US worker can produce 10 computers a day where a Mexican worker can only produce 1. This is attributed to better computer-production technology in the US. But what is that technology? Is it better physical capital, in the form of computer-building machines? Is it better human capital? Is it ideas in some loose sense? Is it related to TFP?


texts:
How do one know whether an appreciation in the price of an asset is a bubble or not? For example, during the 2007-2008 crisis, there was a housing bubble, which is only mainly agreed upon when the bubble actually starts to burst. Beforehand, however, the rise in housing price was not commonly accepted as a bubble, especially during the period when the housing price was still rising before the crisis.

So how do we know whether an appreciation is a bubble or not?

Any suggestions of articles about the issue are appreciated.


texts: Is anyone familiar with the following basic resource sharing model?

texts:
Here is a resource sharing model, I do not remember where I came across it, I am wondering if this is well known in econometrics.

Let $T > 0$ be the total quantity of resources. For example, ad time slot between 6:00 pm to 6:10 pm, hence $T = 10$ minutes.

Two ad companies are competing for time slots by bidding in some nonnegative amount of money. Let company $1$'s bid be $x$, and company $2$'s bid be $y$.

Let $C > 0$ be the cost of entering the bidding process.

Let $r_x$ be the share of ad time slot that $x$ gets, and $r_y$ be the share of ad time slot that $y$ gets.

Then $r_x = \dfrac{Tx}{C+x+y}$, and $r_y = \dfrac{Ty}{C + x+y}$.

The utility for company $1$ is $U_x = m_x r_x - x$

and the utility for company $2$ is $U_y = m_y r_y - y$

where $m_x, m_y$ are the margin utility.

I wonder if anyone has seen this type of model somewhere.


texts: What are cross price effects for the case of perfect substitutes?

texts:
U$(x_1,x_2)$ = $x_1 +x_2$ in the case of perfect substitutes

If $p_1 < p_2$ then $(x_1^*,x_2^*)$ = $(m/p_1,0)$, if $p_1 > p_2$ then $(x_1^*,x_2^*)$ = $(0,m/p_2)$

Trying to figure out how a change in the price of $p_2$ will affect the demand of of $x_1^*$ when $p_2$ increases but when $p_1 < p_2$, then $dx_1^*/dp_2$ = $d/dp_2(m/p_1) = 0$

And when $p_1 > p_2$ then $dx_1^*/dp_2$ = $d/dp_2(0) = 0$

Wondering how to show using calculus that this increase in $p_2$ so increase the demand of $x_1^*$ so $dx_1^*/dp_2$ should be greater then 0


texts: Why was the Glass-Steagall Legislation enacted?

texts: I realize that the part of the reason the Glass-Steagall act was enacted was to ensure that banks do not invest customer's deposits into risky securities, but what was the rationale for separating investing banking from consumer banking? What did they hope to achieve by doing this?


texts: What were the factors that caused the Philips curve to stop working during the 1970s?

texts:
Philips curve says that inflation and unemployment were inversely correlated. In the 1970s, stagflation happened. If Philips curve hold true, stagflation is impossible.

What were the factors that caused the Philips curve to stop working during the 1970s when the economy was hit by stagflation?


texts:
According to the theory, monetary growth increases inflation.

But how do companies know that there is more money in the economy now than before?


texts: Is it possible to have a signaling game in which all players are both informed (about themselves) and uniformed (about other players)?

texts:
So far, the models of Signaling Games I have seen involve two players. One player is known as the Sender and has more information. The other player is known as the Receiver and has less information.

But suppose I have two people who each don't have information about the other.  Now they start sending signals and learn about the other.

Are there models of Signaling Games that cover such dynamics where both players are senders and receivers?


texts: Question about an ergodicity in economics paper

texts:
Disclaimer: I'm not well read in economics but am mathematically literate (PhD in Mech Eng)

Recently I was sent a paper from Nature Physics, "The ergodicity problem in economics" by Ole Peters.

I was discussing this with a friend who also isn't an economist but has more than just a passing interest.

He made the claim that in figure 2 of the paper the graph is wrong i.e. that the expectation values (the blue line) are wrong in that they should be plotting a plot of 0.9^(number of rounds/2), which would have a negative slope. He then goes on to say that this renders the paper garbage.

Now obvioulsy this paper was published in Nature Physics which currently has an impact factor of 22.8 so I find it hard to believe that this would have slipped past peer review.

So my question, is the paper wrong or is my friend?

EDIT #1:

One of the comments was where did the expectaion equation derive from. I'm not sure of my friends derivation but if you run the model proposed in equation 2 of the paper then you do indeed get an ever decreasng return. I used the following Python code to run the model...

from matplotlib import pyplot as plt
import numpy as np

wealth     = 1000
num_tosses = 1000
h_t        = np.random.randint(1, high=1000, size=num_tosses)
x          = []
acc_wealth = []

for idx, toss in enumerate(h_t):

    if toss % 2 == 0:
        wealth = wealth + (0.5*wealth)
    else:
        wealth = wealth - (0.4*wealth)

    x.append(idx)
    acc_wealth.append(wealth)

fig = plt.figure()
plt.plot(x, acc_wealth, "o-", lw = 2)

A typical plot of accumulated wealth v toss number....

This is clearly not what we're seeing in figure 2 of the paper...

Here the blue line is the accumulated wealth (log scale on the y axis) v toss number. It is increasing!!!

EDIT #2

I'm going to post an amended version this on the Statistics Exchange page too.

EDIT #3

Answer from Cross Validation Stack


texts:
Consider a simple one-period model where a creditor provides $I$ as investment to a firm and firm produces $\pi_G$ or $\pi_B$ depending on its performance. Let $R_i$ the portion of the profit that the firm transfers to investor, where $i=\{G,B\}$.

My Questions

(1) If we enforce limited liability structure in an agency problem, why is it that:

$$\pi_i\geq R_i.$$

(2) In an agency problem, is it reasonable to have this assumption? Why have limited liability as constraint at all?


texts: Modelling prices to identify price outliers

texts:
I am currently trying to find 'Price Outliers' in a set of data. Given a set of product prices (within a product category, e.g. milk) I want to filter for prices that are suspicious - for example I have a set of milk prices $\{1,1.5,10,0.1\}$ then I want to filter for $10$ and $0.1$. The problem is that within different product categories price ranges can vary a lot - for example fish: a tin of tuna and a tin of caviar, converting the prices to 1kg has a very big difference in pricing.

So the question is, if anyone of you knows a (mathematical) model, to describe pricing within 'similar' products - I am more interested in relative conclusions about prices rather than absolute, for example: I am not interested in 1.5 Euro per liter milk against 1 Euro per liter milk but I am interested in the 'range prices can have' with the aim to find suspicious prices.

So far I worked with an empirical expected value and standard deviation, assumed prices are log-normal distributed and calculated the 2-sigma intervals and filtered all prices not within the 2-sigma interval. This gives more or less good results but is not really satisfying.


texts: How to estimate parameters in a utility function?

texts:
Utility function is $U = X^aY^b$.

It is a Cobb-Douglas function, and there are data for $X$ and $Y$.

I would like to know how to estimate $a$ and $b$.


texts: Purpose of a monotonic transformations in utility functions

texts:
Based on my economics book, monotonic transformations for a utility function can look something like this:

$f(u) = u + 17 $ or even like this: $f(u) = u^3$

That being said what it purpose in the case of the utility function, as far as I know, the number of the utility doesn't matter to us (the only thing that matters is if it's bigger or smaller than the utility of another bundle)?

The book explains it in the following way:

  monotonic transformation is a way of transforming one set of numbers into
  another set of numbers in a way that preserves the order of the
  numbers.

Though it the order stays the same why would we do it in the first place?


texts: Asset bubbles and empirical findings for monetary stimulus' effect on productivity

texts:
It may be fairly empirical that leveraged investments can cause "asset bubbles" that often result in really highly priced assets (which I'll refer to as the ("leverage argument") -- more on that here: What is an economic bubble?.  I have also come across an argument that asserts a more fundamental cause is at work: loss of productivity -- which I'll refer to as "the productivity argument." To be fair, the leverage view may not be so different if we infer that leveraged investors bid up the price beyond its fundamental value (thus losing productivity/ sub-optimal allocation), but to be explicit, the productivity argument states that a bubble can form without rising prices: if the growth rate of goods increases at the same rate as the growth rate of money supply, then prices will remain constant, ceteris paribus.
By extension, investments driven by money supply growth (and not productive activities) may result in asset bubbles. Let's not go so far as to say that money supply growth and productive activities are mutually exclusive; some overlap is afforded. However, if we limit the universe of assets under consideration to only money-supply driven non-wealth creating investments, this creates an interesting theoretical/classification issue as to whether or not they would be viewed as asset bubbles. I can see the case for them being considered asset bubbles, as they would, theoretically, only exist because of growth in the money supply. However, the existing literature supports the contrary -- monetary stimulus tends to increase productivity. See: here.
Question
Playing devil's advocate, if "the productivity argument" has any chance of mainstream recognition, then would we not have to observe a negative relationship between monetary stimulus and productivity? Or is it that current evidence does not refute the existence of non-wealth creating assets caused by money supply growth, but simply shows that, on balance they are outweighed by the vast majority of assets that do create wealth as a result of monetary stimulus?


texts: How product leaks before announcements affect a company economically?

texts: It happens specially for well known companies (e.g. Apple, Garmin, etc.) that some features of their products leaks into the media before the announcement. I was wondering what are the economical effects of these leaks on the company and how strong are they?


texts: Why would increased inflation increase the value of the dollar and bond yields?

texts:
I was reading this Fortune article (http://fortune.com/2016/11/14/donald-trump-victory-dollar-inflation/) and came across this confusing quote:

"'Clearly the market has settled on a 'buy dollar' theme on the basis there will be a debt-fueled U.S. fiscal binge that will push up inflation,' TD Securities European Head of Currency Strategy Ned Rumpeltin said.

and the start of the article says that "the risk of faster inflation and wider budget deficits...sent Treasury and other benchmark global yields shooting higher."

Why would this be the case? Shouldn't it be the opposite (higher inflation-->less valuable dollar)? Or are markets anticipating the Fed to more aggressively raise the interest rate?


texts: Is 'intelligent money' or 'smart money' an economic term, and if yes, what does it refer to?


texts: If America's economy collapsed what would happen to all of the citizens? What if the whole global economy collapsed?

texts:
My journalism professor is not an expert in finance or economics but has studied history.  She is always giving us a negative lecture on the America's economy and how the rich  are taking al of the wealth for themselves and letting America fall to ruins so everyone else loses everything and just is on the streets.  She said this is basically what it like in Detroit and Michigan right now and that seeing how divided we are socially, she thinks we're going down just as worse as Rome.

She really freaked me out.  Is this true>  I know it sort of opinion based but if you can just give an answer on what would likely happen in a case of economic collapse for just America, just Europe, and if the whole global economy collapsed as well.  I know the rich have enough investments and saved resources to live for decades, but for people like me lower middle class, what will happen?


texts: If there is a tax to be paid for every income event, doesn't that imply most money in circulation belongs to the goverment it circulates in?

texts:
So this is my logic, let me know where/how it is flawed:
Starting from 100 units of currency, lets say 100 coins, someone recives that 100 and has to pay any % of that as income tax, lets say 10%, then he/she goes and spends the remaining 90, which represents the income of someone else, this person recieves 90 and has to pay any % of that as income tax, lets say 20%, keeping 72. This person goes and spend the remaining 72, which again, becomes the income of someone else, and so on.
Isn't it true that over enough transactions, 99% of that initial wealth has been transfered to the tax reciever?
If so, doesn't that mean most wealth in circulation belongs to the goverment it circulates in, as long as it keeps circulating?


texts: Why do we treat demographic variables as being exogenous?

texts:
I I would like to ask about demographic variables.
In general, we usually include those variables as independent variables when we run  regressions such as wage equation or test score equation.
What I wonder is that why we take them as exogenous in general? Intuitively, I understand that those are something given to agents when they need to make a decision, so in that regard it makes sense that we say they are exogenous. However, mathematically E[Xe]=0 is the definition of exogoneity, and so I guess demographic variables can be still correlated with unobserved error terms. For example, if we consider the following equation
Y_i = X_i*b_i + e_i where Y_i is test score, X_i are demographic covariates (race, gender, age ...). Then, isn't it possible those variables are correlated with innate abilities or whatever in e_i ? But, I do not find any convincing answers why (nearly) every people take those as exogenous....

Any answers for this?


texts: Dif in Dif on countries, is it necessary to cluster by country?

texts:
I have a question regarding Dif-in-Dif (DD) studies. If I want to compare a policy that is implemented differently in three different countries - thus three different treatment groups - using a DD approach, is it necessary to cluster standard errors by country (instead of for example by industry)?

From my understanding this would make a DD approach almost impossible as the amount of clusters can not be high enough (aka not higher than 42 or whatever number one likes to go by). With other words all DD studies comparing policy effects between 2 or 3 different countries (or states) would be invalid.


texts: Raising interest rates to prevent inflation

texts:
I am reading a book about the Mundell-Fleming Model and I have encountered a part which says:

  The Fed raised U.S. interest rates several times during 1994 to prevent U.S. inflation.

Isn't it the other way round? I thought that rising interest rates causes the investment to decrease and so the money demand to decrease. When money demand decreases, price level increases. Am I wrong?


texts: Hodrick Prescott filter for quality variables

texts:
I am having a countries panel data on macro variables<gdp, inflation etc) and a continuous quality indicators variable . My models suggests that the quality indicator is a factor for gdp to reach its potential output.
I would like to construct an index of cost as a descrete continuous variables defined as:
(gpd(potential) - gdp current) /indicator (potential) - indicator (current)
. In other words I need to find the what is the ideal value the indicator should assume for each period in order gdp to be on it's potential value. Once found then need to construct the index of cost
I will take the hp filter in order to calculate potential gdp and gdp gap. My question is it possibile to use hp filters on quality indicators or another way is more appropriate (I e likelihood) ? If so, which one?
Mario


texts: Interpretation of regression coefficients with and without logs

texts:
Say you want to estimate return to education.

Model 1 (no log): assume the DGP is:

$$w_{i} = \alpha + \beta x_{i} + \zeta_{i} + e_{i}$$

where $x$ is years of schooling, $\zeta_{i}$ is unobserved heterogeneity (e.g. capturing ability), and $e$ is an idiosyncratic error. Furthermore, wage is measured in \$ per hour.

Question 1: since the dependent variable is in wage per hour, does this imply that $\alpha, \zeta_{i}$, $e_{i}$ are also in wage per hour? Same for the composite $\beta x_{i}$? If this is the case, then $\beta$ -- the return to education -- is defined as wage per hour, per year of experience.

Model 2 (log): assume the DGP is:

$$\ln{w_{i}} = \alpha + \beta x_{i} + \zeta_{i} + e_{i}$$

where wage, $x$, $\zeta_{i}$ and $e$ are as defined above.

According to answers to this question, the log transformation of a variable is dimensionless. In consequence, $\ln{w_{i}}$ is dimensionless.
Question 2: does this imply that $\alpha, \zeta_{i}$ and $e_{i}$ are also dimensionless? Is the composite $\beta x_{i}$ dimensionless? If so, the dimension of $\beta$ is "1 over years of experience"(!). How it is then that we can interpret $\beta$ as the % change in wage following a extra year of education?


texts:
I am working with the following Economic model of labour and consumption decisions:

I have a population whose mass is normalized to one of consumers.
They derive utility from consumption $c$,supplying labour $l$ and a public good $y$
This is summarized by a differentiable utility function $u(c,l,y)$
Agents derive earnings $z$ from suppliying labour according to:
$$z=nl$$
where $n$ corresponds to a "skill level" such that: $n\in[0,\infty[$. Such skill level is distributed according to distribution of skills $F(n)$ with density $f(n)$.
$c_n$, $z_n=nl_n$ and $u_n$ are used to denote the consumption, earnings, and utility level of an individual with skill level $n$
the individuals maximize their utility function subject to a constraint:
$$c_n=z_n-T(z_n)$$

where $T(\cdot)$ is a differentiable "tax function"

 7.The public good is produced according to the sum of this tax function:

$$y=\int_0^{\infty}f(s)T(z_s)ds$$

We can use the equations above to express the maximization problem of the consumer as:

$$\max_{z_n}u\left(z_n-T(z_n), z_n/n, \int_0^{\infty}f(s)T(z_s)ds\right)$$

The first order conditions to this problem write (ommitting the arguments of the function $u$ for notation compactness):

$$u_{c}(\cdot)(1-T'(z_n))+u_l(\cdot)/n+u_y(\cdot)\cdot  \frac{\partial y}{\partial z_n}=0$$

I am interested in studying the last term $\frac{\partial y}{\partial z_n}$. It seems intuitive that $\frac{\partial y}{\partial z_n}=0$ since:

$$\frac{\partial y}{\partial z_n}=\int_0^{\infty}\frac{\partial f(s)T(z_s)}{\partial z_n}ds=0$$

However, I am not sure about the mathematical requirement necessary for the last equation to make sense. It seems somewhat contradictory to the intuition yo get when aggregating using sums, for instance a discrete analogous would be given by:

$$\sum_{s=0}^{\infty} T(z_s)$$

and it is clear that the derivative of the last expression with respect to $z_n$ would be equal to one.

Could you help me out here? Maybe some broad claryfication of integral aggregation would be required. Thanks!


texts: Since the US-China Trade Deficit grew, would the USD be valued more now compared to the RMB?

texts: I'm curious to see how broadening or narrowing a trade deficit would affect a currency pair.


texts: Extraction of Inflation Expectation from bond yields

texts:
In my introductory monetary economics course we have learned that inflation expectations can be calculated by comparing yields on index-linked and conventional bonds of equal maturity and assuming a risk neutral investor. One simple example given is:

A risk-neutral investor is indifferent between 1-year conventional and index-linked gilts (issued at par value, i.e. p = F) if expected returns until maturity equal:
$$ (1+i) F = (1+r) (1+\pi) F $$ so knowing $i$ and $r$ (from financial data), we can calculate $\pi$, the inflation expectation.

Now this I am completely fine with, but then the lecture goes on to the following example:

  Extracting inflation expectations from gilts (assuming risk
  neutrality) Use Tr 4.5pc ‘42: i = 1.71%, and IL 0.625pc ‘42: r =
  −1.66% [Tradeweb] $$(1 + 0.0171)^N = (1 − 0.0166)^N (1+\pi^e_N)^N$$
  giving $\pi_N^e \approx 3.43%$ break-even inflation for a horizon of N =
  23 Years

My question is: how can this calculation be valid when the coupon rates are different for the two gilts? What are the assumptions (eg issued at face value)?

My thinking is that to extract inflation expectations, we must equate the expected returns of the bonds until maturity, just as in the earlier simple example. The rate of return is however clearly tied to the coupon payments, which each need to be multiplied at the relevant accrued yield, leading to a much more complicated equation for the inflation expectation.


texts:
Consider the identity:
$$
Y=C+I+G+X-M
$$
 where $Y$ is defined either as value-added output, or income, or
total expenditure. Now, consider private individuals, who decide to
save money, as opposed to spending it. Aggregate demand decreases,
and so output follows, due to the Keyensian cross logic. However,
income that is not consumed, is saved. If savings increase, so does
investment. As such, why is it not the case that if consumption goes
down, investment goes up by the same amount? And if so, aggregate
output should remain unchanged, regardless of the decision of the
consumers after they receive their income?


texts: How do we estimate production functions?

texts:
In a standard economics education we learn about production functions, indicating an output as a function of a given input of capital and labour.

An average model looks like this:

(1)    $F(L,K)=L^{a}K^b$

When dealing with real data however, we are first exposed to regression models which are additive in nature which look like this:

(2)      $y_i={\beta}_0+{\beta}_1x_1+{\beta}_2x_2+...+{\beta}_nx_n$

How do we get a production function that looks like (1) when dealing with real data?


texts:
I am starting to learn microeconomics from a book named Intermediate Microeconomics by Hal R. Varian. The first chapter is on market. I was attempting to solve the end text problems but was stuck. Following are the two problems.

For question number 1, I made the following demand curve:

The solid blue line in the graph shows that if the price lies between 200 and 500 then the demand is constant at 25. And accordingly, I attempted question number 2 and thought that for 24 apartments there will be no equilibrium price since there is no intersection between the demand curve and supply curve. But the equilibrium price for the same is given to be 500. So I searched online and got the following curve:

Please help me understand what is wrong with my graph and why the above graph is correct. Kindly correct me if I am wrong, according to the above graph we can conclude that at a price of 400 there is no demand and at the price of 500 the demand is not fixed at a constant number but is changing.


texts: Why is Price Vector Orthogonal to Vector connecting two bundles on Budget Hyperplane

texts:
Here is my revised version/understanding why price vector is orthogonal to any vector from a bundle on the budget hyperplane to another bundle on the hyperplane: (see below for original question)

  Want to show geometrically that budget hyperplane is the relative terms of exchange. This is a fancy way of saying it represents the 'ratio' of the prices between any two commodities. For simplicity sake, look at $L=2$. We have two options for a ratio: either $\frac{p_1}{p_2}$ or $\frac{p_2}{p_1}$. What would it be? The way the price vector is constructed is p$=(p_1,p_2)$, so when you draw this vector from any point on the budget line that is negatively sloped in the case of $L=2$, the vector is essentially the slope (e.g. rise over run) of $\frac{p_2}{p_1}$. So obviously, if the negatively sloped budget line is supposed to represent the price ratio, then it has to be the case $\frac{-p_1}{p_2}$. In fact, this is so from the Walrasian budget set definition where $w=x\cdot p$.

When we look at a typical Walrasian budget set in $\mathbb{R^+_2}$, why is the price vector orthogonal to the consumption vector (e.g. any two on the slope) on the budget hyperplane? This goes back to Chapter 2 of MWG.
 I understand the analytical explanation using dot product.

  $p\cdot x=p\cdot x'=w$ for $x,x'\in\{x\in\mathbb{R^+_2}:p\cdot x=w\}$.
   Hence, $p\cdot\Delta x=0$.

But I am having a tough time understanding two things:

  (Q) Why does this orthogonality between price and consumption vector on hyperplane relate back to the slope of the budget line determining the relative rate of exchange between two commodities? How do you make sense between intuition and geometric interpretation?

Thanks for your 2 cent!


texts: Contest: earliest written instance of economic thought

texts:
Following part 5 of @Lateral fractal answer to "Handy Hints for Committing to the Beta" on the meta

  "Have fun! No fun = No play. No play = No beta. I'm sure I'm not the only one to feel that a fresh private beta is like unwrapping an early Christmas present."

and in order to complement the question "What was economics like as a field before Adam Smith, the father of modern economics?", I propose the following contest:

Let us try to elect the "best earliest" written instance of economic thought.

Answers should contain a short description of the work at stake with proper reference and dates, and votes by users will decide of the winner.

Without a single hope of success, I suggest that people vote according to the following criterion

$$ Vote_i(answer~a) = \begin{cases} 1, \qquad \text{if } u_i(e_a,d_a) \geq T_i \\   0, \qquad \text{if } u_i(e_a,d_a) < T_i\end{cases} $$

where $r_a$ is your subjective assessment of the degree of "economicness" of the described work, $d_a$ is the date at which the work was written, and $u_i$ and $T_i$ are a utility function and threshold of your choice.

Good luck to everyone!


texts: Why isn't the cost of shoes affected by their size?

texts:
I have noticed that many shoe selling shops I have visited have the same price tag regardless of the shoe size.

Intuitively I'd think the bigger the shoe the more material and consequently capital invested in producing it. That being the case why would a manufacturer equally price dissimilar shoe sizes?


texts: Adverse Selection: Positive Selection of Worker Types (Mas-Collel)

texts:
I'm reviewing some question from Mas-Collel and I am stuck on a chapter 13 question related to adverse selection.
Consider a model of positive selection in which there are workers of two possible productivity types, $\theta_H$ and $\theta_L$, with $\infty > \theta_H > \theta_L > 0$ and $\lambda = Prob(\theta=\theta_H)  \in (0,1)$.
A worker of type $\theta_i$ can produce $\theta_i$ for a firm in exchange for a wage $w$ or work at home and gain $r(\theta_i)$.
r(.) is strictly decreasing and r$(\theta_H) < \theta_H$ and that $r(\theta_L)>\theta_L$. Show that the highest-wage competitive equilibrium need not be a constrained Pareto optimum. [13.B.9]
If the equilibrium is not a constrained Pareto optimal, then it could be a Pareto optimal, this occurs where all types are full employed when $w = \theta$, i.e. the condition that $\Theta^* = \{\theta:r(\theta) \leq w^*\}$.


texts:
Consider the following imaginary lottery (motivated by
Massachusetts' Cash WinFall):

  Ticket money obtained in the previous draw are given to the participants of the next draw proportionally to the ticket price they pay.

For example, suppose that in the first draw people bought tickets costing 5 million dollars, and in the second draw - costing 1 millions; if I bought a 1 dollar ticket in the second draw, then I win 5 dollars; and that's for sure, no minuscule probabilities, cool! People will like it and buy more tickets in the third draw, say 10 millions, and win 10 cents for a dollar spent, that is lose 90 cents overall; in the fourth draw almost nobody will like to take part, people buy tickets costing only 0.5 million, and win 20 dollars for one dollar spent, cool again! And so on...

Of course, the organizer will have to take a share, say 10% of ticket price, but it seems that it does not really change the mechanism, that is ticket money fluctuating up and down.

Such a strange lottery looks like something from a stock market - so can one really model it there?

P. S. English is not native to me, so please feel free to correct the question.


texts: Gross National Income for Personal Income?

texts:
is there such a thing as the measure that amounts to roughly the aggregate of personal income for a country (say: all salaries combined) and an aggregate of corporate income. But as separate figures, in dollars.

(Specifically, I am interested in Canada.)


texts: Why do externalities lead to a Pareto-inefficient outcome?

texts:
So we know that under a Pareto-inefficient outcome, there is room for Pareto improvement, i.e. making someone better off without hurting anyone.

Assume that there is a drug company which is in competitive equilibrium: and $$N^S=N^L\\
|MRS|=|MP_n|=|MRT_{(c,l)}|$$
$\pi$ is maximised etc. So everyone should be happy right? Since we are in a competitive market,

But if this drug company makes some pollution which is a threat to the health of citizens, we call this case a negative externality.

By definition if such negative externalities exist, even though we are in a competitive equilibrium, we would be Pareto inefficient.

But how come we are Pareto inefficient? If we reduce the pollution somehow and reduce the externality, or create a market for pollution and let the pollution trade the firm would definitely be losing money since it would pay for the pollution. So isn't it impossible to make citizens better without making the firm worse off?