texts: Does the Marshallian demand function always include prices and income?

texts:
I have the following utility function:

$$U(x_i)=x_1x_2+x_3$$

with budget constraint:

$$p_1x_1+p_2x_2+p_3x_3\leq I$$

I use the Kuhn-Tucker method to find the optimal choices of the Utility maximization problem.
My equations are:

$$x_2-\lambda p_1+M_1=0$$
$$x_1-\lambda p_2+M_2=0$$

$$1-\lambda p_3+M_3=0$$

$$p_1M_1=0$$
$$p_2M_2=0$$
$$p_3M_3=0$$
$$p_1x_1+p_2x_2+p_3x_3-I=0$$

$$(M_1,M_2,M_3,\lambda \geq 0)$$

When I set $M_1=M_2=M_3=0$ (Lagrangian case), I got the optimal solutions for $x_1,x_2$ as:

$$x_1=\frac{p2}{p3}$$ and $$x_2=\frac{p_1}{p_3}$$

How could I construct a Marshallian demand function in this case? The optimal solutions haven't got the I (income) variable.

Is it correct to define a Marshallian demand function for good $x_1$ as:
$x_1(p,I)=\frac{p_2}{p_3}$?

  Marshallian demand function (named after Alfred Marshall) specifies
  what the consumer would buy in each price and income or wealth
  situation, assuming it perfectly solves the utility maximization
  problem


texts:
Some say "housing crash" but I suspect the existing global banking system imploded.  Am I off-base, or ...?

In my experience, CME S&P futures, for example, require a performance bond of something less than 10% of the market value of the underlying asset(s) to open a position, i.e. healthy leverage is baked into the product.  As I calculated back then, TARP and TARPII literally provided enough capital to purchase the entire US stock market via futures contracts.

Today, a decade later, the run on global banking seems to continue.  "Buy gold bcs you can't trust governments or banks" commercials come on TV about every 15 minutes. Also, inflation continues to outpace return on bank deposits, i.e. negative real interest rates.  Punishment for holding cash; and we see several Nations outlawing large denominations of cash.  Gold has been repatriated out of NYNY in masse.

Did the global banking system collapse in 2008, or was it simply a housing/mortgage issue?  Lastly, if it did, my understanding is that like 99% of $100 bills notes are held outside of the USA.  Why didn't the Fed simply declare bankruptcy, void all those notes (and all those complex derivative contracts), and start over with new money?  Why the fake?  The sun's going to come up tomorrow regardless...?


texts: A confusion regarding search and matching model in Pissarides's "Equilibrium Unemployment Theory" book

texts:
I was studying chapter 1 of the book "Equilibrium Unemployment Theory" and I got confused about the way Pissarides has defined the probability of a firm not finding a worker in a short time interval $δt$ as $1-q(θ)δt$  (page 7 of the book).

The first reason I got confused is that, to me that cannot represent the probability because if we take $δt$ large enough, the result can be negative.

Second, if we take $q(θ)δt$ as the rate (NOT the probability) of a firm finding a match in a time interval $δt$, then the rate of the firm not finding a match in the same time interval shouldn't be $[1-q(θ)]δt$ instead of $1-q(θ)δt$?

Any help would be much appreciated.


texts:
I'm currently reading up on matching models in terms of their ability to describe frictional unemployment, they generally follow a cobb-douglas form.

$$M(u,v)=m=\mu u^\alpha v^{1-\alpha}$$

Where $M(u,v)$ or $m$ is the number of employed, $u$ is the number of unemployed, $v$ is the number of job vacancies, $\mu$ is a constant and $0<\alpha<1$.

moving around the formula we obtain vacancy rate.

$$v=\left(\frac{m}{\mu u^\alpha}\right)^{\frac{1}{1-\alpha}}$$

Economterically estimating job vacancy  would seem to be much more difficult for countries which do not have a history of report it.This is mainly due to omitted variable bais, which would skew our estimates for $\alpha$.

How does one estimate job vacancy in countries that only report employment and unemployment?


texts:
I don't understand how u/Cruian's comment answers the original questions in that Reddit post.

The expense ratios are taken from the fund's holdings directly, you never see the change in your account directly.

So does the borrower of the ETF pay the [Management Expense Ratio ("MER")? The lender?

If the borrower must pay the lender the dividends, is the borrower credited the MER? Or is the borrower debited the MER?


texts: Is it necessary to have currency in an ideal centrally-planned economy?

texts: Under this condition, the price of goods are definitely meaningless.


texts: Is there a standard term for this tradeoff when subsidizing: inducing dependence vs providing support?

texts:
I've often heard it informally argued "people will become lazy if you give them handouts". Although I doubt the economic sophistication of most such assertions, I do think they have a real point: you might incentivize reduced productivity and actively harm the arc of skills development if your policies are not well thought out. On the other hand, subsidies are obviously an important device for any centralized institution.

Perverse subsidies is too broad and yet does not seem to talk about this particular tradeoff (at least in the wikipedia article on subsidies).

I'd be very pleased with a specific term, but if there isn't one, some analysis along these lines would be nice.

(If even that doesn't exist, I suspect I might have raised a question that isn't suited to the natural categorizations in economics and some gesturing towards where I might be going wrong would be helpful)


texts: Normalise historic values given in different currencies

texts:
I have historic monetary values given in different currencies and stemming from different points in time. I want to be able to compare them, and for that all must be given in the same currency, and inflation between the points in time must be considered as well. Eventually, all values should be given, for example, in US Dollar 2018.

What is the right way of achieving comparability in the above mentioned way? Does the base currency and the base year impact the method and/or the result, or are those independent of the choice of base currency and base year?


texts: Why do some phones depreciate faster than other?

texts:
Based on evidence from reselling sites (eBay, Amazon etc.) we can observe a trend that iPhones on average depreciate far less and slower than for example Samsungs (or other phones that lose their value even faster). Now why is that?

Note that I am not talking about nominal prices (iPhones are on average more expensive than Samsungs) but the percentage change. I am also not asking as a "fanboy" - it is just an observation I made.


texts: Is it true that if marginal cost is constant, then average variable cost is also constant and equals marginal cost?

texts:
I'm inclined to think yes because marginal cost only depends on variable cost (fixed costs don't matter), but I'm not 100% certain.
Basically, my thought process is that marginal cost of producing one additional unit is the change in total variable cost to produce that unit. So, my current idea is that if marginal cost is constant, that must mean that average variable cost (total variable cost/output) is also constant. But I'm still not entirely convinced.


texts: What does "writes a check to Congress in exchange for them" mean in this context?

texts:
On page 192 of the 5th edition, George Edward Griffin begins to describe
the "Mandrake Mechanism", chapter ten, in "The Creature from Jekyll Island".

First, the Fed takes all the government bonds which the public does
not buy and writes a check to Congress in exchange for them. (It
acquires other debt obligations as well, but government bonds comprise
most of its inventory.)

I don't understand it.  The government issues bonds.  Some people buy it.  Some bonds are not bought.  How does Congress get involved in this?  Is it the case that Congress buys all those people did not buy?  With what money does Congress buy?  Is Griffin saying that the Fed itself ``writes a check to Congress'' so that Congress can afford it?
Update. The question is requesting not a profound understanding of the process, but only the process itself.  If Griffin doesn't describe it properly, I would consider an excellent answer the mere description of this first step of the process that Griffin tried to describe.


texts: What are some examples of indirect mechanisms that are not auctions?

texts: I'd like to know if there are any examples of indirect mechanisms that are not auctions. Auctions seem like a very controlled environment. I'd like to see some examples of indirect mechanisms "out in the wild".


texts: How would banking in EU change if taxpayers withdrew their support for Deposit Guarantee Scheme?

texts:
Disclaimer

The question pertains mostly to EU but I believe counterparts to Deposits Guarantee Scheme exist world-wide.

Assumption

Let’s suppose that support for liberal ideas and free market rises in European nations what results in taxpayers withdrawing their support for majority of state’s interventions in the free market, including Deposit Guarantee Schemes. Taxpayers would also demand that the minimum capital to open one’s own bank would be dropped from 5mln Euro to 100k Euro, so that the competition in the banking sector is at a much higher level that it is nowadays which is an interesting topic in itself but let’s just focus on DGS exclusively.
I am far from judging who would benefit on that or whether such a situation is even likely - it’s simply an axiom for this question.

Question

Now, given that Fractional Reserve Banking model makes it impossible for banks to guarantee even a small fraction of deposits in their own capital as clearly banks juggle money supplies rows of magnitude higher than they own, what can we reasonable expect to happen if taxpayers turn their back on banks and demand banks to provide their own guarantees?

I presume that once the taxpayers’ guarantees are gone, for banks to be perceived as a safe place, they would have to own capital that at least equals the deposits to be handed over to them?

Otherwise, I cannot see what would people base their trust to banks on?

References

Directive 94/19/EC on DGS

DGS FAQ


texts: Weakly monotone preferences with singleton indifference curves: do any of them admit a utility representation?

texts:
Inspired by this question. The original question was answered by Amit with some nice examples. I would like to know the generalized answer:

Suppose we have a preference ordering $\succeq$, which is weakly monotone, thus for any basket of goods $x$, $y \in \mathbb{R}^n$
$$
x >> y \Rightarrow x \succ y,
$$
and which only has singleton indifference curves, thus
$$
x \sim y \Rightarrow x = y.
$$
Is there any such preference ordering which can be represented by a utility function?

A remark: without monotonicity one can simply take any bijection from $\mathbb{R}^n \to \mathbb{R}$ and claim that as a utility function. This would have singleton indifference curves.


texts: The role of relative prices in markets on the allocation of resources and the effect on living standards

texts:
How do the role of relative prices affect how resources are allocated? And as a result, how does this effect living standards?

Would it be something along the lines of how changes of relative prices affect "what and how much" to produce, "how" goods are produced and "whom" to produce for?


texts: Reading list: history of economic thought / political economy

texts:
Can you all please suggest books that I can read to get started in the fields of political economy and the history of economic thought?

While my major in Mathematical Economics has given me a good grounding in the theoretical models of economics and the empirical methods used to test them in the real world, I feel that my knowledge of political economy and economic history is sadly lacking. I would like to get a more holistic understanding of the discipline(s) and would greatly appreciate your advice.


texts: Derive the Demographic Structure in the Steady State

texts:
I am reading a paper with following description on the demographics in their model: "... each (representative) agent lives for $T$ periods ... We assume that each individual has $e^{f}$ children at age $B$. Since we consider only steady states, we need to derive the stationary age distribution of this economy associated with this fertility rate. Our assumptions imply  $N(a, t)=e^{f} N(B, t-a)$ and $N\left(t^{\prime}, t\right)=0, t^{\prime}>T$. It is easy to check that in the steady state $N(a, t)=\phi(a) e^{\eta t}$, where $\phi(a)=\eta \frac{e^{-\eta a}}{1-e^{-\eta T}}$ and $\eta=f / B$ is the growth rate of population."
I have no idea how is this steady state calculated?


texts:
Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss.

The question: There are two individuals A and B, each having one unit of time which can be used either for leisure or labor (to produce a good to consume). Their utility functions are respectively:

  uA(lA,cA) = 6(1-lA) + cA and uB(lB,cB) = 10(1-lB) + cB

Where 1-lA/B is the leisure time for A/B. Furthermore, we know that A can produce 4 units of the consumption good per 1 unit of labor time, and B can produce 24 units of the consumption good per 1 unit of labor time.

The last information I transformed into:

  cA = f(lA) = 4lA and cB = g(lB) = 24lB

(where f and g are some production functions)

I am being asked to find the set of Pareto-optimal allocations of consumption and labor.

I assume I need to start with MRSA = -6 (or 6? never know when to use negative/positive?) and MRSB = -10. However, I am not sure what piece of information I can get from that? I assume that indifference curves are lines, right? And that they will always cross, which then would imply that the set of Pareto-optimal points is on the boundary of Edgeworth box?

On the other hand, these guys maximize their utilities so that:

  max 6(1-lA) + cA = max 6(1-lA) + 4lA = max 6 - 2lA

and

  max 10(1-lB) + cB = max 10(1-lB) + 24lB = max 10 + 14lB

meaning that lA = 0 and lB = 1. That is, A will spend his 1 unit of time for leisure: 1-lA = 1-0 = 1 and B will spend his 1 unit of time for labor.

Two other questions are:

Find Pareto-optimal allocations that are also envy-free.
How would the analysis go when A could produce 7 units of good per 1 unit of labor time.

But I think I should be able to answer them, after some hints for the first part of the question. ;)


texts: Why intuitively does Break-even point $= \dfrac{\text{Total fixed costs}}{\text{Selling price per unit} − \text{Variable cost per unit}}$?

texts:
p. 100. Accounting: A Very Short Introduction  (2014).
I understand the green sentence beneath, but not the fractional formula for BEP containing CPU in red? What's the intuition for the latter?

Contribution
The ‘contribution’ is the amount that a particular product line helps
towards covering fixed costs and making a profit. The contribution is
measured as: Sales − Variable costs.  This can also be calculated per
unit of production. The contribution per unit (CPU) is:
$\color{red}{CPU = \text{Selling price per unit} − \text{Variable cost per unit}}$
That is, taking the selling price for one unit of production, and then
deducting all the variable costs for that one unit of production,
gives the contribution per unit.
Break-even point (BEP)
$\color{forestgreen}{\text{The break-even point is the volume of production at which the firm makes zero profit.}}$ Therefore, the break-even point is the level at
which all costs (including fixed costs) can be paid for. The formula
is:
$BEP = \dfrac{\text{Total fixed costs}}{\color{red}{\text{Contribution per unit (CPU)}}}$
So, above the break-even point, any extra items sold will generate
profit. Every unit that is produced and sold in excess of the
break-even point will generate profit of the amount of the CPU. The
total profit made is:
Units in excess of break-even point × CPU
If the firm does not reach break-even point, this implies that it has
not yet covered fixed costs and will therefore make a loss. The size
of the loss will be the number of units under the break-even point,
multiplied by the CPU.

The break-even point can be
derived using the formula given above, or by drawing up a chart such
as Figure 15.


texts: Utility function and homogenous of degree zero

texts:
I've a utility function which is given by

($x_i$-$b_i$)$^{c_i}$ $\sqrt{x_2}$

. What values of b and c can I input to ensure Homogenous of degree zero in prices and wealth? I think c will be positive. However, I have never done these types of questions before. What are the steps that will guide me to solve questions like this?


texts: Did/does a decline in crime rates encourage materialistic values?

texts:
Robert Shiller writes (2000 Irrational Exuberance, 2015 3rd edition):

  A decline in crime rates also, on the flip side, encouraged materialistic
  values by making people feel more secure, less worried that they would be
  robbed or physically harmed. In the United States, the rate of property crimes
  per 1,000 people fell 49% between 1993 and 2003, and the rate of violent
  crimes per 1,000 people fell 55%. One could then more comfortably flaunt
  wealth, and so wealth became more attractive. Living in an ostentatious
  home was now more appealing. Fear of terrorism increased, but terrorists
  did not seem to strike wealthy people preferentially, and generally not in
  their homes. The declining crime rates in the U.S. made a capitalist lifestyle
  seem a better model for the entire world.

These are interesting claims but Shiller does not seem to offer anything to back them.

I wonder if there has been any actual research showing that "a decline in crime rates ... encourage[s] materialistic values by making people feel more secure"?


texts: Under what conditions should the External Rate of Return (ERR) be used instead of Net Present Worth (NPW) and vice versa?

texts:
I have just read the concept of both Net Present Worth (NPW) and the External Rate of Return (ERR). This is what I have understood of these two values:

NPW is the net discounted value of all the cash flows that occur throughout the life of project, while the discount rate is the MARR -- a rate that I have decided as a minimum rate of return for acceptance of a project. If NPW > 0, accept the project else reject.

ERR is the rate of return of the project when I reinvest the cash produced at a rate RR (Reinvestment Rate). This rate may be different than the ERR itself. If ERR > MARR, accept the project, else reject it.

I may have understood wrong, please correct me if I am wrong.

So both of the methods are used to make accept/reject decisions for the projects. Certainly there are perks of using one over the other, otherwise there would not be two distinct methods. Then under what conditions is one preferred over other? Or is one of the methods always better than the other in general? Why?


texts:
What textbook can I use to really understand microeconomics, macroeconomics and mathematical economics. It can be different textbooks. I'm in first year college taking introductory courses in microeconomics, macroeconomics and mathematical economics. I need a really good textbook or online site to understand what I'm studying well. I like the way people on this site answer and explain questions with application. I want to be like that too. I have Greg mankiw books by the way, I have schaum's introduction to mathematical economics. I need to read more quality books to understand.

Thanks


texts: Why should houses have the same price for a given supply

texts:
So I'm reading Varian intermediate microeconomics and in chapter one it's about housing. Suppose we have a inner ring and a outer ring in a city where there is a university. In the inner ring supply is limited and everyone who can't afford it or whos reservation price is too low, moves to the outer ring.

Suppose we have a intersection of supply and demand. Now there the price should be set.

But why not increase the price for a subset of the houses since not everyone has the same reservation price couldn't you price housing in a way that everyone get's a house for his reservation price and no dollar less?


texts: Why U.S Import from China is a big deal?

texts:
Economics books often quotes import as a borrowing

Why it is borrowing since the importer pays to exporter for the goods they have received. Lets say, a US company is importing apparel from China.


texts: Lucas Critique and RE: Did one arrive before the other?

texts:
Hi All: I have no formal background in economics but I've been teaching myself RE for the last 3 or so years when I get the chance. I know the history and parts of the literature pretty well but it's clearly a vast field so some things are still quite fuzzy. The following question may help me with a confusion I've had for a while but am only asking to bother now. ( fortunate to find this list. Didn't know about it early on when I started in RE ).

The Lucas Critique was in 1976 and gives examples to show that the standard and well known keynesian approach to econometrics is  not terribly useful from the standpoint of policy. Once a policy changes, expectations can change and keynesian econometrics didn't handle that.

My question is: Did the Lucas Critique

A) represent the start of what is termed the RE revolution ( in order to combat the critique )

OR

B)  was RE already in place and well known  before the Lucas Critique ?

Basically, I'm trying to understand whether the Lucas Critique could have had the title

"Keynesian type econometric models need to be replaced by a new econometric technique called RE".

I am aware that Muth actually came up with the basis for what later became RE
but I'm not counting that as the start, atleast for the moment. ( no disrespect to Muth ).  I'm asking whether was RE was already in play say
after 1970 but before the Lucas Critique ? It seems like it was as far my
reading goes ( Lucas has famous RE type papers from 1972 ) so, then I'm wondering why was the Lucas Critique such a big deal in that case ? Didn't everyone know it already since RE was already around. Thanks for any insights-references etc.

                                                      Mark


texts: Constant returns to scale and cost function: $C(p,ty) = tC(p,y)$

texts:
How can I prove that for a production function $F:\mathbb X \rightarrow \mathbb R$ with constant returns to scale
$$\forall x\in \mathbb X, \forall t > 0: \ \ F(tx) = t F(x)$$
and with the cost function
$$C(p,y):=\min_{x \in \mathbb X} \{p^\top x\lvert F(x) \geq y\}$$
it must be the case that $$C(p,ty) = tC(p,y).$$
My first strategy has been to make a constructive proof along the following lines
$$C(p,ty) = \min_{x \in \mathbb X} \{p^\top x\lvert F(x) \geq ty\}
=\min_{x \in \mathbb X} \{p^\top x\lvert F(x/t) \geq y\},$$
with the second identity using the constant returns to scale assumption. I then define $z=x/t$ and rewrite the variable over which to minimize
$$= \min_{x/t} \{t p^\top(x/t) \lvert F(x/t) \geq y\} = t \min_z\{p^\top z \lvert F(z) \geq y\} = t C(p,y).$$
However I am not entirely sure that this proof is solid so I guess my question boils down to whether this proof really is solid or if there is another way to proove it?


texts: In the real world, how does a firm know their marginal costs and revenue? How do they mathematically calculate MC=MR?

texts: I understand the theory behind it but in practice how is this done?


texts: What trick can be used to calculate mixed-equilibria?

texts:
In continuous games, the probability distributions over the players' strategy spaces are infinite. How then is it even possible to then derive a mixed-strategy nash equilibrium?

One would have to show that the mixed-strategy of one player is the best possible mixed-strategy response to the strategy of another player. In the continuous case, how is this even possible? How do you maximize over "all possible probability distributions".

Can anybody provide a clue?


texts: Struggling with uncompensated/compensated demand

texts:
I'm working on a problem set for my intermediate microeconomics course, but I'm having trouble deriving the compensated and uncompensated demand functions. This is the utility function:

$U(x, y, z) = aln(x) + bln(y) + z$, with goods $x$, $y$, $z$ and income $I$. I found the following optimal values:

$x = (P_z/P_x)a$, $y = (P_z/P_y)b$, $z = (I/P_z) - a - b$

Even though I followed the steps, I'm not completely sure this is right. Moreover, I have to find cross price effects and both the compensated and uncompensated demand functions, but I'm having some serious trouble solving this problem.


texts:
I will begin by saying that I have very little knowledge about economics, so don't make any presumptions.

My problem is that I want to calculate the actual value of gold in Swedish Krona(SEK) for the last 15 years, accounting for the overall inflation.
I have calculated some average prices as well as having researched the inflation rate of the Swedish Krona. The information is listed below.

Average Price/Gram
Year 2000: 81,21 kr
Year 2001: 89,90 kr
Year 2002: 96,54 kr
Year 2003: 94,65 kr
Year 2004: 96,89 kr
Year 2005: 105,63 kr
Year 2006: 144,82 kr
Year 2007: 149,54 kr
Year 2008: 179,83 kr
Year 2009: 236,83 kr
Year 2010: 279,83 kr
Year 2011: 324,20 kr
Year 2012: 363,68 kr
Year 2013: 299,28 kr
Year 2014: 275,83 kr
Year 2015: 315,10 kr

Yearly Inflation
Year 2000: 0,98%
Year 2001: 2,66%
Year 2002: 2,08%
Year 2003: 1,27%
Year 2004: 0,28%
Year 2005: 0,88%
Year 2006: 1,64%
Year 2007: 3,45%
Year 2008: 0,90%
Year 2009: 0,58%
Year 2010: 2,34%
Year 2011: 2,29%
Year 2012: -0,05%
Year 2013: 0,14%
Year 2014: -0,31%
Year 2015: 0,05%

Now, I request nothing more than a methodology. If you know of a somewhat accurate formula that would result in inflation adjusted values, please do share.
Please remember to also include an example of how you would make use of it. Thank you for your time and effort.


texts: Determining the effect of fiscal policy on foreign exchange market

texts:
I'm in AP (high school) Macroeconomics and I confirm if my thinking is right. Suppose the US and Taiwan are trading, and the US government decides to decrease taxes. I think this should have two effects on the foreign exchange market between USD and TWD (Taiwanese dollars).

Lower taxes means US consumers have more disposable income, i.e. relative income of US consumers is higher. They demand more foreign Taiwanese goods since they have become relatively cheaper. Thus $S_\textrm{USD}$ should shift to the right, since more US consumers are putting their USD up to exchange for TWD, and $D_\textrm{TWD}$ should shift right as well.

Greater relative income in the US means lower relative income in Taiwan. Taiwanese consumers find it more expensive to import US goods, so they decrease the supply of TWD they put up in the forex market (they are less willing to exchange and buy US goods), so $S_\textrm{TWD}$ should shift to the left. Further $D_\textrm{USD}$ shifts to the left as well.

While these two effects have an indeterminate effect on the quantity of currency in their respective forex markets, they have a determinate effect on exchange rates. The USD depreciates and TWD appreciates. So the US finds it more expensive to import and so US imports decrease, while US goods become cheaper to foreigners and so US exports increase. Thus US's GDP increases and price levels increase. I've been taught that only one of the two shifts occurs. Is this 2-shift conceptualization correct?
Would this also mean that initially, US consumers look towards Taiwan to buy goods (they have more disposable income) but after exchange rates adjust, they stop (since US imports decrease)?


texts: Marginal Product of Capital in the Solow Model

texts:
In the classic form of the Solow Model:

$$ Y=K^\alpha (AL)^{1-\alpha } $$

Describe circumstances in which the marginal product of capital could rise over time, at least for a temporary period.

I've calculated:

$$ MPK = \frac{dY}{dK} = \alpha K^{\alpha -1}(AL)^{1-\alpha } $$

The thing is, I thought one basic assumptions of the Solow Model was diminishing marginal returns, so how could there ever be a case when MPK is increasing?


texts: What is the term for workers who outputs more than other workers at the same wage thus depressing wage for others?

texts:
What is the specific term for this worker:
A worker who outputs more than other workers at the same wage, therefore now the owner doesn't have to pay workers as much since he gets the same total output for less


texts: Clarifying foreign direct investment and imports on International Transactions release

texts:
I would like to measure US corporations' investments in property, plants, and equipment abroad versus their spending on labor abroad. However, I'm unsure of the categorizations on the International Transactions report.

BEA report for reference:

Suppose I'm American and I want to build a factory in Mexico. I have $1 million dollars.

Scenario A - I convert \$1 million to pesos and put the pesos in a Mexican bank. I use the pesos to purchase a factory and pay my workers every two weeks. Does this $1 million show up entirely as an outflow in reserve assets (page 9 line 75)?

Scenario B - I don't convert my money. I build the Mexico factory and pay my workers entirely in USD. Does the factory show up entirely in outflow of direct investment assets (page 9 line 62)? Does my periodic worker comp show up entirely in primary income payments compensation of employees (page 9 line 57)?

Now suppose at the end of the year, the workers convert their dollars to pesos. Does this conversion show up in currency and deposits (page 9 line 94)?

Edit: It seems that construction of the factory itself is can be considered as a import of construction services for America according to the IMF's treatment for compensation of employees.


texts: Intermediate Case of Bertrand and Cournot

texts:
I am wondering whether there is a model of oligopolies in which we have some intermediate case of Bertrand and Cournot competition. What I do not mean by "intermediate" is the mixed Bertrand - Cournot game in which one firm sets a price and the other sets a quantity. What I also do not mean (I think) is monopolistic competition in which goods are not perfect substitutes.

Rather, I mean a model in which there are degrees of commitment to prices and quantities. For example, a cookie producer can softly commit to a cookie amount by only purchasing a certain number of ovens and softly commit to a price by printing the price on the cookie boxes. At some extra cost, it is however possible to later scramble to rent an extra oven or to reprint price labels. I am wondering whether this has been modeled anywhere. Ideal would be a parametric version with the parameter indicating whether we are in the pure Bertrand or in the Cournot case.


texts: Estimating the second derivative of function from optimizers

texts:
Consider the following optimization
$$x^*(s) = \max_{x\in X} \big(\,f(x)-sx\,\big)$$
where $f$ is assumed to be a strictly concave function and $X$ is an interval constraint, e.g $X = [0,b]$. We do not know the exact function $f$.

Assume that we can provide a parameter $s$ and obtain the corresponding (unique) optimizer $x^*(s)$.

My goal is to estimate $f''(x)$ from a collection of parameters $(s_1,s_2,\ldots)$ and associated optimizers $(x^*(s_1),x^*(s_2),\ldots)$.

How would one go about doing this? I was thinking of applying the envelope theorem or using finite differences in some way but I'm not quite sure how to proceed.


texts: Altruism and locally non-satiated preferences

texts:
Is there an altruistic utility function that cannot represent a locally non-satiated preference?

As an example of an altruistic utility function:
$U^1(x^1,...,x^H)=u^1(x^1)+\sum^H_{j=2}U^j(x^j)$, where $x^j$ is a consumption bundle for agent j, and $U^j$ is increasing in $x^j$.


texts: What would be the shape of the Indifference curve with slope 1/xy?

texts:
Let the utility function be: $U(x,y) = \log x +y^2$.
In this case, the MRS is coming out to be $\frac{1}{2xy}$. Thus, how will the shape look like?


texts:
Dear StackExchange users,

I am currently studying currency crises and for that I need data from 1980-2018. I have used data from IMF, OECD, BIS, WORLD BANK, etc., but I still have some missing data especially for Real effective exchange rate (REER), Reserves, discount rate for countries such as: Argentina, Peru, Thailand, Australia, Georgia, Ukraine, Russia, Indonesia, Korea, etc.

Does anyone know any good online source or any database from well-known papers where I can find this kind of data.

P.S. I also need some data and any idea how to calculate financial contagion.
A dataset and do file would be really helpful for that.

Thanks in Advance,
Arbnor Gashi


texts: My teacher defined Unitary elastic demand as demand which has $PED = (-)1$ . The formula I have been told for $PED$ is $\%\Delta Q_d /\% \Delta P$.  But how can total revenue $( = P\times Q)$  remain constant for such a demand? Suppose $P$ goes up $10\%$, so $P' = 1.1P$. For unit elasticity, $Q$ must go down $10\%$ so $Q' = 0.9Q$.  So $T' = Q' \times P' = 0.9Q \times 1.1P = 0.99 \times PQ = 99\%$ of $T$. So when we say $T$ stays constant, do we mean that as an approximation ?


texts:
What purpose does general equilibrium serve in practice?

How is it useful for people (since economics is supposed to assist politics, which is supposed to benefit people)?


texts: How did Pareto came up with Pareto Distribution of wealth law?

texts:
I am not an economist but a mathematics student. I heard about the Pareto law - the mathematical modelling of the distribution of wealth, how did Pareto come up with this law? technically speaking from the data perspective?
Is it a consequence of pure chance? The De Matthew principal in economics?
Are there any strong criticism to the law?


texts:
I am struggling with calculating the Cash Flow Sensitivity of Cash from the Almeida et al. (2004) working paper. (http://u.osu.edu/weisbach.2/files/2015/01/ACWJFinance-ui65te.pdf)

I am trying to apply his formula on one specific company case and additionally make some conclusions, whether the company has financially constraints or not.

I am trying to apply equation (8) on page 1787. However, I understand the main variables like  change of CashHoldings, CashFlow, Q and the Size but I do not understand the factors in front of them like a0, a1, etc. Therefore, I am not able to apply this equation.

On page 1793 the authors also provide a more simplified definition of the cash flow sensitivity of cash. "These estimates suggest that for each dollar of additional cash flow, a constrained firm will save around 5-6 cents"(p.1793).

If I stick to this definition I can not see the necessity to apply any equation. Following this definition I simply could calculate the cash flow sensitivity of cash with the data of changes in cash holdings and cash flows of the certain company. Is this right?

Moreover, does anybody know how to calculate the cash flow sensitivity of cash with the given equation (8)?


texts: Analysis of exogenous shocks on equities

texts:
Real Life Problem This one is a tough one and some crowd sourcing seems like a good way to get some feedback. I am trying to determine the effect of Non-Farm Payroll surprises on a subsector of the economy. Furthermore, I want to forecast the effect on the subsector using my own surprise estimates for an upcoming non-farm payroll event. I want to take into account the subsector's movements due to its correlation with Equities and Rates.

Stats Problem I am trying to determine the effect of an exogenous shock on a time series (so series of shocks over time of varying magnitude) taking into account the time series correlation with two other time series. I want to then forecast the result of an upcoming shock on the time series.

Current Solution Ideas Listed in order of 'complexity'

Linear regression of panel data focusing on day of changes in time series NFP in relation to the shock
MultiLinear regression of panel data focusing on day of changes in time series NFP in relation to the shock taking into account Stock and Rates movements
MultiLinear regression of time series data focusing on day of changes in time series NFP in relation to the shock taking into account Stock and Rates movements. Shock would be dummy crossed with magnitude.
Autoregressive distributed lag model using BIC/AIC to determine lag numbers and checking inclusion of stock and rates timeseries with Granger causality. Shock would be dummy crossed with magnitude.
Other? What am I missing?

The dataset is somewhat stationary, the timeframe is usually limited (3-5 years, with 36-60 shocks) so trend changes are minimal

Note: Try them all and see best fit is not an answer, that's just data mining ;)


texts: GDP Income Approach by industry: Public Administration calculation?

texts:
How is Public Administration generally considered when looking at GDP Income Approach by industry?
Is remuneration of employees the main factor considered, since there is no Operating Surplus?

I am trying to understand the key principles of such calculations, rather than detailed mathematics. Thanks.


texts: Quarterly GDP growth terminology: YoY vs QoQ

texts:
Quarterly GDP growth can be calculated either in terms of YoY change or — in the case of seasonally adjusted data — in terms of QoQ change. (A third option would be to annualize the QoQ rate.)

To start with a current example: In the U.S., GDP in Q1 2018 grew by 2.9% compared to Q1 2017 (= YoY), whereas it grew by 0.7% compared to Q4 2017 (= QoQ).

In Q4 2017, however, YoY growth was at 2.6%, whereas QoQ growth was at 0.7%. So GDP growth in Q1 2018 was higher compared to the previous quarter in terms of YoY (2.6% -> 2.9%), whereas it was slightly lower compared to the previous quarter in terms of QoQ (0.7% -> 0.6%).

Now in judging an economy's growth momentum, analysts typically focus on changes in QoQ growth rates - in the example above coming to a conclusion like "growth in the U.S. slightly lost momentum in Q1 2018".

My question is: Is there a different term to express changes in the YoY rate? To stay with the example above, if I comment on the fact that the U.S. YoY rate is up to 2.9% from 2.6%, concluding that there was a “strengthening of growth momentum” might be misleading (especially given the diverging picture based on changes in the QoQ rate).


texts: Is a financial bubble harmless if rich people choose to hoard their wealth?

texts:
The real question is longer than the title suggests.

I was reading about Principles For Navigating Big Debt Crisis by Ray Dalio, and he mentioned that an economic bubble happens when too much money was chasing after too little goods. Effectively, it also implies that incomes should not rise faster than productivity.

However, what if rich people (or those who own overvalued assets) don't spend their "profits" and hoard them? Wouldn't that mean the real money that was circulated in the economy will still remain stagnant, people's income did not actually rise faster than productivity, and that the bubble will just result in an arbitrary growing wealth gap that wouldn't have any real consequences until the rich decides to spend/distribute them?


texts: K-shaped recovery - is there a benign explanation for it?

texts:
I am often skeptical of emphasis placed on this "alphabet soup" that has surrounded the shape of the economic recovery. Given the uncertainties at play with this type of forecasting, it may be realistic to just accept that the exact shape cannot be resolved empirically any time soon. Nonetheless, one particular letter has prompted me to delve further: K.

A K-shaped recovery occurs when, following a recession, different
parts of the economy recover at different rates, times, or magnitudes.
This is in contrast to an even, uniform recovery across sectors,
industries, or groups of people. A K-shaped recovery leads to changes
in the structure of the economy or the broader society as economic
outcomes and relations are fundamentally changed before and after the
recession. This type of recovery is called K-shaped because the path
of different parts of the economy when charted together may diverge,
resembling the two arms of the Roman letter "K."

Perhaps the K-shaped dynamics in US equities needs little introduction, given the coverage of NASDAQ and S&P500 milestones this year despite deteriorating macro conditions. But going further, we see similar financial speculation in the fixed income space. Bond transactions motivated less by "safe haven" philosophy and more as motivated by speculative buying/holding and selling after sufficient capital gains (suggestive of bond traders simply trading momentum, not fundamentals).
In one of BofA's recent reports, we see the proportion of financial assets to GDP has been high for several decades, but has become even more pronounced in recent years.

Taken together, it would seem the decoupling of the real economy from the financial economy is becoming more obvious. Though the financial services sector is likely a winner under the K-shaped recovery scenario, I'm not sure that comes at the expense of everyone else -- perhaps its not necessarily a "bad" thing for the economy as a whole. For example:

Financial economy is picking up the slack of the real economy to achieve growth (since productivity is dead, need more debt)
Financial economy grows as a result of reflationary efforts to make sure we don't need to rely on austerity

But there are sinister implications as well: credit, asset bubbles.
Question
What is the consensus view, and is there a benign explanation for how/why the financial/real economy's K-shaped recovery?


texts: I am analysing a time series and all the variables are stationary using augmented Dickey–Fuller test (ADF). Does it make sense to test for co-integration in stationary series?


texts:
I managed to forecast a GARCH model yesterday and run a Monte Carlo simulation on R. Nevertheless, I can't do the same with an ARMA-GARCH. I tested 4 different method but without achieving an ARMA-GARCH simulation with my data.

The packages and the data I used:

library(quantmod)
library(tseries)
library(TSA)
library(betategarch)
library(mcsm)
library(PerformanceAnalytics)
library(forecast)
library(fGarch)
library(GEVStableGarch)

getSymbols("DEXB.BR",from="2005-07-01", to="2015-07-01")
STOCK = DEXB.BR
STOCK.rtn=diff(STOCK[,6] )
STOCK.diff = STOCK.rtn[2:length(STOCK.rtn)]
ARI_2_1=arima(STOCK[,6],order=c(2,1,1))
GA_1_1=garch(ARI_2_1$residuals, order = c(1,1))

First tested method

specifi = garchSpec(model = list(ar = c(0.49840, -0.0628), ma =c(-0.4551), omega = 8.393e-08, alpha = 1.356e-01, beta = 8.844e-01))

garchSim(spec = specifi, n = 500, n.start = 200, extended = FALSE)

This lead to a "NaN" forecast.

garchSim(spec = specifi, n = 500)

n=1000
armagarch.sim_1 = rep(0,n)
armagarch.sim_50 = rep(0,n)
armagarch.sim_100 = rep(0,n)
for(i in 1:n)
{
    armagarch.sim=garchSim(spec = specifi, n = 500, n.start = 200, extended = FALSE)
    armagarch.sim_1[i] = armagarch.sim[1]
    armagarch.sim_50[i] = armagarch.sim[50]
    armagarch.sim_100[i] = armagarch.sim[100]

}

Second tested method

GSgarch.Sim(N = 500, mu = 0, a = c(0.49840, -0.0628), b = c(-0.4551),
omega = 8.393e-08, alpha = c(1.356e-01), gm = c(0), beta = c(8.844e-01),
 cond.dist = "norm")

This part works.

n=10000

Garmagarch.sim_1 = rep(0,n)
Garmagarch.sim_50 = rep(0,n)
Garmagarch.sim_100 = rep(0,n)

for(i in 1:n)
{
    Garmagarch.sim= GSgarch.Sim(N = 500, mu = 0, a = c(0.49840, -0.0628), b = c(-0.4551),omega = 8.393e-08, alpha = c(1.356e-01), gm = c(0), beta c(8.844e-01), cond.dist = "norm")

    Garmagarch.sim_1[i] = Garmagarch.sim[1]
    Garmagarch.sim_50[i] = Garmagarch.sim[50]
    Garmagarch.sim_100[i] = Garmagarch.sim[100]

}

The simulation runs but

> Garmagarch.sim[1]
$model
[1] "arma(2,1)-aparch(1,1) ## Intercept:FALSE"

and

> Garmagarch.sim[50]
$<NA>
NULL

Third tested method

ga_arma = garch.sim(alpha=c(8.393e-08,1.356e-01),beta =8.844e-01 ,n=500, ntrans=200)

This lead to

Error in garch.sim(alpha = c(8.393e-08, 0.1356), beta = 0.8844, n = 500,  :
  Check model: it does not have finite variance

arima.sim(ARI_2_1, 500, innov = ga_arma ,n.start = 200)

And this to

Error in arima.sim(ARI_2_1, 500, innov = ga_arma, n.start = 200) :
  la partie 'ar' du mopdèle n'est pas stationaire

which mean that the 'ar' part of the model isn't stationnary.

Fourth tested method

forecast(ARI_2_1, h = 500, bootstrap = TRUE, npaths=200)

This one actually works but I don't know how to add the GARCH component.

forecast(specifi, h = 500, bootstrap = TRUE, npaths=200)


texts: I've been given the following question and would really appreciate any help on part a. I've looked over all of my resources for this course and we have always been given the probability of the realisation of each state, so any hints on where to start would be great. I understand that they are not the same as the risk neutral probabilities, but that's about all we've been given on the topic!


texts: What is the difference between Engel Curve and the system approach of demand analysis?


texts: Does locking donations on an account for an extended amount of time (50 years) make sense?

texts:
Let currency C be a reward proportional to amount of carbon offsets (or any other social good).
I am trying to invent a way to reward (to stimulate social good) holders of this currency.
Let M be "money" (some valuable currency that is a currency market subjects do want to acquire).
Consider two scenaria and help me understand which of them rewards better for acquiring C.

Create an exchange of C for M using a liquidity-pool-based swap like Uniswap or Bancor.

Allow anyone to donate M to an account that is locked for a long period of time (like 50 years). When the time passes, allow anyone to exchange C for M from this account:
a. by fixed exchange rate T_M / T_C where T_M and T_C are total supplies of these tokens on the market;
b. by donating the entire sum of tokens on this account to a liquidity-pool-based swap.

I think that "2" may probably be better than "1" because if we don't use "2" there is no account where a person wanting to donate could send M to stimulate C holder. (He could send it to a luquidity pool, but then if the sum of C available on the swap is little (why would it be big?) then the money M of the donor would be uselessly spent by somebody holding just a minor amount of C because the price C/M would become very high.)
Could anyone help me to check this my hypothesis mathematically?
(It is assumed that there are enough market players wishing to invest into 50 years future by acquiring C currency.)
Here are some of the exchange rates used by swaps:
Uniswap

Bancor

How my idea could be further improved? I propose to lock donated funds for a fixed period of time like 50 years and the choice of this time period is arbitrary (I have no scientifically founded formula for the locking period.)


texts: Interpretation of the Cross Partials of the Cobb-Douglas

texts:
Consider a Cobb-Douglas Prod. Function $$Y=AL^{a}K^{1-\alpha}$$
This has the cross-partial:
$$\frac{\partial^2 Y}{\partial K\partial L}=(1-\alpha)\alpha AL^{\alpha-1}K^{-\alpha}$$

Is the interpretation of this the change in the return to labour, with a change in capital (and by Schwarz's theorem, also the change in the return the capital, with a change in labour)?

Then, is it correct to say that the return to labour increases as $\frac{1}{K^a}$ with capital?


texts: Imagine a scenario where an agent is faced with two purchasing options, each with an individual utility function. Let us say option $A$ offers $m$ units of $P$ per £, and option $B$ offers $n$ units of $Q$ per pound. Additionally, utility is linear with respect to $P$, but not so for $Q$. How do I find out when the marginal utility of $A$ is greater than $B$?


texts: Question on returns of scale in isoquants

texts:
What does the dotted line in the diagram show and what are they called?

I am also wondering why the steepness of the isoquants changes at Q=3 for the third diagram.

Thanks


texts: Utility function is given as U(x1, x2) = 10x 0.5 1 + 5x2

texts:
Given a utility function $U= {10x^{0.5}} + 5y$, calculate the MRS and explain its economic meaning.

The MRS I calculated is $\frac{1}{\sqrt{x_1}}$, but I can't really understand it's economic meaning or how to derive its indifference curve. Some help please?


texts:
Throughout the course load of an economics student's undergrad we are exposed to the concept of cardinal utility via utility functions which give us a specific quantifiable number of "utilis" as a result of our inputs which represent consumer goods.

Practically speaking though, what type of data is used here and what methods are employed to accurately measure utility in a cardinal sense?


texts:
There are only two firms that produce and sell hockey equipment, Abel Corporation (A) and Baker Company (B). They each sponsor special events to try to gain customers. As there are only 2 firms, the marketing of one firm clearly affects its own profits and the profits of the other firm too.

Here are the (Gross) Profit Functions of each firm, related to the number of special events in a year, where A represents the number of events that Abel undertakes and В represents the number of events that Baker undertakes.

• Profits, Abel = 1000A -A^2 - 0.5AB

• Profits, Baker = 1000B - B^2 - 0.5ВA

Each special event costs $160, which is NOT included in the Profit functions as shown above.

What is Abel's Reaction Schedule (Best-Response Function)?

Here's how I've done this, I'm not sure if it's right, that's why I'd like your feedback.

Abel's Reaction Function:

1000 - 2A - 0.5B = 160   (differentiated the profits function and equated to 160)

A = 420 - 0.25B  (this is the reaction function I derived)

My confusion arises from the thought process that the profits function is essentially the difference between total revenue and total costs so should that be something i need to take into consideration when solving this?


texts:
I seem to recall reading about the following research regarding "national intangible wealth" (IIRC):

For each country, compute the GDP.
Convert the GDP to "total national capital" using an interest rate (e.g., assuming 5% interest, the total national capital of a country with GDP=\$5B will be \$100B), the same(?) interest for all countries.
Subtract from the above total national capital all the tangible capital: industry, farms, infrastructure, education of the population - everything you can put a price tag on.
The result is the "intangible national capital" - stable non-corrupt government, courts that enforce contracts, work ethics...

I tried to google things like "national intangible wealth" &c, but found nothing reminiscent of the above approach.

Could you please provide a reference? Criticism of the methodology?


texts: Price and cross price Elasticity of demand

texts:
The question is: Prove or disprove, if the price elasticity of a demand of a good is unitary then the cross price Elasticity of demand of that good is zero.

Any hints on how to approach this?


texts: Consequences of a particular loss function

texts:
So I was reading about the consequences of various loss functions on what regressions result in, i.e. the L1 norm giving conditional median estimation and L2 giving conditional mean, etc.

What happens if you minimize the sum of $\left(\frac{\hat{y}}{y}-1 \right)^2$ over all observations? Provided no y != 0, I get Monte Carlo results that are very close to standard OLS results.

I SHOULD be doing my time series homework but instead I've been tinkering around.

Not a super serious question, just curiosity :)


texts:
What would happen if the entire world switched to the 4-day work week?

Specifically would someone's quality of life drop significantly in a developed or a non-developed country?


texts: Primary difference between FDR and Nixon for de-linking gold with dollar?

texts:
I'm unable to understand the different role that both FDR and Nixon, played in de-linking gold with dollar.

I do understand that after Nixon, value of dollar is not linked to amount of gold (No longer fixed exchange rate between gold and dollar). But how did both FDR and Nixon both play two different roles?


texts: Endogeneity and Partial effect interpretation of coefficients

texts:
Is it possible to preserve the partial effect interpretation of the coefficients/parameters, when in the presence of endogeneity? I don't see how it's possible with the 2SLS... Wooldridge, in his graduate book speaks of a special case, in a random coefficient model, but where we can only talk of the Average Partial Effect (APE) interpretation.

Imagine we have the model: $y=\beta_0+\beta_1x_1+\beta_2x_2+u$. Where does the partial effect interpretation come from? Assuming $E(u|x_1,x_2)=0$, $E(y|x_1,x_2)=\beta_0+\beta_1x_1+\beta_2x_2$. Keeping everything known constant except for $x_2$(partial effect of $x_2$), i.e. $E(y|x_1,x_2=1)-E(y|x_1,x_2=0)=\beta_2$. Now if $x_2$ is endogenous, then $Cov(x_2,u)\neq 0 \Rightarrow E(u|x_1,x_2)\neq 0$

Then $E(y|x_1,x_2=1)-E(y|x_1,x_2=0)=\beta_2+E(u|x_1,x_2=1)-E(u|x_1,x_2=0)$.

Granted that IV estimate, when consistent, gives us $\beta_2$, but that's not the partial effect of $x_2$

Addendum:

Alecos,
So let's be specific about the interaction between $x_2$ and $u$. Assume that $u=\beta_{\nu} x_2\ \nu+v$, where $\nu$ is unobserved, and $v$ is an error term such that $Cov(x_2,v)= 0$

Then assuming that we can condition on the unobserved variable, we have
$\frac{\partial E(y|x_1,x_2,q)}{\partial x_2}= \beta_2+\beta_{\nu}q$.
There's no way to estimate this effect, or is there?

Any help would be appreciated.


texts: Two asset Markowitz Portfolio Optimization and Capital-Market Line construction for a Given Risk Free Rate

texts:
I practice with some excercises about the Markowitz theory.
If we have a portfolio with two stocks A and B, with given return $r_A$ and $r_B$, the expected return can be computed as: $r_P= w_A \cdot r_A + (1-w_A) \cdot r_B$, where $w_A$ is the weight invested in stock A.

For a given risk free rate ($r_f$), I now have to compute the return of the one fund of the one fund theorem. What I am exactly supposed to do here? I know about the one fund theorem, but I don't know what to do. Any hints?


texts:
Im reading alot on public finance and have been seeing alot of mention of measuring "general equilibrium effects".

I know what general equilibrium is, but i dont know what general equilibrium effects are.

What are general equilibrium effects?


texts: What are the economic drivers of urbanisation?

texts:
It is regularly argued that urbanisation drives economic growth (e.g. here).
I wonder which are the drivers that lead to urbanisation in the first place?
I believe the historical case of the industrial revolution and the contemporary case of urbanisation in less-developed countries are relatively more straightforward (impaired subsistence farming vs participation in the global economy). But I wonder why there is also increasing urbanisation in developed countries (e.g. Schwarmstädte in Germany), in which there is economic opportunity outside major cities as well.
Are there concrete economic dynamics that explain why people continue to move to cities even in industrialised countries? Or do cultural or lifestyle factors predominate?


texts: Why don't we count incomes of the government from taxation when calculating GDP using the income approach?

texts:
According to the income approach GDP is equal to wages + rent + interest + profit, income from taxes isn't included.

The government provides people and organizations with public goods (like roads and the national defence). It can provide said public goods because it taxes its population. It seems for me that government receiving taxes can be viewed as transfer of money for public goods from population to the government. So it seems quite strange that incomes of government from taxation aren't included, despite its goods being an important part of the economy.

Or maybe we don't count government incomes from taxes because we adopt different perspective on it?
Maybe we view it as a parasite that just sucks money out of the economy, without giving anything in return? If yes, then why do we ignore public goods that the government provides?


texts: Dynamic Market Equilibrium: motivation for differential equations

texts:
I came across this discussion, claiming supply and demand are expressible in terms of its price as $$Q_s=c_1+w_1P+u_1P'+v_1P'',\,Q_d=c_2+w_2P+u_2P'+v_2P''.$$Equating supply to demand for an equilibrium gives an ODE one can solve, but where do these formulae for $Q_s,\,Q_d$ come from?

I apologise if, contrary to the impression the page gives, these equations are not a mainstream model.


texts: Can I Upload my Preprint on Arxiv Before Submitting it to JPE

texts:
I wrote a paper relating the optimal deterrence strategy for crime to concepts on statistical physics, and I am considering submitting the paper to the Journal of Political Economy. I'm wondering if posting the preprint on Arxiv violates the journal's policy, or lowers the chances of my paper being accepted.

I'm not too familiar with the standard practices in the field of economics. Where do people commonly publish their preprints, if at all?


texts: In 21st century and a globalized world, is economic growth still the metric by which to measure a state's success?

texts:
Economic growth as a yardstick for a government's success is relatively new on a human historical scale. In my thinking it has arisen out of an expansion of the expected function of a state. States at a minimum are expected to uphold the rule of law and protect its people and its interests. Economic growth arose out of the need to implement not just criminal justice but also social justice. Now with globalisation and the breakneck speed with which developing countries are growing economically, economic growth is so deeply entrenched. However, it is possibly unsustainable and as things stand culturally and environmentally harmful.

Are there ways to either
- eschew growth in favour of something better

constrain and direct growth in a way that is culturally and environmentally sensitive?


texts:
This is a derivation from "Exercises in Recursive Macroeconomic Theory
preliminary and incomplete by
Stijn Van Nieuwerburgh
Pierre-Olivier Weill
Lars Ljungqvist
Thomas J. Sargent"

which uses integration by parts. Can someone explain how this derivation works? I have tried to replicate the result but to no avail. The text says that they use integration by parts on the second integral on the second line [the integral from w to B of w'dF(w') ]


texts: Why is the Free Rider Problem a problem?

texts: Why is it bad that someone can use something like a park or an emergency room without paying?


texts: Why does central banks lowering interest rate incentivize more borrowing?

texts:
I'm a layman trying to understand how the US monetary system works. I'm particularly interested in how the Federal Reserve can create inflation without printing new dollars and putting them in M1. My problem is that I don't get how the Federal Reserve can create inflation through lowering interest rates.
It's pretty intuitive on paper: when interest rates are lower people tend to demand more credit. Borrowing increases the M1 money supply. So we get inflation. I don't have trouble understanding that.
It's the other side of the trade that I don't understand. Why would a bank lend money at very low interest rates if that would create enough inflation that they'd be losing purchasing power? Maybe they do more than lending and it fits into a bigger picture that does make sense. But I can't find a good explanation of this.
Is there anyone that could explain/clarify this to me? I'm not an economist and the answers I find online are rather vague and complex for people like me in my opinion.
Thank you very much in advance,
Joshua


texts: You can find many explanations of theoretically how GDP is measured. But how is it done in practice? Is it estimated by extrapolating from small samples of activity or can the overall value be measured directly somehow.


texts: How do stock index futures help an economy?

texts:
It seems that stock index futures affect economic growth, but I don't know how they work. Please can someone explain?
Thanks in advance~


texts:
Suppose we have 1 firm and the firm has three options:
(1) Produce and get \$100 in revenue - \$200 in costs = -\$100 in profit.
(2) Temporarily shut down and pay fixed costs = -\$50 in profit.
(3) Permanently shut down and pay nothing = \$0 in profit.
We think about "producer surplus" in terms of profit or loss (with a discrepancy for fixed costs). So if the firm picked option (3) they would lose $0. But producer surplus is supposed to be a net concept that looks at benefits versus costs. So shouldn't we consider option (2) an opportunity cost of option (3)? It is the "next best alternative". So in a way, you can say that the "producer surplus" of choosing (3) is a positive \$50. Does this make sense?
A similar thought experiment would be if we had two firms with the same options as above. Firm 1 picked option (3) and firm 2 picked option (2). What is the difference in their "producer surplus"? Is it \$50, by comparing profit or loss, or is it \$100, by comparing this "new" producer surplus? When would the latter make sense?


texts: Can a progressive policy be solely funded by a regressive or even proportional tax?

texts: Under what criteria a regressive or proportional tax can be used to fully fund a welfare program or policy that it's progressive (i.e., one that benefits lower-income people more) in nature? Are there any examples worldwide?


texts: Does the money's "Store of value" function actually exists?

texts:
I'm aware of the following four functions of money:

Medium of exchange.
Measure of value (in dollars, pounds, etc.)
Standard for exchanging goods (guaranteed by the Fed)
A Store of value (as an asset).

AFAIK, the last one didn't exist according to Classical Economists, but only John Maynard Keynes brought it later in his theory.

I want to understand whether this function really exists? I'm more inclined to agree with the Classical Economists -

I've created a simple analogy to understand this. Suppose there is a small village where there are N residents who trade only in barter. Now, you introduce a new bank in the village called Banko and a currency called pebbles. (For simplicity, lets assume that Banko is both a central bank and also lends/borrows money).

Now in order to leave barter and migrate to currency system, the villagers will have to either sell their goods to Banko, or borrow pebbles from them. So, there is a "give and take" or exchange of pebbles against goods.

But at the end of the day, if you consider the overall macro-economic position, the pebbles made no difference in value at all.  The villager's NET ENDOWMENT is same as it was before, the pebbles just facilitate transactions and used to count their assets now.

So, my question is, if money doesn't make any difference to the REAL value of goods and services, how can it be considered an asset?


texts: When were the First and Second Welfare Theorems proven?

texts: What years and by who were the first and second welfare theorems first proven?


texts: Multiplicative Noise Term vs Additive Accumulative Noise Term

texts:
This question arises from reading of Sannikov and Scrzypacz (2007) and Green and Porter(1984), which are modeling the same thing, dynamic collusion under imperfect monitoring, in a continuous-time version and a discrete-time version. Their choice of different noises term are crucial to derivation of their conclusions.

My question is how to decide which one is dominant for a particular market(e.g. European banana market) regarding the modeling of noises. My guess is that multiplicative noise term is more relevant to shocks of weather, additive accumulative noise term(following Brownian motion in Sannikov and Scrzypacz's case) is more relevant to shocks related to institution, say, cultural revolution and Khomeini's return to Iran.


texts: Applying modern economics to Edgeworth's Hedonical Calculus

texts:
Preface
The late 1800s was a genesis for many economic theories. As math spilled over into the social sciences, one of the more obscure applications of measurement was: Hedonical Calculus, developed by Edgeworth. Of course, centuries later, some of these Victorian Age studies aged better among modern academic communities than others. Hedonical Calculus gained little traction and faded to the periphery as modern economic thinkers steered the field away from quantifying everything. On the notion that if one cannot measure something one does not have a satisfactory understanding of the matter, Frank Knight sarcastically interjects:

If you cannot measure a thing, go ahead and measure it anyway.

 Hedonic Calculus
The work tackles several broad areas of study, and to keep my question within a reasonable scope, I will limit the focus to capital formation / efficiency. With that in mind, I will try to unpack the basics of Hedonical Calculus:
Objective: To find  the distribution of means ($α$) and labor ($β$), the quality ($γ$) and
number of population (δ), so that there may be the greatest possible happiness

Pleasure: The term includes absence of pain. Greatest possible happiness is the greatest possible, integral of the differential: Number of "enjoyers" × duration of enjoyment × degree thereof
Means: are the distributable proximate means of pleasure, chiefly wealth as destined for consumption
An individual has a greater capacity for happiness than another, when
for the same amount whatsoever of means he obtains a greater amount
of pleasure; and also for the same increment (to the same, amount)
whatsoever of means a greater increment of
An individual has more capacity for work than another, when
for the same amount whatsoever of work done he incurs a less amount
of fatigue, and also for the same increment (to the same amount)
whatsoever of work done a less increment of fatigue.

With this framework, Edgeworth proposes we may allocate human capital in such a way that we minimize pains of production.  Pains of production may include blood and sweat, but could be negative if we suppose the thrill one may get from being a pilot (especially during the first few flights). Formally, by finding the largest possible value of:
$$\int_{x0}^{x1} n\left [ F(xy)-p \right ]dx$$

n = number of each section
F(xy) = a unit's pleasure of consumption (x=capacity for pleasure, y=means for living up to his capacity)
p = pains of production

Fully aware of the black box limitations and pitfalls of attempting to quantify the sentiment and decisions of a human being capable of exerting his/her own free will, I am still very curious about the impact on long-term capital formation and efficiency of such a system
Question
Assuming complete omniscience on measurements such as "units of pleasure" and "pains of production," would modern economic theory expect differences in long-term capital formation from a pleasure maximizing economy than that of a profit/utility-maximizing economy of today (or whatever you want to call our economy)? If so how, if not why?
Reference:
https://babel.hathitrust.org/cgi/pt?id=njp.32101063551350&view=1up&seq=414


texts: risk aversion and convexity of indifference curve

texts: This is a question from the CFA exam. With respect to utility theory, the most risk-averse investor will have an indifference curve with : (a) greatest slope coefficient (b) most convexity The answer is A but I think B is also correct. The utility function is described by $U=E(r)-\frac{1}{2}A\sigma^2$ where A is the measure of risk aversion. I want to understand this mathematically. How should we measure convexity? Is this just the second derivative or the curvature? And why is B incorrect?


texts: Market baskets: cross-border comparisons

texts:
The concept of a market or consumer basket is quite intuitive. I assume a market basket for a given country tells for which goods an average person spends how much of her money.

To be able to compare market baskets between different countries (and cultures) their (groups of) items must be chosen quite generically (such that they make sense everywhere in the world). The official German market basket as found here includes the following groups of items:

  01 Food and non-alcoholic beverages

  02 Tabacco and alcoholic beverages

  03 Clothing and shoes

  04 Housing and energy

  05 Furniture

  06 Health

  07 Transportation

  08 Telecommunication

  09 Leisure, culture

  10 Education

  11 Hotel, restaurants

  12 Other

I wonder if this market basket makes sense everywhere in the world, or if there are significantly different ones around. Maybe there is an international standard? If so: Where can I find a good overview and comparison of this market basket all over the world?


texts: Zero Economic Profit and opportunity cost?

texts: In microeconomics textbook, there is always this notion of zero economic profit in perfect competition. We know that when people gets negative economic profit, they often leave the market. What I wonder is if there exists some NPOs that competes in everyday markets (such as food markets because it sounds like doable), earning say zero accounting profit, meaning negative economic profit. If there do exist, why aren't they driving other for profit competitiors out? Is this because not much people are investing or what?


texts: What does "steep incentive contract" mean in the context of adverse selection?

texts:
This term was mentioned in a slide and when I looked online, the only thing which I could find talking about this is this paper.

For example,in the cost-plus-incentive contract

$$x(T, c) = a(T) - a'(T) × (T-c)$$

where $x$ is the contractor's fee, $T$ is the cost target, $c$ is a verifiable cost; $a(T)$ is decreasing and convex.

I was told that with smaller $T$ and hence higher $a(T)$ and $-a'(T)$, the incentive contract is steeper. Is the steepness represented by $-a'(T)$? What exactly is the interpretation of steepness of incentive contract? Does it mean more risk for the contractor? If this is the case, am I correct that the decreasing $a(T)$ motivates the contractor to take a smaller T? How is it translated to incentive constraint? That high-cost contractor would not recklessly take a small T?


texts: How do I begin to approach this dynamic discrete choice model?

texts:
I'm working through an old problem set (that sadly I don't have solutions for) and I got stuck. It is a dynamic model of entrepreneurship and invention. I'm looking for guidance on this model as well as references or papers that discuss it. Here's the model.

Every period you can choose to start a business. The choice in period $t$ is $b_t \in \{0, 1\}$, where $b_t=1$ is trying to invent something, so it's a discrete choice problem. You have some skill parameter $p$. In every period that you invent, your invention ``succeeds'' with probability $p$ and you get $v=1$. Otherwise it fails and you get $v=0$.

If you don't invent in period $t$ you work and get some wage $w$. The person has linear lifetime utility like this

\begin{equation}
\sum_{t=0}^\infty \beta^t [b_t I\{\text{successful invention}\} + (1 - b_t)w]
\end{equation}

$I$ is the indicator function. The problem is we (and the agent) don't know $p$. They just know its distributed with a beta distribution with parameters $a$ and $b$ and they have to learn about it over time. I know how to update the prior depending on if the invention succeeds or not (if the person chose to invent in period $t$).

The problem set asks me to set up the Bellman equation and use value function iteration to solve the problem numerically, but that's where I got stuck. Can someone give me a push in the right direction for how to start?

The general Bellman equation is something like this

\begin{equation}
V(b) = \max_{b'} (u(b) + \beta E V(b'))
\end{equation}
$b$ is the agent's choice in the current period and $b'$ is the agents choice in the next period. I can't figure out how to incorporate the Bayesian updating of the prior into the expectation, though, since the value of the prior going into period $t$ and thus the value of the posterior at the end of that period depends on the history of successful or failed inventions.

For ex. the person starts out with the prior on $p$ as just the mean of the beta distribution, which is $a/(a+b)$, but if they choose to invent in the next period and are successful, the beta distribution updates to the posterior that has mean $(a+1)/(a+1 + b)$. Etc.


texts: CES utility function in an Edgeworth box

texts:
Two consumers have the CES utility function $x_1^\beta +x_2^\beta$, for $0<\beta<1$, their initial endowments are $w^1=(1,0)$, $w^2=(0,1)$ Draw the Core of this economy in an Edgeworth box. Note and verify that the demand of the CES utility function is $x_i^*(p,pw)={\dfrac{p_i^{(s-1)}}{(p_1^s+p_2^s)}}$$pw$, where $s={\dfrac{\beta}{\beta-1}}$
I have drawn the IC of the CES function, that I guess are the similar to this in a sense in order to find the core. https://dismaldocket.files.wordpress.com/2013/02/pareto-set.jpg
For the finding the demand I was looking at equating their MRS=$\dfrac{\beta x_1^{\beta-1}}{\beta x_2^{\beta-1}}$ = $\dfrac{p_1}{p_2}$
by substituting this to the budget equation I get that $x_1^*$=$\dfrac{w \cdot p_1}{p_1^2+p_2^{\beta/(\beta-1)}}$
However I most probably have done miscalculations or am completely sidetracked :). Any suggestions is more than welcomed.


texts: Barro's 2006 and 2009 rare disaster setup

texts: Barro's 2006 QJE rare disasters model has a different setup from his 2009 AER model. Specifically, in the QJE paper $v_{t+1} = 0$ (no disaster) has probability $e^{-p}$, whereas in the AER paper it has probability $1-p$. Both papers interpret $p$ as the probability of disaster per unit time, and they seem to reach similar conclusions about pricing. I realize that, for small $p$, $\log(1-p) \approx -p$, and therefore $e^{-p} \approx 1-p$. Is this what he is implicitly doing? I'm unclear on why the two setups should be exactly the same.


texts: Does elasticity vary along the Demand/Supply curve or is it a summary statistic of a curve?

texts:
I know that the Demand curve has elastic and inelastic regions but when we say horizontal demand/supply curves are elastic or vertical curves are inelastic, in that case, does the elasticity still vary along the curve?

More specifically, one of my lectures gives Elasticities of various items such as 0.09 for Gasoline and 0.8 for soda drinks. Are these values just taken on a specific point? If yes, how can they be used to describe the complete curve of a specific item.


texts: Adjusted SHARE Price and Return calculation

texts:
I hope my queries makes sense as I am pretty new to business finance (not sure if it's appropriate to post here). To be honest, this query is related to the assignment from my school which I need to submit.
Our assignment requires to look into Rio Tindo data
link here: https://finance.yahoo.com/quote/RIO/history?period1=1541203200&period2=1572739200&interval=1mo&filter=history&frequency=1mo&includeAdjustedClose=true
The question requires us to draw graphs for RIO’s adjusted share price and return (you can use daily, monthly or quarterly return). Some queries here:

what does adjusted share price means? Based on my googling, I saw A LOT of "adjusted stock price". I bet both are different?

If I'm correct, to get the "returns" of the adjusted share price, I need to use the following formula based on the link below:

(If using month, e.g. Jan and Feb 2018, the formula is:[(Feb 2018/Jan 2018)-1] * 100)
However, there are some dividends in some months, will the dividend be affecting the calculation? If yes, how so (do I change the formula)?
https://finance.zacks.com/stock-return-using-adjusted-closing-price-11628.html#:~:text=The%20formula%20for%20percentage%20return,from%20decimal%20to%20percentage%20format.


texts: Checking incentive compatibility of a mechanism

texts:
I was thrilled at seeing an interesting bidding system in an academic institutions. This bidding is for registration of courses.
Each student is allocated some points based on her grade point(GPA). So, a student with higher GPA gets more points.
Each course has a maximum strength of 60 students and a set of say 15 courses is offered.
A student bids higher for the courses that she wants and feels will be oversubscribed.

According to the literature in this subject, I know that this is not an incentive compatible mechanism as the students' bids are considered equivalent to their preferences but a student may bid more for a subject with less utility but which is has higher number of subscribers.
Also, I feel that this is a kind of first price auction. Whatever bid I propose, it is consumed if I cross the minimum bid at which the subscription closes.

Courses are different and students have different preferences. Each student would bid for any number of courses that she prefers and expects to go oversubscribed. Students' preferences over courses are on academic basis i.e. courses that are popular or taken by some famous faculty. So, student's objective is to get her favorite course.

EDIT : In first round, the students give a list of 5 courses they wish to enroll in.
In second round, bidding happens for the oversubscribed courses. So, if I entered course A in round 1 and it got oversubscribed, then in round 2 I will have to bid for it.
After round 2, if I get the courses that I wanted then it's fine else I will have to choose some other course (for which seats are not completely filled) so that I have 5 courses.

I am not being able to understand in intuitive terms how a student can behave wrong and hide her true preferences while bidding in such a mechanism.
Please help point out some intuitive examples which violate the incentive compatibility. Thanks in advance.


texts: What does poorest country by population mean?

texts:
I understand poorest countries based on GDP but what does poorest countries by population mean? Below is the link to the information I was looking at.
http://worldpopulationreview.com/countries/poorest-countries-in-africa/


texts: How reliable is BLS / JOLTS data on quits?

texts:
I'm looking at the Job Openings and Labor Turnover Survey (JOLTS). It also allows you to disentangle separations between layoffs and quits. The data comes from surveys, i.e. is self reported.

There's several reasons why the quit/layoff data may be misreported, e.g.

Quits that anticipate layoffs, will bias up the number of quits
Firms might not care / not know  exactly, and assume it was a quit/layoff (direction ambiguous)
Responder may purposefully or subconsciously try to defend the firm's image, and misreport

Importantly, there's no reason that the aforementioned reasons should average out to the true data, or that the bias is constant over the business cycle.

Since there are many studies that actually rely on layoff versus quits - is there a study on the reliance of this data?


texts: In Indonesia, reducing fuel subsidy strongly impacts the price of everyday goods. Why?

texts:
In Indonesia, petrol/gasoline price is regulated by the government and historically it is heavily subsidized. I know, economists typically consider fuel subsidy to be a bad policy, for many reasons, including: it appears to disproportionately favor the wealthy who have more cars.

However, in Indonesia, fuel price seems to strongly affects other prices in general. I mean, when the government tries to reduce subsidy and increase the price, we will see prices of everyday stuff like food increase significantly. So, some people say increasing fuel price actually affect the poor the worst, because they barely have enough money to buy basic needs. The effect is so bad that such attempts to reduce subsidy are usually met with big protests by the general population.

Some source:

Jakarta Calm After Subsidized Fuel Prices Are Increased
Indonesia inflation jumps after fuel price hike
INDONESIA: Poor hit hard as fuel prices rise.

I've lived in other countries where fuel price is determined by market and fluctuate freely (like say the US), but I don't see such phenomenon (e.g. grocery prices don't noticeably increase as much when gas price increase). Why?


texts:
Hello to everyone on the forum,
I am currently working with intraday electricity price data. In the electricity market each hour is considered as a different product, because the demand and production mix for each hour is different. Because of the above, for my econometric analysis, I consider my data as panel data where each hour is a different individual and where (from the various tests) I conclude that I must apply fixed effects. However, the times I have presented my project, the audience finds it strange and difficult to understand why I use panel data and not time series. After some thought, I came to a possible answer: my time series would be like having a pooled OLS and, therefore, I have already considered it, and after doing a wald test, I have discarded it. Is my answer correct, or how would you justify it.
Thank you very much for your help!


texts: The Myth of Exploitation According to the Labor Theory of Value

texts:
According to the Labor Theory of Value, a good is worth as much as the labor put into it. We might then go further and assume that the labor put into it was as valuable as the goods used to fuel that labor (and so on and so on).
How then can a theory of exploitation be maintained? Since laborers by definition receive the worth of their labor as subsistence wages?


texts: Exercise about social planner's optimal allocation of resources

texts:
a. There are 2 cities C1 and C2. Everyone in both the cities has same concave, increasing utility function. There's only 1 good, with the social planner. How should s/he allocate it?
b. Now assume that initially the endowment resides in C1 (but with the planner himself) and a transfer of 1 unit from C1 to C2 results in a loss of fraction 'v'. How should s/he allocate now?

My analysis: If I assume a Rawlsian welfare function I'll get a different result than I'll  get from maximising sum of utilities which would be different from weighted sum of utilities.
The only other thing I can think of is he may want the allocation to be fair i.e no one envies each other and locations are pareto optimal. No envy just means everyone gets the same allocation.
How do I go about this?


texts:
This commentator writes:

  On March 9, 1776, "An Inquiry into the Nature and Causes of the Wealth of Nations" (commonly referred to as simply "The Wealth of Nations") was published. Smith, a Scottish philosopher by trade, wrote the book to upend the mercantilist system. Mercantilism held that wealth was fixed and finite, and that the only way to prosper was to hoard gold and tariff products from abroad. This meant that nations should sell their goods to other countries while buying nothing in return. Predictably, nations fell into rounds of retaliatory tariffs that choked off international trade.

The big idea here is that mercantilism (practiced by some large nations today) and capitalism are two distinct ideas, where the former (from Adam Smith's point of view) is inferior.

Put simply, Mercantilism can be enunciated as:

  Mercantilism focuses on wealth accumulation through extraction of wealth which they believe is measured by the amount of gold bullions that the nation has in its possession. Wealth extraction efforts are augmented by colonization to gain more wealth. Mercantilists assert the need for heavy regulation in order to prevent the people from pursuing their natural selfish motives of amassing wealth for themselves instead of enriching their country. They even believe that people should be forced to be patriotic and submit themselves to regulation. Mercantilists go to the extent of prohibiting people from purchasing luxury items because this would mean a large amount of money flowing out of the economy.

In contrast, Capitalism can be contrasted as:

  Capitalism is an economic system that works around the concept of wealth creation in the pursuit of economic growth for the nation. Capitalists regard the individual member of society as the central figure in wealth creation. They believe that a nation’s wealth could grow through the productive efforts of each individual. They view individuals as naturally competitive. As such, they will enhance their skills to achieve greater efficiency in adding value to their own wealth and consequently contribute to the economic success of the nation.

My question is: What evidence is there that Adam Smith made mistakes in criticizing Mercantilism and upholding capitalism?

EDIT:

Here is an example of a criticism of The Wealth of Nations:

  The third development that Smith does not seem to have foreseen, and which his line of arguments would seem to criticize, is the growing centrality of conspicuous consumption. While the division of labor and the expansion of the market has led to an increased standard of living, individuals have come to demand increased leisure time. They also increasingly spend money on consumable goods, choosing to consume instead of invest.

Here is another example:

  Many 2nd world nations eschew capitalism in favor of mercantilism and severely damage capitalist economies in terms of employment and ability to build wealth. Did Adam Smith predict that capitalism would be weak next to Mercantilism style countries?


texts: In Mankinw's Macroeconomics, he mentions that public and private savings form national saving, which ends up in the financial sector, which then people and firms use to purchase investment goods. But what happens in real life? If the US federal government runs a budget surplus, where does it go?


texts: Would search engine spam still be a problem even if every incoming click were to cost money?

texts:
Search engine spam can be thought of as any activity that seeks to gain attention for a web page through deceptive means. I suspect that search engine spam is a natural result of profit-maximizing behavior of webmasters in the absence of a per-click cost for each incoming click.

In other words, if every incoming click were to cost the webmaster a certain amount, then it stands to reason that he or she would have the incentive to not be deceptive, as getting clicks through deceptive means would result in a high bounce rate, which would be a waste of money.

Is this correct?


texts: Why is oil being traded in U.S. dollars?

texts: I am trying to understand the concept of money,forex, depreciation of currency,devaluing,...(just the basic stuff). While I was reading about why oil is being traded in U.S. dollars, on the internet, I came upon reasons like at that time the other European currencies were collapsing, the convertibility of the dollar was suspended, some speculate the U.S. used military power to force deal with the Gulf countries to sell oil in U.S. dollars. I could'nt understand these things, why would they force to trade in U.S. dollars instead of just taking the oil from their country by force? Does both the ways give the same result? How is it even beneficial to the U.S.?


texts: Does a depreciation in the Dollar lead to a reduction in the US' marginal propensity to import? I thought it would because a weaker dollar makes imports more expensive, so consumers spend less of their income on imports. Is this true?


texts: Why would a commercial bank borrow from another commercial bank instead of the central bank?(more questions inside)

texts:
1) In my textbook, it is said that overnight rate is quarter of a percent below the bank rate, so does it mean that if bank rate is 5%, then overnight rate is 4.75%? What is the point of borrowing from the central bank then if it is cheaper to borrow from another commercial bank?
2) Is overnight rate the same as federal funds rate?
3) It is also said that if the overniht rate is too high, it discourages commercial banks to borrow from the central bank, why?


texts: Would the market stabilize if companies paid taxes on revenue instead of gross income?

texts:
Note: there is a closed question that is similar (https://money.stackexchange.com/questions/126677/paying-taxes-revenue-vs-taxes-profit) but the response offers a perspective that I would like to challenge and understand.
Companies pay taxes on gross income (revenue - cost of sold goods) while individuals pay directly on revenue.
Several sources I could read (including the answer to the question I mentioned) mention fairness between companies and the fact that they "spend to make money" and not "consume" as in the case of an individual (why would one be better than the other?)
Not being an economist, I still do not understand why the difference in treatment.
If taxes were paid on revenue, wouldn't the money flow stabilize somewhere else? (prices would go up, and so would salaries in order for people to afford the new prices).
One of the advantages I imagine would be that countries that have lower taxation would not be artificially used as a consolidation center to show a "zero (or small) gross income" (and therefore low or zero taxes) in other countries.
To be clear: I am not trying to be the Robin Hood of economics, I am trying to understand whether there are fundamental reasons why the market would not stabilize elsewhere.


texts: What is the Stata command for calculating a turning point in a regression and analyzing how the data is distributed on each side of the turning point?


texts: What is the intuition for the potential loss of market makers on LS-LSMR?

texts:
What risk do liquidity providers take on when they provide liquidity to an LS-LSMR automated market maker pool?
How much can they lose?


texts: What are examples for the phenomenon that more (or better) information makes everybody worse off?

texts:
More information is usually considered "better". Let's say a rational agent chooses optimally given his information on the circumstances of a particular decision problem. Then providing him with more or better information makes him (weakly) better off.

Other agents might be made worse off in the process, and total welfare might even decrease. Danove et al. (2003) e.g. argue that the introduction of mandatory "report cards" in New York and Pennsylvania in the 1990ies to evaluate bypass surgeries reduced welfare because it incentivized doctors to avoid treating very old or sick patients. In this example all patients got more information, and some of them, but not all, ended up worse off.

But there are also circumstances where providing agents with more information makes everybody worse off. When visitors are about to leave a crowded theater, truthfully informing them that a fire just broke out behind the curtain might have disastrous consequences for all of them. Informing the public that a particular bank is in trouble could trigger a bank run that leaves everybody worse off.

What are other such phenomena? I am looking for examples (in theoretical models or in the real world) of the latter kind, where exogenously providing a group of agents with more or better information leads to a new equilibrium which is Pareto inferior compared to the old one.


texts: Perfectly Inelastic Supply curve and Producer margin

texts: If the supply curve is perfectly inelastic then it is vertical as no matter what the price is supply will be same. Producer surplus is area below equilibrium price and above supply curve. so in case of vertical supply curve what is the producer surplus. Please explain geometrically by using areas and also give some intuition behind the stated answer.


texts: What has caused the recent 25% unemployment rate in Spain?

texts:
The unemployment rate in Spain has recently been fluctuating around 25%.

What has caused this?


texts:
If a firm has increasing returns to scale (i.e., doubling inputs more than doubles output) would that firm logically end up being the sole firm in its sector in the long run?
If not, what is the advantage of displaying IRTS?


texts: How does a reduction in consumer spending in favour of consumer saving, affect economic activity?

texts:
Let's say our government runs an advertising campaign, encouraging its citizens to reduce spending money on consumer items, and instead save more money.

Let's say the campaign is successful, and that happens.

How does this affect economic activity?

On one hand the factory and shop owners appear to produce less, and thus hire less people, but on the otherhand, there is more money available to build new factories etc.


texts: Roosevelt’s Price Fixing in The Great Depression

texts:
Why didn’t Roosevelt’s method of fixing prices on labour and produce help the depression?
If everyone was receiving a wage that allowed them to afford produce, wouldn’t that create a new equilibrium and overcome the credit expansion from earlier years?
Yes labour would cost more but wouldn’t the employer be receiving enough money from the fixed prices of their produce to pay these wages?


texts: Continuation value versus utility in asset pricing

texts:
Is there a difference between continuation value ($V_t$) and utility ($U_t$) except for a possible scaling / difference in units? My question refers to the consumption-based asset pricing literature.

In standard time additive power utility settings, people seem to only talk about utility (e.g. $U_t=u(C_t)+\beta E_t[u(C_{t+1}]$). In recursive utility / Epstein-Zin-Weil settings, people often refer to a continuation value (e.g. $V_t=((1-\beta)C_t^{1-\rho}+\beta (\mathcal{R}_t(V_{t+1}))^{1-\rho})^{1/(1-\rho)}$).

It seems to me that both are fairly similar. The only reference I could find on the topic is the asset pricing book from Back (2010), in which (intuitive definitions) utility seems to be a utility measure in "utility units" while continuation value seems to be a utility measure in "consumption good units", and both are related via $U_t=u(V_t)=\frac{V_t^{1-\gamma}}{1-\gamma}$.

(Please note: Back confusingly talks about a continuation utility and uses a different notation, the one posted here is inherited from standard references. Also, you can find his book with this link.)


texts: Financial Smart Contract on Ethereum: can an Ether Futures contract be priced in Ether?

texts:
BACKGROUND

This is more in the wheel-house of economics than programming, but after a few different titles, I thought it best not to skirt around the root of my question OR create a oddly phrased USD based question; when I'm actually asking about Ether. Just briefly, Ethereum is a blockchain network and Ether is the main crypto-currency on it that is used to pay the miners / validators, yada, yada.

Other tokens exist and it's possible to program an arbitrary contract like a financial derivative, but it doesn't have (and cannot have) a tokenized version of a US dollar without someone being able to cheat you if you ask for delivery or lie to you if you just ask for a price-feed.  Basically, just like the real world, there's counter-party risk when you have to ask a human to help you or give you information. So the hard part here is getting an accurate picture of the current purchasing power of 1 Ether without simply asking a human to provide you with the current USD:ETH price feed.

QUESTION

I'm a programmer, not an economist, but crypto-currencies are just ridiculously volatile. I would like to create asset market on Ethereum to help stabilize the value of Ether over the long term. I was thinking that perhaps I could create a contract in the form of "Pay X Ether now to have the option to buy Y Ether in 90 days". Except when I start to walk myself through an example, it doesn't make sense. I think I've structured it wrong and it seems like one side is guaranteed to lose and the other guaranteed to win regardless of whether the objective purchasing power of Ether goes up or down.

Phrased differently, using USD as a more familiar asset, I want to glean information about the current value (purchasing power) of \$1 USD today by creating a derivative of \$1 USD deliverable at some point in the future... without access to anyone's opinion of what the price is other than the current and historical order-book / trades between people of the real asset and the derivative.

The other caveat here is to avoid delivery 'now' for a 'promise' in the future, as that is wide open to theft and 99.99% of participants on Ethereum are anonymous, so no person can be trusted (only the code is trusted to execute as-written).

If I'm way off base with how I've thought the Asset:Derivative pair should work, please provide further guidance or alternatives. Especially real-world examples I can research.

FOLLOWUP

Later, the intent is that a Market Maker contract will trade both sides of the asset (Ether Vs Ether's long term sentiment) to guarantee high-liquidity and easy price-discovery. The MM assumes only that the further the price is away from the long term mean, the more it should offer to trade at the current spot price, to buy back later when sentiment change back to the other side again. This, I believe will reduce volatility (as measured in purchasing power) given enough liquidity (some double digit % of total market cap locked in it I think would be quite influential).

The MM would:

Skim profits from traders during high volatility.
Neither win nor lose during stable periods as volume it offered would be negligible compared to the total assets it held.
Be susceptible to losses as long term trend could cause the MM to be over committed to one side of the market than the other, expecting a return to mean that never comes.

Over-sell Ether in a long term bull market and lose out on gains.
Over-buy Ether in a long term bear market and lose objective purchasing power.


texts: can you please explain from the economic point of view, why protectionism is bad? If sometimes it is sensible to protect some industries to avoid unemployment, loses of some professionals, death of the industry and decreasing independence? What do you think? tnx


texts: Why might a country with a budget surplus continue issuing bonds - ie borrowing?

texts:
Some argue that if a government runs a budgetary deficit, it is a drag on the public finances because taxpayers must fund interest payments to external creditors.

If the interest payments were an issue, we might expect governments to stop borrowing when in surplus.

But a budgetary surplus won't reduce demand for government bonds.

So what, in practice, do governments do?