texts: inflation rate vs interest rate on calculating present value of future money

texts:
i use the formula 100/(1+r)^T to calculate the present value of my future money while r is interest rate and T is year.
However , for my country , interest rate (year) = %8.25 and inflation rate (year) = %12.60
Is it logical if i use inflation rate instead of interest rate at my calculation?


texts: Are imperfect-information games in extensive form exactly the same as sequential incomplete-information games?

texts:
According to Wikipedia, an incomplete-information game can be converted into an imperfect-information game with complete information in extensive form by using the so-called Harsanyi transformation, which means adding chance nodes at the beginning of the game:

It may be the case that a player does not know exactly what the
payoffs of the game are or of what type their opponents are. This sort
of game has incomplete information. In extensive form, it is
represented as a game with complete but imperfect information using
the so-called Harsanyi transformation.

My question is: is this transformation feasible only for some kind of incomplete-information games or for all of them? I easily see how it can be done when the distributions of probabilities over the possible types of players are known. In this case, you add one or more chance nodes at the beginning of the game, labeled with said probabilities. But what if the distributions are not known? Can the transformation be made? In this case, I suppose the chance nodes added would not be labeled. Would this still be an imperfect but complete-information game? Would it still be an extensive-form game at all, considering that in the definition of the extensive-form game given by Wikipedia the probabilities of actions by nature (chance nodes) are known?
If the answer to this question is "only certain kinds of incomplete-information games can be converted in imperfect but complete-information games", then another question naturally rises: considering that there is no difference in modeling an imperfect-information game and some particular kinds of incomplete-information games, are imperfect-information games a subset of incomplete-information games?
If the answer is "all the incomplete-information games can be converted in imperfect but complete-information games", then I would ask if imperfect-information games are exactly all of the games with incomplete-information.


texts: Banks are allowed to print money out of thin air. Black magic or what?

texts:
Today it is wide spread notion that the commercial banks cat create a money out of thin air. Simply by typing numbers on computer. Every time a bank gives a load to a borrower, the loan money do not come from other people deposits (at least not entirely but fractionally) but they are simply created out of nothing. This form of banking is called Fractional reserve banking .

The problem I have with this concept is the following: A bank give a Merry loan of 100,000\$. Merry buys a house with this money. For a period of 1 year, Merry has paid back 10,000$ to the bank. Afterward Merry's finance condition worsen and she no longer can pay her debt. So in theory, if all the bank borrowers end up in the same situation as Merry did, the bank is going to bankrupt.

But if the bank never had the load money in the first place, every penny received from borrowers is a pure profit. Even if Merry returned only 10% of her loan, the Bank still profits 10,000$ because the given 100,000\$ to Merry were not bank's money in the first place.

This leads me to the question: Why do banks put interest on top of this fraud? And what prevents banks from putting huge amount of money to some people's account (for example to the Bank's CEO )? This black magic is not quite clear to me.


texts: Re-evaluation of Consumer Price Index (C.P.I.) weights

texts:
How are the weights of the various household items in the Consumer Price Index (C.P.I.) basket decided, i.e., how are they re-evaluated every year? Is it done manually or automatically?

If its done manually, then how can they be sure (i.e., what methods, statistical or mathematical) that the weights represent the general average consumption of that item in the household? Else, if  its done automatically, then what is the strategy (i.e., what sort of algorithms or data structures) used to ensure the accuracy of the weights.


texts: Does anyone know how to do VAR historical decomposition of a series in R?


texts: Why did Greece not solve its debt problem by selling treasury bond to its own people?

texts: Since the Greek vehemently opposed the conditions imposed by the EU for the 3rd bailout, I don't understand why the Greek government did not raise the money needed to repay the previous loans by selling treasury bond or privatizing public assets before the full blown of this whole crisis.


texts:
Marx wrote that only humans can create value. But why is that so? Ok humans can, with their work, create more value than they need to consume in food and so on, that's obvious. But why is this so important? There has to be a physical explaination as to why they can create much more value than they need to supply themselves. How efficient is the human body in energy creation?
Another thing can comes to my mind is that everyone talks about that in a few years, everything will be automated and there will be no jobs left.
But if everything is done by machines, then there can't be profit. Because machines can only create things that have less value than the machine itself., otherwise you would have an perpetuum mobile, which is according to the laws of thermodynanics impossible. Ok it depends of course on demand. If demand is very high, then you can make profit, but assuming that there is equilibrium of supply and demand, then you always make a loss if you only produce with machines.
Has anyone every recognized that fact? If everything is automated, then capitalism will abolish itself. How can there be profit if everything is automated?  Why does no one see this?


texts: Why is the derivative of this SWF non-positive?

texts:
This question is related to the development of The Joint Giving Theorem (by S. Kolm).

There are two types of agents: benevolent and beneficiaries.

Benevolents' preferences are represented by utilities: $u^i=u^i(x_i,x,c_i,g_i,c_{-i},g_{-i})$

Where $x_i=X_i-g_i-t_i$ is final wealth, $X_i$ initial wealth, $g_i$ some private gift made to the poor, $t_i$ is the transfer to the public sector (who then gives it to the poor). $x$ is the final wealth of the beneficiaries. $c_i=g_i+t_i$ is total contribution of agent $i$. Subscripts $~_{-i}$ denote variables of other benevolents.

Beneficiary's preferences are represented by an increasing ordinal utility function $u=u(x)$.

The assumptions are (subscripts mean derivatives): $u^i_{x_i}>0,u^i_{x}\geq 0, u^i_{c_i}\geq 0, u^i_{g_i}\geq u^i_{c_j} \leq 0$

The theorem then says (I quote):

  Pareto efficiency for this society of potential givers and receivers implies that there
  exist coefficients $\lambda_i >0$ such that $U=\sum \lambda_j u^j +u$ is maximal (without loss of generality). Public policy chooses taxes $t_i$. When it implements a Pareto efficient social state, this choice maximizes such a function $U$. This implies, for tax $t_i$ :

  $\lambda_i \cdot (-u^i_{x_i}+u^i_{x}+u^i_{c_i})+\sum_{j\neq i} \lambda_j \cdot (u^j_{x}+u^j_{c_i})+u'\leq 0$

  with $=0$ if $t_i>0$ and $\leq 0$ if $t_i=0$.

My question is: Why is the derivative of $U$ with respect to taxes $t$ non positive? More precisely, why is it non-positive if taxes are zero?


texts: Find probability that payoff function is in $[10,20]$

texts:
In moment $t=0$ we bought option with expiration date $T=2$. The payoff function of this option is given by:

$$f=(\max_{t\in[0,T]} S_t -110)^{+}$$

where $S_t$ satisfies

$$dS_t=15dW_t$$
$$S_0=95$$

Find probability $P(f\in[10,20])$. Use cumulative density function of standard normal distribution to express it.

Obviously

$$S_t=95+15W_t$$

But i don't have any idea how can I move further. Any help please?


texts: Difficult quantity theory of money question

texts:
Suppose that you live on an island with 100 units of currency. The cultural beliefs of the islanders discourage an excess focus on commerce, which has created two important rules of commerce. First, you are legally permitted to do 10 transactions per year. Second, the maximum permitted value of each transaction is $10, expressed in USD.

With these assumptions, can you solve for the maximum legal FX rate of the islander's currency expressed in US dollars? I feel like you should be able to do this with some kind of simple, recursive calculation, but for some reason I just can't figure it out right now. GDP is obviously $100 USD per islander and I feel like you can know velocity by knowing the number of transactions per year, but I am not sure how.


texts: What is the best measure for the world's economic cycle?

texts:
I'm trying to make a graph that shows how the return of major assets (S&P 500 index, % of 3Y T-notes, oil, gold, etc) move along with the world's expansion& recession cycle.

I looked into World Bank website but I'm not sure which measure I should use to represent the world's real business cycle.

FYI, you can select different GDP/PPP measures on the right pane.

Here are my questions:

Should I use World data vs OECD data?

OECD countries take up the most part of the world's finance. Is using OECD good enough / more accurate?

I think I should use GDP growth rate. But does it represent real, not nominal data?

I should use real GDP, right? But as you can see, the website only has one growth rate graph. So does that mean I have to make my own graph by downloading real GDP?

There are GDP and PPP. Which one should I use?

What I want to do is showing the relationship of each asset's return with the world's economy. Since GDP is represented in USD, should I use PPP instead if I want to capture real economy without the effect of exchange rate?


texts: Price Elasticity of Demand for Positive Price Increases

texts: What does it mean when the price elasticity of demand  %Qd/%P is greater than one?  Typically I hear that it means the demand is elastic since if, say, the price decreases by 1% the demand for the good increases by more than 1%.  But what happens if %P is +1% and %Qd still increases by more?  Sure, this is elastic, but does it give us any more information?  I can't see why %Qd/%P > 1 makes sense in this case.


texts:
Source

Russia is under U.S. sanctions. How does Russia have so much foreign exchange reserves?


texts: Social Choice: from Independence axiom to Mixture symmetry axiom

texts:
Harsanyi's Utilitarian theorems' has been criticized by Diamond Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparison of Utilities and others that, it is the morally unacceptable for social preference to satisfy the Independence axiom because it would imply that ex ante fairness are of no importance. Epstein and Segal QSWF suggest a Quadratic Social Welfare Function to replace Harsanyi's linear one (weighted sum of individual utilities), equivalently, a "Mixture Symmetry axiom" to replace the Independence axiom.

I am trying to use this QSWF & MS axiom to replace the first order social welfare function and Independence axiom in Professor Uzi's another paper Let's agree all dictatorships are equally bad. Professor Uzi's aim of this paper is not about the social welfare's functional form but I would like to see the difference if I made a change as mentioned above. The maximizer(optimal resources allocation)of the weighted sum of individual utilities is invariant to linear transformation $v_i=au_i+b$ in the original paper. From what I can see now, the optimal allocation is not invariant to linear transformation of utilities, but this is yet to be proved.

It turns out the main job is about how to replicate the Lemma 4 (in Appendix B) of Pro Uzi's original paper (dictatorships) using Mixture Symmetry  instead of Independence axiom. One difficulty is that the MS axiom is given in the case of two lotteries:

  Mixture symmetry(MS): if lotteries $f \sim g$ socially, then $\alpha f+ (1-\alpha)g \sim \alpha g +(1-\alpha)f$ socially, $\alpha \in [0,1]$.

And there is another axiom called Randomization preference(RP)：

  $f \sim g$ socially, but $f \ne g$, this is to say, at least individual strictly prefers $f$ to $g$ and another who strictly prefers $g$ to $f$.
  Then $\frac{1}{2} f+ \frac{1}{2}g$ $\succ$ $g$. Equiprobable randomization is the best.

MS and RP together implies:

  $\frac{1}{2} f+ \frac{1}{2}g$ $\succ$ $\alpha g +(1-\alpha)f$ for any
  other $\alpha \in [0,1]，\alpha \ne \frac{1}{2}$. The closer the
  randomization to the equiprobable one the better.

However, the two axioms together do not imply the 3-lottery version of MS:

  If $f \sim g \sim r$, $\alpha f+ \beta g + (1-\beta - \alpha)r \sim
\alpha g + \beta f + (1-\alpha-\beta)r$.

Because let $g=r$ we would have $\alpha f+ (1-\alpha)g \sim \beta f+ (1-\beta)g$, when $\alpha =\frac{1}{2}$ and $\beta =1$ we would have $\frac{1}{2} f+ \frac{1}{2}g \sim f$ which contradicts with the RP. Similar arguments apply to two mixtures whose probability weights are cyclic permutations of one another.

Hence, it seems to me the current MS combined with RP can only give us the equivalence between 2-lottery mixtures, what if I need to randomize more than 2 lotteries, and compare different mixtures? The above 3-lottery version axiom is not right, but it does not say there is no 3 ore more lottery version, it may take other form. So the question is, how should I generalize the MS to higher dimension if possible? Can I decompose a n-lottery mixture into a sequence of 2-lottery mixture?

BTW, I use MS to replace the Independence axiom, which states:  if $f \sim g$, then $\alpha f+ (1-\alpha) r \sim \alpha g+ (1-\alpha) r$.
Without this Independence axiom, if we have $a \sim b$, $c \sim d$, I am not sure whether we can have $\alpha a+ (1-\alpha) c \sim \alpha b+ (1-\alpha) d$.

While Uzi's original construction uses all extreme/dictatorial allocation to construct all possible general allocations via the Independence axiom, how can I instead use MS and RP to do so?

Anyone studied this paper before? I am not sure how many technique and model details I should post, I can add more if you want to discuss. The main construction and proof is on page 586 of the paper(dictatorships).


texts:
I have a set $X = \{1,2,3\}$ and a binary relation $B = \{(1,1),(1,2),(1,3),(2,3),(3,1)\}$.

I am trying to understand if this relation is complete.

The completeness definition I am using is if for each $x,y$ in $X$, either $xBy$ or $yBx$.

At first I thought $B$ was complete but both $(2,2)$ and $(3,3)$ are not in $B$.
In the definition, if I set $x=2,y=2$ then I think we should have $(2,2)$ in $B$.
On the other hand, it seems meaningless to me because isn't $2B2$ related with reflexivity? So for completeness do we actually need $(2,2) \in B$?


texts:
Is it possible to Structural VAR (vector autoregression) model to imply Granger Causality?
In other words, if X and Y are determined at the same time, is it possible that X Granger-causes Y?
Thanks!


texts: Self-teaching 1st year PhD Microeconomic Theory

texts:
How should one proceed if he wanted to master the microecon theory course typically taught in the 1st year of a PhD program on his own? Which text(s) and/or online course(s) should he follow? Suppose the guy has had a good training of econ up to the intermediate level and is familiar to the math topics the microecon course would typically demand.

Thanks in advance.


texts:
Let's consider 5 farmers, each of them has 2 cows to put into the field.
So every farmers can put 0,1 or 2 cows. I denote the three stategies by $q_i$, i=0,1,2.
Now, the payoffs ( i.e. the amout of food that each cow will eat) are given by:
$$
u_{i}(q_1,...,q_5)=q_{i}(12-(q_{1}+...+q_{5}))
$$
Now, for finding the Nash equilibrium I draw the matrix which has on the row one player and on the columns the others four. I observe that strategy 2 stricly dominates 1 so the N.E. is given by (2,2,2,2,2) and the correspinding payoffs are (4,4,4,4,4).
(If I estend the strategies to $q_{i}\in[0,2]$ the N.E. remains the same, right?)

Now, the Pareto optimality, if I have understood well should be the strategies (1,1,1,1,1) which give me as payoffs (7,7,7,7,7). Are there other pareto optimality profile? Because I think that I have understood the problem for 2 players but for more I'm not totally sure.

Then, the last question :) If I tax (c) farmers that put two cows in the field, how much I should tax to inforce N.E?
For replying to this I have think in that sense: for strategy I have that my payoffs functions are given by
$$
u_{i}(q_1,...,q_5)=q_{i}(12-(q_{1}+...+q_{5})-c)
$$
Hence, if I look to the payoff matrix in order to have strictly dominance of strategy 2 I should impose c=1.


texts: Is the mode of wage distribution a meaningful economic indicator?

texts:
The Central Statistical Office of Poland publishes a report every two years, in which it diagnoses the labor market. Among other indicators, they publish the mode of the distribution of wages, in painful detail (up to a grosz, worth around a quarter of a cent). For instance for 2017 it was 2074.03 PLN worth at the time of writing 548.6 USD (source tweet in Polish).

These statistics always resonate strongly with a lot of my friends, however I have doubts. Having a background in statistics but none in economy, I criticize this indicator as being excessively susceptible to noise. I expect very low correlation between the frequency of wage equal X PLN and X+0.01 PLN and as such conveying very little information about the labor market as a whole. I could see this indicator useful if applied to a reasonably quantized histogram (which however raise the question where should the bin edges be). On the other hand, if somebody does not wish to look at the market as a whole, I could imagine some creative uses of this value.

I would like to ask the community if it is aware of any meaningful uses of the aforementioned in economic research, and if so, at which degree of quantization.


texts: why has the GDP per capita of Ireland grown of almost 30% between 2014 and 2015?

texts:
I came across these graphs today :

https://data.oecd.org/gdp/gross-domestic-product-gdp.htm

https://data.oecd.org/lprdty/gdp-per-hour-worked.htm

In both, something doesn't make sense for me: the GDP per capita of Ireland had a 30% growth between 2014 and 2015. None of the other country seems to have such behavior.
Does anybody know why? Is there any bank/debt/accounting reason for this sudden increase? A political reason?


texts: Is it possible, that the global warming will affect the growth of the economy?

texts: I am wondering if, in the face of the global warming, the long-term passive investments into ETFs are still a good idea. Right know we benefit from the growth of the economy. I assume (maybe that's wrong assumption) that in the big picture the overall growth of economy is fully dependent on the energy, i.e. whether the particular company produces products or provides services you can always show that it needs energy to grow. Global warming seems to significantly affect our energy production and the following global crisis seems to me to be very different than for instance world wars - you cannot stop it by just signing peace documents. I wonder if my reasoning is right and to be honest I hope that it's not.


texts:
I have been struggling trying to understand the difference between a quasiconcave and a convex utility function. As far as I understand a function can be both at a certain point, but is not clear to me why sometimes is said that the function is quasiconcave rather than just convex.

Can someone please tell me what are the implication of


texts: Doubt in understanding the advantages of Fixed Exchange Rate

texts:
The author of my book writes:

ADVANTAGES OF EXCHANGE RATE
If exchange rates are fixed, then inflation may have a very harmful effect on the demand for exports and imports. Because of this, the government is forced to take measures to ensure that inflation is as low as possible, in order to keep businesses competitive on foreign markets. Thus, fixed exchange rate ensure sensible government policies on inflation.

I don't understand this point and would be grateful if someone could explain it, perhaps with a real world example.


texts: Why does deflation cause banks to increase their interest rates?

texts: I have read that in a deflationary spiral, lower prices cause banks to increase their interest rates. Is this true and what is the logic behind it?


texts: Question about nested input requirements

texts:
In Michael Carter's "Foundation of Mathematical Economics" we have the following exercise:

Prove that the input requirement sets are nested. That is, prove that $V(y') \supseteq V(y)$ $ \forall $ $y' \leq y$

This seems a bit odd. I have the following:

Let $X \in V(y)$ Then $(y,-x) \in Y$ where Y is the production possibility set.
Then by free disposal, it follows that $(y',-x) \in Y $ $\forall$  $y' \leq y$

It seems like the conclusion should be then that $V(y) \supseteq V(y') \forall y' \leq y$

In words: It seems like the input requirement for out y' where $y' \leq y$ should be less than or equal to the input requirement for y. And because of this, the input requirement for y should contain the input requirements for y'.

Can someone give some direction here? Why is it that we are saying the input requirements for a lesser output is somehow a super set for the input requirements of a greater output?


texts: Unemployment Claims vs Monthly Jobs Report

texts: Lately weekly Unemployment claims have been around 700,000.  So Monthly unemployment claims are about 4 x 700,000 or 2,800,000.    YET Jobs Reports say:  The U.S. economy gained 638,000 jobs in October.  Are we really losing    2,800,000 -  638,000  or   2,162,000 jobs monthly?


texts: Natural real interest rate and output gap

texts:
I am a bit confused about the concept of natural real interest rate. I've read that it is the level of real interest rate consistent with the output being at its potential or natural level and with the inflation being static. Is that true?

Furthermore, I do not understand how natural real interest rate is able to affect output and natural level of output (then, the output gap) in the usual New Keynesian framework. I mean the dynamic is curve is defined as
\begin{gather}
x_t=E_t\{x_{t+1}\}-\frac{1}{\sigma}\{i_t-E_t\{\pi_{t+1}\}-r^n_{t}\}
\end{gather}
where $x_t=y_t-y^n_t$, i.e. the output gap and $r^n_{t}$ is the natural real interest rate. ($\frac{1}{\sigma}$ comes from a CRRA household utility with elasticity $\sigma$).

Thus it seems that an increase in the natural real interest rate leads to an increase in current output gap, but how is this true? Does it mean that natural level of output increases more than output?


texts: Do you get economies of scope from horizontal or vertical integration?

texts:
Economies of scope: make it cheaper to produce a range of products together than produce each one on its own as company can share inputs (e.g marketing and finance) removing cost redundancy

Would this come from horizontal or vertical integration? + example would be great!

Also, is economies of scope the same as synergy?


texts: Nash equilibrium of a Bertrand game with different marginal costs

texts:
Consider the following game of Bertrand (price competition):

There are two players, $1$ and $2$. Each has a publicly known marginal cost, $c_i$.
A strategy is a price, $p_i\in\mathbb{R}$.
Player $i$'s payoff (profit) is $\pi(p_i,p_j)=p_i-c_i$ if $p_i<p_j$, $\pi(p_i,p_j)=\frac{p_i-c}{2}$ if $p_i=p_j$ and $\pi(p_i,p_j)=0$ if $p_i>p_j$.

If $c_i=c_j=c$ the result is the straightforward Bertrand Nash equilibrium: both firms set $p_i=c$ and make zero profit. A higher price results in zero demand/profit; a lower price results in negative profits. There is therefore no profitable deviation.

  Now suppose $c_1<c_2$. What is the Nash equilibrium?

I have previously contented myself with the intuition that the equilibrium is for firm 1 to take the whole market at a price 'slightly below' $c_2$? But looking at the technical details raises doubts in my mind:

We can't have an equilibrium with $p_1=c_2$. The best response for $2$ would be $p_2=c_2$, but then $1$'s profit is $(p_1-c_2)/2$ and $1 $ can profitably deviate to $p_1=c_2-\epsilon$ for some small $\epsilon$.
It seems like we can't have an equilibrium with $p_1=c_2-\epsilon< c_2\leq p_2$ because firm 1 could do better with $p_1=c_2-(\epsilon/2)$.

Do we conclude that the only equilibrium of this game is in mixed strategies?


texts: Refinements in signaling games with three sender types

texts:
What are the pros and cons of the Intuitive Criterion and the Criterion of Divinity in signaling games with three types?
I find that separating equilibria often survive the intuitive criterion, whereas only the "Riley"/Pareto-efficient outcome survives divinity. But what about potential pooling equilibria?

For example, I have difficulties investigating whether the asset-pooling equilibria (for positive correlation and no synergies, i.e., section 2.1) in Edmans and Mann's "Financing Through Asset Sales" satisfies the criteria, if I solve for three types.

I hope someone can help me.


texts: Log-linearisation Euler Consumption Equation

texts:
I am trying to log-linearize the Euler consumption equation in Gali's book. He says:

  A log-linear approximation of $Q_{t}= \beta E_{t}[(\frac{C_{t+1}}{C_{t}})^{-\sigma}(\frac{Z_{t+1}}{Z_{t}})(\frac{P_{t}}{P_{t+1}})]$ (1)

I spent all of last night trying to learn log-linearization so this might be why my answer isn't correct but here is my attempt:

I re-write $Q_{t}=\frac{1}{1+i_{t}}$ and thus (1) becomes:

$1= \beta E_{t}[(1+i_{t})(\frac{C_{t+1}}{C_{t}})^{-\sigma}(\frac{Z_{t+1}}{Z_{t}})(\frac{P_{t}}{P_{t+1}})]$

Taking logs of both sides (I'm assuming I can ignore the expectation operator, although I'm not really sure why):

$0=ln(\beta) + ln(1+i_{t})- \sigma[ln(c_{t+1}) - ln(c_{t})] + ln(z_{t+1}) - ln(z_{t}) + ln(P_{t}) - ln(P_{t+1})]$ (2)

Approximating around the steady state values:

$0=ln(\beta) + ln(1+i^{*})+(\frac{1}{1+i^{*}})(i_{t}-i^{*})- \sigma[ln(c^{*})+(\frac{1}{c^{*}})(c_{t+1}-c^{*}) - ln(c^{*}) - (\frac{1}{c^{*}})(c_{t}-c^{*})] + ln(z^{*}) + (\frac{1}{z^{*}})(z_{t+1}-z^{*}) - ln(z^{*}) - (\frac{1}{z^{*}})(z_{t}-z^{*})+ ln(P^{*}) + (\frac{1}{P^{*}})(P_{t}-P^{*}) - ln(P^{*}) - (\frac{1}{P^{*}})(P_{t+1}-P^{*})$

That was quite messy but hopefully you see what I am doing, a simple first order approximation around the steady state. Next I used equation (2) to cancel some terms. I was left with:

$(\frac{1}{1+i^{*}})(i_{t}-i^{*})- \sigma(\frac{1}{c^{*}})(c_{t+1}-c^{*}) +  \sigma(\frac{1}{c^{*}})(c_{t}-c^{*}) + (\frac{1}{z^{*}})(z_{t+1}-z^{*}) - (\frac{1}{z^{*}})(z_{t}-z^{*})  + (\frac{1}{P^{*}})(P_{t}-P^{*}) -  (\frac{1}{P^{*}})(P_{t+1}-P^{*}) = 0$

Re-writing in terms of deviations from steady state:

$\tilde i_{t} - \sigma \tilde c_{t+1} + \sigma \tilde c_{t} + \tilde z_{t+1} - \tilde z_{t} + \tilde p_{t} -  \tilde p_{t+1} = 0$

I can re-arrange this in terms of $\tilde c_{t}$ and put in expectation operators but my answer does not match with Gali's. He says:

  $c_{t} = E[c_{t+1}] + \frac{1}{\sigma}(i_{t} - E_{t}[\pi_{t+1}] - \rho) + \frac{1}{\sigma}(1-\rho _{z})z_{t} $

First of all, I don't understand where $\rho$ came from since it is not in (1). Furthermore, am I making a mistake in my linear approximation? Should I not have used (2) to cancel terms?

I just learned log-linearization so my method might be quite naive. I simply "logged" both sides, used first order Taylor approximation around steady state, cancelled terms from the "logging" step and solved for consumption.

Any assistance is greatly appreciated!


texts: If $X$ is a Giffen good then $Y$ must be a normal good

texts:
While going through some problems as part of self-study I encountered the following True/False question:

Q. Steven only consumes two goods: $X$ and $Y$. If $X$ is a Giffen good for Steven, then $Y$ must be a normal good for Steven.

The given answer is True.

I am unable to understand why it is necessary for the other good to be normal. Why can't it be inferior/Giffen?


texts:
I'm interested in learning how the economy of a town is analyzed. For instance, some occupations serve only people in the town, for instance the town grocer, baker, restaurant, dry cleaner, etc. Their income must come from other people in the town. But other people's jobs will have them sell externally, like someone with an online store.

I've read things discussing how if Amazon's HQ2 brings 50,000 high paying jobs to a city, that also will cause there to be, say 100,000 new secondary jobs (restaurants, dry cleaners, etc that cater to the additional 50k people)

What is this area of study called and what papers or books are good to learn more about it?


texts:
Consider the following extension of the standard DMP model, in which we have two labor markets with different returns, indexed $i$. The markets are completely separated and firms and workers can only go to one market. It might help to think of them as different countries, for example.

I am ultimately interested in the different waiting time of unemployed to find a job.

As usual, we match using a CRS function $M(u,v)$, such that the likelihoods of finding a job and finding a worker are given by $f(\theta) = M(u,v)/u = M(1, \theta) $, and $q(\theta) = M(u, v)/v = M(\theta^{-1}, 1)$.

The vacancy-value equation is

$$ \rho V_i = -c q(\theta_i) (J_i - V_i)$$

Free entry implies $V_i = 0$. Manipulating the equations we get

$$ \frac{q(\theta_1)}{q(\theta_0)} = \frac{J_0}{J_1}$$

which makes sense - the job-filling-rates are inverse to the value of the jobs. Say $J_1 > J_0$. Then, market $1$ is tighter, leading to a lower job-filling-rate for an individual firm.

Using the earlier definitions, I can use that $f(\theta) = q(\theta)\theta$:

$$ \frac{f(\theta_1)}{f(\theta_0)} = \frac{J_0}{J_1}\frac{\theta_1}{\theta_0}$$

Let $W_i$ denote the average waiting time of an unemployed in market $i$. As we're using Poisson rates, $W_i = 1/f(\theta_i)$:

$$ \frac{W_0}{W_1} = \frac{J_0}{J_1}\frac{\theta_1}{\theta_0}$$

Which doesn't make sense anymore. Consider again $J_1 > J_0$: A worker in market $1$ is much more valuable to firms than a worker in market $0$. However, the relative waiting time for workers in market $1$ increases in the relative value of workers in market $1$.

I don't understand this. Was my derivation wrong? Or am I not allowed to to the ceteris paribus argument while ignoring $\theta_1/\theta_0$ on the right-hand-side?


texts:
Are there any good books or blogs on Economics in Competition Policy?

I am primarily interested in US and EU.

I know of the Motta and Bishop-Walker books but I would like something with more details on the economic methods.

E.g.:

more details on the econometric methods
more details on acquiring or cleaning data
more details on the industrial organization (or other) models used


texts: How to calculate gdp of a company during promotion and loss?

texts:
Suppose a company is selling a good worthy of 200 dollars, but it was charging it for 100 dollars intending for promotion. And the company have to pay salaries of $200 per good, so it loses 100 dollars per good sold.

From the income side, it is 200 dollars to the employees and -100 dollars to the shareholders.

From the expenditure side, it's 100 dollars from the consumers.

Should the GDP be reckoned as 200 dollars as the good's market value or 100 dollars? And why?


texts: The relationship between profit and wages

texts:
It seems obvious that an individual company increases their profits when they reduce wages or increase automation or some such.

But if wages fell universally because of this, wouldn't that decrease profits, since ultimately the earnings of all those companies rely on wage-earning consumers?

It would seem to me, then, that an industrialist, in the sense of an owner of a particular company, should want to reduce wages, but a true capitalist, in the sense of someone with their finger in many pies, would actually want to increase wages - and that their interest would be to prevent other classes from accumulating savings by making sure that those increased wages are channeled into as much additional consumption as possible.

Is this correct? How can I understand this better?

In my innumerate way I have tried to reduce this to a simple thought experiment and here is where things get messy and confusing for me:

Suppose there is just 1 capitalist and 1 worker & consumer.

Suppose that the worker produces $100 worth of goods and services.

In order for them to be purchased from the market, that worker will need to also earn $100.

So there doesn't appear to be any profit for the capitalist at all in this picture. And yet isn't profit surplus value? Where is that coming from?

Clearly I am getting this wrong, both because the above situation could not exist, and because if it did, it could not grow/change. But what is my error?

My gut sense is that factors involved here include:

That a proper consideration of the role of currency is needed to pair with the goods, since we are not just dealing with the value of the goods, but the denotation of that value in money, the circulation of which behaves differently than that of the goods.
That time intervenes between production and consumption causing a circulating effect that somehow (through market & financial intermediaries?) magnifies apparent value involved.
Consumer credit - like credit cards - would seem to have a distorting effect on this process, but that's still in expectation of future wages, right?
The existence of different tiers of wage earners and consumer, whether by class in the same economy, or maybe more importantly, in different economies - high earning "consumers" in Western nations having a codependent relationship with low earning "laborers" in developing nations. This one in particular seems relevant to me.
The spending of the capitalists, even if that's minuscule in comparison. But if the "surplus value" from the workers going to the capitalist is what's needed to be spent in the market to buy all the produced goods and services then they would only be recirculating what they have, not earning, saving and reinvesting.

What also seems relevant:

"Semi-fungibility" of different goods. What's an arch-capitalist going to do with a few million more bushels of grain? It would seem to me that money approximates fungibility to large extent but at the end of the day you can't eat a yacht.

But this is all inchoate musing and I feel helpless to understand much less really explain any of it.

Any direction you could give me would be much appreciated!

Thank you,

Jenna


texts: Transitional Dynamics of consumption per capita in solow model

texts:
I can write the transitional dynamics of output per capita as follows
$$y=f(k)$$
Take its derivative with respect to time t
$$ \dot{y} =f’(k) \dot{k}$$
Divide it by $k/k$
$$ \dot{y} =f’(k) \frac{\dot{k}}{k} k$$
And finally divide both side by $y=f(k)$
$$\frac{\dot{y}}{y} = \frac{f’(k)}{f{k}}\frac{\dot{k}}{k}k$$
Now I want to derive this for consumption for per capita
I guess
$$c= (1-s)y$$
$$\frac{\dot{c}}{c} =\frac{\dot{y}}{y} $$
So is this transition dynamics for consumption per capita correct? How can I obtain this?


texts: Confused about relation of inflation to a currency's depreciation?

texts:
I'm a complete newbie to this foreign exchange stuff and was reading about the impact a country's price levels have on exchange rates.

So from what I understand, the general idea is that inflation leads to a decrease in value of a country's currency (depreciation).

increased prices in goods in a country --> the country's exports will be less competitive --> so demand for the exports fall --> demand for the country's currency falls --> and this leads to depreciation of currency

however, it's also said that:

with a depreciated currency -> imports will be more expensive BUT the country's exports will be cheaper and more competitive --> then won't demand for currency rise instead?

If so, doesn't this contradict the first statement? It seriously confuses me. Inflation that leads to depreciation will then lead back to appreciation of the currency again?
I know I'm probably missing something here, but this just makes no sense from the way I picture it.


texts: Is there an income inequality metric which also considers the total income?

texts:
I'm trying to compare some data I have about two companies, and in order to do so I need to compare their income inequality, but also to take in consideration the total income of each.

For example if we are to find that one company is slightly less equal, but has way higher total income, we would prefer her over the other. This is motivated by the fact that are we looking only at a subpart of the economy, hence the total income does matter.

I understand that most (if not all?) income inequality metrics don't evaluate that as a result of their definition which is purely a measure of inequality, but I didn't have any other name for what I am looking for.


texts: Have UK exports (goods and services) to Ireland declined in value since 2011?

texts: Where can I find the relevant Office Of National Statistics data on UK exports to Ireland? I want to know if the value of UK exports to Ireland has declined since 2011 and if so, does anyone know why that might be? I understand the reasons that UK market share in Ireland has decreased, but I'm in interested in why the total value may have decreased (or not). Thank you.


texts:
I started studying microeconomics and I am having trouble figuring our how can I find the "?" values in this table? If someone could help me I would be really grateful.
╔════════════════════════════════╦════════════════════════════════╗
║                            Country A                            ║
╠════════════════════════════════╬════════════════════════════════╣
║            Bananas             ║            Oranges             ║
╠════════════════════════════════╬════════════════════════════════╣
║ Wage = 12                      ║ Wage = ?                       ║
║ Marginal Product of Labour = 2 ║ Marginal Product of Labour = ? ║
║ Price = ?                      ║ Price = 4                      ║
╚════════════════════════════════╩════════════════════════════════╝

In regard to the bananas I believe the Price must be equal to the Wage = Marginal Product of Labour multiplied by the Price or in other words 12 = 2 * X => X = 6 => P = 6
However, I am not sure in the case of oranges where I have two unknown variables how to get the wage and the marginal product of labor in Oranges.
PS: Thank you in advance. In order to simplify the problem I skipped country B, because trade is not allowed between the two countries in this exercise.


texts: I have some question about the elasticity of the demand functions of two different traders/consumers. Suppose that $x_1$ and $x_2$ are the elasticities of the demand functions of these agents. Furthermore, they have linear demands, that are $d_1=a_1-x_1P$ and $d_2=a_2-x_2P$, where $a_1,a_2$ are the intercept points of the demand functions and $P$ is the price of the asset/commodity. What does it mean that the elasticity of trader $1$ is higher than that of trader $2$ i.e. $x_1>x_2$ or the opposite, $x_1<x_2$, in case they buy the asset/commodity or they sell it.


texts: Trying to track down the earliest usage of rivalry, tangibility, excludability, and durability in economics

texts:
I'm interested in a history of these terms, and wondered if anyone knows where I might find such a thing.
The first mention I can find for excludability is a 1957 law journal paper referring to a court case (inaccessible to me).
The earliest citation I've been able to find for rival goods is Chapman (1909), but mostly I see economics papers cite more recent textbooks (1980-2000).
Tangible goods seems to be a legal term, for which I can find the first mention in an 1889 law journal (which I also can't acccess).
The earliest reference I can find for durable goods is John Law (1750).
A secondary goal might be finding an authoritative source where all of these terms are tied together for the first time.


texts:
Supply curves are usually non decreasing. For example in a electricity market, providing more capacity means turning on new production units with higher costs, see e.g. the following representation:

My question is, in what context would it make sense to have a non monotonic supply curve?


texts: What is the likely result of rent control in Berlin?

texts:
What predictions does economics make about the likely result of this policy in Berlin of capping rent prices.

  Berlin is freezing the rents of 1.5 million apartments for the next five years starting this Sunday in a controversial move to control the exploding costs that have forced many to move outside Germany's capital city.


texts: Are there any real world examples of potential Pareto improvements?

texts:
Professor George Fallis in his book "Housing Economics" writes when discussing the notion of a Pareto improvement
(Page 123)

In the real world, almost all policies recommended by economists are potential Pareto improvements, not actual Pareto improvements.

My Question
Are there any real world examples (from the past and/or present) of policy recommendations by economists which are potential Pareto improvements? If so, how?


texts: What is the percentage of announced Merger & Acquistion deals actaully completed?

texts:
I am assuming that not all M&A deals announced are completed. There are factors such as anti trust laws and consumer protection agencies that legally prohibit the two companies from completing the M&A. Statistically, what is the percentage of completed M&A deals to announced M&A deals .

Please provide reference if possible


texts: Why did the Fed raise interest rates between 2004 and 2006?

texts:
Between June 2004 and August 2006, the Fed raised interest rates again and again, because they were "...growing more uncomfortable about inflation".

Looking at the graph below, inflation did increase, but not in any totally insane way (note that it clearly didn't respond to the rate rises!):

Given that high interest rates are bad for mortgage-holders (particularly those with high loan-to-value ratios), you'd think quindrupling rates within 18 months would be bound to lead to a wave of defaults.

Were there accusations at the time that the Fed was blindly following its inflation targeting rule without thinking about the consequences in the rest of the economy?

Or was it about something other than inflation?


texts:
I am attempting to solve the following CES Utility Function problem:

However, I am running into issues when I get to 3).

For 1) I have $K = \left(\frac{\omega p_1}{p_2}\right)^{\frac{1}{p+1}}$

For 2) I get $X_2^M = \frac{m}{\frac{p_1}{K}+p_2} $

For 3) I find $\lambda^* = (K^\rho + \omega)^{-\frac1p-1} \cdot \omega \cdot p_2^{-1} $

and $v(p_1, p_2, m) = \left(\left(\frac{m}{p_1+Kp_2}\right)^{-\rho} + \omega(\frac{mK}{p_1+Kp_2})^{-\rho}\right)^{-1/\rho}$

I then divide $\lambda^*$ by $v(p_1, p_2, m)$, but when I do so I can't seem to fully cancel out $p_1,p_2,m,K$ and $\rho$ which I believe I would have to do to prove that they are proportional. I'm not sure if the issue is with my $\lambda^*$, my $v(p_1,p_2,m)$ or both...

Additionally, for 6) how does one demonstrate homogeneity of a given degree?


texts:
Suppose there are two agents $\{A,B\}$ with the following utility functions: $U_A(x_A,y_A)=x_A+f(y_A)$ and $U_B(x_B,y_B)=x_B+g(y_B)$

$f$ and $g$ are strictly increasing and strictly concave. How do I prove that in the set of pareto efficient allocations $y_A=y_B$ ?


texts:
$p(0)\geq c'(0)$ is assumed so that the inverse demand curve originates above the marginal cost curve.

But what is the intuition behind this assumption? The highest willing-to-pay consumer is more than the marginal cost of producing the first unit? Is this going to be the variable cost of producing the first unit?


texts: Mechanisms to incentivise social welfare

texts:
Suppose there is a set of agents causing loss $l_i$ to themselves and aggregate loss $L$ to the society, both of which can be minimised by their investments $c_i$.

The social planner who is concerned with minimising $L(c_i)$ wants to incentivise players to invest more. Players have utility $u_i=-f(l_i)-c_i$ and they decide on whether to invest more based on utilities.

What are some mechanisms which can incentivise agents in this framework? Can VCG-type mechanisms be adapted to this situation?

(PS: Sorry if the question is vague; please feel free to add assumptions)


texts: Is comparative advantage only beneficial with convex utility functions?

texts:
I've been playing around with the numbers associated with the traditional comparative advantage problem provided by Ricardo.
(https://en.wikipedia.org/wiki/Comparative_advantage)

I looked at comparative advantage in my Econ 101 class, but I was surprised to find when reviewing it that it seems like comparative advantage is itself not enough to ensure trade. (I had thought this was sufficient to ensure trade for all optimizing agents.)

Am I correct in believing you'd need the utility function for at least one of the countries in the standard comparative advantage example to be convex, with a diminishing marginal rate of substitution (e.g., a Cobb-Douglass function of the form $U(x,y) = (x)^{0.5} (y)^{0.5}$)? Or am I missing something? It seems to me that without diminishing marginal rate of substitution (which isn't a huge assumption, of course), there's no benefit to trade.


texts: Why are capital gains not counted in a poverty status calculation?

texts:
So according to the US census office capital gains are not included when trying to figure out if a household is living in poverty. Does this mean if I have one billion dollars in index funds that I am living off of am I in poverty(at least by this definition)?

I am I understanding this correctly? Is this considered a fault in the poverty status measurements? If this is an oversight is there some political reason for it?

Thanks in advance!


texts: Econometric model for industrial production

texts:
I have to build a multivariate regression model as a project for my course in time series analysis. I have decided to model the industrial production index of the USA. I am stuck on the selection of the regressors which can adequately explain the time series of the industrial production. I have already selected some regressors (producer price index, unemployment, interest rates, population, auto and truck sales, inflation, philly fed seasonal adj. index, PMI) but I think I need some more regressors to correctly specify the model.

Can you suggest me some macroeconomic time series I can use as a regressor for the industrial production index?
I need data from 1960-70 to 2016.


texts: Modeling job application process in labor market

texts:
I need to model the job application process by job seekers. Specifically a job seeker when looking for a job, comes across a job and then decides whether to apply for it or not. I want to model this application decision. Assuming that job seeker has already come across a job, I want to model what are the factors (of the job/employer) that will make this person apply or not apply to the job.

I will appreciate any references that have done similar modeling or any suggestions in this direction. I have been reading papers from job search theory but I can't figure how to use search theory to build my model. The search literature seem to argue that only factor that may affect person's decision to apply is the wage offer from current job versus an outside option. However, in the absence of wage offer; for example person looking at job description and thinking whether he should apply to this job or not, is the question that I'm really after. I guess this is still a search question, it's just that I want to model for other factors (expectation about wages, job condition, employer, my own taste towards the job/employer etc) in the application decision. Appreciate any help!


texts: Does the inflation rate reflect only the change in quantity of money?

texts:
Does inflation rate during the years comes from the the proportional difference of current amount of currency and amount of currency 1 year ago.

I mean lets suppose in 2000 there were 1 million dollars in flow and in 2001 100k were added into the flow, so the inflation rate is 11%?


texts: VAT vs. Income tax - How their effect varies

texts: Was wondering how the effect of VAT (indirect taxes) differs from the effect of income tax (direct taxes), in terms of their impact on the 4 marco objectives (unemployment, inflation, balance of payments and economic growth)?


texts: Macro Economic Factors that Effect the Revenue for General Mills

texts: I was having a conversation with a friend about politics, and that eventually led to economics. I know... We're a little on the wild side. He made a comment that he thinks that a company like General Mills (there happened to be a box of my kids Cheerios on the table) should be able to be profitable as long as they have a good product and business plan. I agreed to a point, but remembering back to my economics classes from years ago , I said that macro economic factors also have a big impact on a company's revenue. For the sake of my argument I tried to think of some examples, but for the life of me I couldn't think of any good ones. All I could think of was average annual household income, but I'm really not sure what kind of an effect that has on a company like General Mills. On one hand I can see how it would give people less money to buy the product, but on the other hand maybe it causes people to buy more of their products because they don't have as much money to eat out all the time. Anyway, It really hurt my debate score, and more importantly, it just really bothers me not knowing the answer to something. That's why I came here for advice. I don't necessarily need 5, I just thought having a few would really solidify my point and it said to be specific with my question.


texts: Does economics explain why people prefer to live in the same home for long periods of time?

texts:
Based on actual spatial needs there would seem to be a case for changing homes more often than how often people move in practice; e.g. to respond to where a new job is located in the area, having partners or kids who then move out, etc.
How does economics look at this? I've been thinking of these angles:

Economic transaction costs (taxes, movers, brokers) - but would one want to move regularly even if all these were low?
Transaction costs given the specificity of each dwelling situation (hard to assess relative values)?
Formation of social capital (neighbours, etc.) in the dwelling process that cannot be transferred to a new dwelling situation?
Formation of "mental" capital - the need to learn new habits inside and outside the new dwelling, e.g. routines, commute, etc.


texts: Differential equation to calculate an investors fortune at time T

texts:
An investor has to investment opportunities. At time t his fortune has the value $v(t)$. In the first alternative he can put all his money into a bank account with interest rate $r(t) > 0$. The other option is to invest all his money in a stock which pay continuous dividends.  At time t the stock pays $\pi(t)$. There is no uncertainty regarding the development in stock price.
Assuming $v'(t) + \pi(t) = r(t)v(t)$ holds and $r(t) = r$ and $\pi(t) = \pi$, find an expression for the investors fortune $v(t)$ if he wants to sell the stock at time T>t.
I have tried to solve $v'(t) + \pi = rv(t)$:
$\frac{1}{v(t) - \frac{\pi}{r}} (\frac{dv}{dt}) = r\\\\
ln|v(t) - \frac{\pi}{r}| = rt +C\\\\
v(t) = e^{rt+C} + \frac{\pi}{r}$
I am not sure I understand the intuition behind this, so I am wondering where to go from here.


texts: Why do stricter emission limits cost jobs?

texts:
I live in Germany and as most people know the car industry is very important in our country. Currently, there is a discussion about stricter emission limits for cars in the European Union. The car industries main criticism of stricter limits is that they supposedly lead to lots of jobs being lost. I don't quite understand why this should be the case.

Why do (don't) stricter emission limits lead to job loss?
What theoretical mechanism is at work here? Is there any empirical evidence that this is actually the case (stricter limits lead to job loss)?


texts: Examples of non-differentiable problems in economics

texts:
As a research project, we're investigating various algorithms developed for non-differentiable, convex (or concave, if you're into economics) optimization. I'd like to find some good examples of real problem formulations that arise in different fields, especially economics.

Any example is welcome, as long as it is non-smooth in some sense, either in the objective function or the feasible set. Ideally I'd like examples of both strictly concave and not strictly concave functions. Both problems that are separably concave and problems that aren't are of interest.


texts: What happens to the money that the government is in debt from?

texts: Since nearly all countries are in debt except for four (http://www.therichest.com/rich-list/rich-countries/the-only-5-countries-in-the-world-living-debt-free/), where does all the money that the other countries no longer have go to? Surely these four countries can't be receiving it all.


texts: Would it be accurate to say that the economies of most of the countries are capitalistic?

texts: What is the proportion of countries that are capitalistic? What is the proportion of the planet's population who live in such countries? How is this, (somewhat subjective?)


texts: Log log regression with fixed effects and cross elasticity of demand

texts:
I have a time series of units sold, and price. I'd like to calculate elasticity of demand wrt to price and a few other variables, some of them are fixed effects.
Qp = b0 + b1 * log(Price) + b2 * Location + b3 * log(Income) + b4 * log(HouseHolds)

I am using log-log regression to calculate the elasticities, and the independent variable of interest is Price. Qp is # of units sold.
My questions are

Can I use Median Income, and Households are fixed effects for the time period in log-log regression model.

Interpretation of Log - Log regression.
1% change in price changes the units sold by b1%(coefficient of price), Ceteris paribus, all else being equal.

Cross Elasticity.
What I add a term for # of available substitutable units? How would I interpret the term?
Qp = b0 + b1 * Price + b2 * Location + b3 * Income + b4 * HouseHolds + b5 * substitutable units

I also have additional categorical variable, i.e type of unit sold. type 1 and type 2. Does it make sense to include that variable in the equation or fit a regression separately for each type? How would you interpret different coefficients of categorical variable?

I'd like to find the point where increasing the Price negatively affects units sold.


texts:
I read the following quote about the Bank of Canada's "operating band" for inducing target overnight loan rates:

The Bank of Canada has a system of an "operating band" for overnight trading.” This band is one-half of a percentage point wide and at the center of the bank is the target for the overnight rate. For example, if the operating band is from 2.25 to 2.75%, the target for the overnight rate is 2.5%. The top of that band, 2.75%, is the bank rate—the interest rate that the bank charges on one-day loans to LVTS participants. The bottom of the band, 2.25%, is the deposit rate—the interest rate that the bank pays on any surplus left on deposit overnight at the bank.

What I Want To Know: Would making the bank rate higher than 2.75 and the deposit rate lower than 2.25 achieve the same goal? For instance, if you made the operating band 2.0 - 3.0 instead of 2.25 - 2.75.


texts:
A decrease in the cost of borrowing (interest rate) will case
a) the demand for loanable funds to increase.
b) the supply of loanable funds to decrease.
c) both A and B.
d) either A or B, but not both.
e) none of the above.

The answer is e, but why? Doesn't a decrease in the interest rate will cause people to save less, but it causes firms to invest more? Why is the answer not c?


texts: A high store loyalty indicates what kind of competition among cement retailers selling products of the same brand?

texts:
To provide some context, this question occurred to me while I was considering the cement retail market. If one considers retailers selling cement of only one brand, then the concept of brand loyalty is useless as there is only one brand. In order to understand the behaviour of consumers, one must consider store-loyalty (An idea first introduced by Ross Cunnigham in 1969). If the retailers are trying their best to maintain store loyalty then what can be said about the kind of competition they are engaging in, given that there is a large number of retailers?

I think that the competition should be monopolistic in nature, as retailers, like shopkeepers, are trying their best to attract consumers. But the only difference lies in the fact that consumers make repetitive purchases at shops whereas a majority of the consumers going to a cement retailer make a one-time purchase(Mainly for the construction of houses). Also, the target of the shopkeeper is to not only increase his sales but also to maintain consumer loyalty, whereas the cement retailer cannot aim for the second option due to the aforementioned reason but yes he would too, want to increase his sales by expanding his consumer base.


texts: How is reducing government expenditure supposed to reduce aggregate demand?

texts: In my coursebook it says that in a deflationary fiscal policy governments may reduce government expenditure (such as building hospitals and road constructions) to reduce aggregate demand but I don't see how is this supposed to affect aggregate demand.


texts: Regression on derived consumer preference

texts:
I have a data set with some demographics of consumers who bought a product that can be used to imply their preference (beta) using Cobb-Douglas (see comments of original question). I’d like to check if any of the other features (specifically household size) have a significant impact on the derived beta of the consumer.  The eventual goal is to incorporate the results into an agent based model when generating the preference variable of the agents (which would then be used to generate the Cobb-Douglas function unique to that agent).

The income (budget) of the consumer plays a role in the derivation of the beta so perhaps it’s better to measure the effect of these features on income instead of the preference?

I’m familiar with the standard regression techniques, but wanted to make sure there wasn’t any issue with running a regression against a derived variable.


texts: Why do banks offer less interest on larger deposits?

texts:
This may be a UK only thing but...

I have noticed that it is very common to see current accounts that offer some interest on the first couple of thousand pounds deposited with them and then less interest on sums over that amount. Why is this so? Surely they should offer more interest due to economies of scale.

Examples:

Starling bank 0.5% up to 2,000 - 0.25% above

Nationwide FlexDirect 1% up to 2,500 - 0% over 2,500

Tesco current account 3% up to 3,000 - 0% above


texts: What Level of Government Debt to GDP Ratio is Sustainable?

texts:
I was reading that Japan has a debt to gdp ratio of 240pc and I cannot understand why this has not left the country "bankrupt"? From looking at this like an ordinary person this level would be completely unmanageable. Furthermore, considering Greece had problems with its national debt with a debt to gdp ratio of less than 200pc I am not sure how Japan has sustained significantly higher ratio for so long? Therefore my question is what makes a certain level of debt to gdp ratio sustainable? Also who does the government owe the debt to and does it matter who they borrow from? ie domestic vs international.

For interest see the following graph,


texts: Estimates for 'inflation expectations': the 'breakeven' rates. What are they?

texts:
«Popular market measures of US inflation expectations are climbing sharply higher in the wake of this week’s Federal Reserve meeting, which analysts say hinted at officials being willing to tolerate higher inflation before tightening monetary policy more aggressively.

So-called “breakeven rates”, which are a rough estimate of expected inflation derived from comparing the yields of conventional and inflation-proof Treasuries, have jumped markedly this month, and have gone even higher since Wednesday’s Fed meeting»

Could you please explain how are these breakeven rates estimated? And why they can be a 'rough estimate' of expected inflation?

Any help would be appreciated.


texts: What do the numbers in the ISO 4217 currency codes mean?

texts:
The International Organization for Standards (ISO) has a ISO 4217, which delineates currency codes, country codes, etc. for, well, international currency.

Alongside this, each country is given a three-digit numerical code number.  I've been trying to figure out what kind of designation process this has, but it appears to be random.  Why is it oddly (mostly) random?

They appear to somewhat progress alphabetically with new ones added to sometimes newer countries that appeared after the 1973 designations, but not always.  And there are way too many gaps for those countries that may have fallen off the map since then, so to speak.  What is the meaning of the numerical designation for ISO 427 labels on currency?  I find it hard to imagine it is just sloppiness.


texts: Capital - augmenting and energy-augmenting technical progress

texts:
I've read a number of papers on factor - augmenting technical progress and directed technical change. Authors do not note about the implications of factor - augmentation in sufficient details. Assume production technology is of CES type where inputs are Labour, Capital stock and Energy. If technological progress is induced, then it is possible that endogenous changes in innovations lead to capital - saving, labour - saving and energy - saving technical progress.

While it is easy to see what labour - saving innovations could be, I wonder what the differences in capital - saving and energy - saving innovations could be. Is not energy - saving innovation a capital - saving innovation? In other words, efficiency of capital is analogous to energy efficiency, is not it?


texts: How does aggregate production function shift by an increase in average and marginal productivity of labour?

texts: Increasing productivity would mean increase in output for each given amount of labour employed, resulting in an upward shift of production function as shown below. However I'm unable to understand the difference in impact of higher marginal and average productivity of labour, taken separately. Will it just be a difference in amount of upward shift with no qualitative difference?


texts:
I am trying to solve a problem that asks to log linearise following Euler equation of the New Keynesian model:

$$C^{-\sigma}_t=\beta E_tC^{-\sigma}_{t+1}(1+i_t)/(1+\pi_{t+1}).$$

The solution is given as: $$\tilde{C}_t=\beta E_t\tilde{C}-\frac{1}{\sigma}(i_t-E_t\tilde{C}_{t+1}-\rho).$$

And also there are following relationships in the steady state given $1=\beta(1+r)$, $\beta=(1+\rho)^{-1}$ and $ln1=ln \beta+r$ what leads to $r=-ln\beta=\rho$.

Can anyone explain to me how the log linearization is done? I know that the first step would be to take the logarithm of everything (and subtract the logarithm of the constant steady state parameter) or to use Taylor approximation. However I have a problem with the $(1+i_t)$ and $(1+\pi_{t+1})$ terms. Furthermore why does $1=\beta(1+r)$ hold in steady state? Note that $i$ denotes nominal interest rate.

Thank you.

UPDATE: So below I will give my solution path. I am not sure though whether it is appropriate to do it like this:
$$C^{-\sigma}_t=\beta E_tC^{-\sigma}_{t+1}(1+i_t)/(1+\pi_{t+1})$$
$$lnC^{-\sigma}_t=ln\beta+lnE_t(C^{-\sigma}_{t+1})+ln(1+i_t)-ln(1+\pi_{t+1})\qquad (1)$$
Subtracting (1) with $$lnC^{-\sigma}=ln\beta+ln(C^{-\sigma})+ln(1+i)-ln(1+\pi)$$yields $$\tilde{C}_t=E_t(\tilde{C}_{t+1})-\frac{1}{\sigma}(\tilde{(1+i_t)}-\tilde{(1+\pi_{t+1})})$$ and since $\tilde{1+i_t}=ln(1+i_t)-ln(1+i)=i_t-i$ and $\tilde{1+\pi_{t+1}}=\pi_{t+1}-\pi$:
$$\tilde{C}_t=E_t(\tilde{C}_{t+1})-\frac{1}{\sigma}(i_t-i+E\pi_{t+1}-\pi)\qquad(2)$$
$i$ is the  nominal interest rate in steady state and can  be defined as $i=r+\pi$ and $r=\rho$:
$$\tilde{C}_t=E_t(\tilde{C}_{t+1})-\frac{1}{\sigma}(i_t-\rho+\pi-E\pi_{t+1}-\pi)\qquad(3)$$

Leading us to the final equation:
$$\tilde{C}_t=\beta E_t\tilde{C}-\frac{1}{\sigma}(i_t-E_t\tilde{C}_{t+1}-\rho).$$


texts: Does national debt and its repayment assume population increase?

texts: I assume that the repayment of an increasing national debt depends on an increasing GDP. And increasing GDP, in turn, depends mutatis mutandis  on increasing population. So an increase in national debt assumes increasing population and, likewise, a decreasing population would mean both a decrease in GDP per capita and an increase in national debt per capita. Is this, in general, correct?


texts: Is there a book or notes that explain all about inflation?

texts:
Is there a book or notes or papers (but for easy understanding please) that explain all about inflation?
Not at a research level but student level.
From what is previously needed to define and understand inflation,  to calculate inflation, to models to analyze inflation, how does inflation impacts economic agents (firms, families, etc), and other things that should be known about inflation too.
So far I haven't find a book nor PDF notes that mentions all these. I've encountered helpful youtube videos but most of them don't say where is that information from, nor is rigorous, yet are helpful because they gave you an idea of what's going on.
Thank you in advance


texts: Market Clearing with Dividend and Investment

texts:
In pure exchange GE models, a typical goods market clearing condition for good $n$ looks like:

$$\sum\limits_{i=1}^Ic_n^i=\sum\limits_{i=1}^Ie_n^i.$$

Consider a model with production where firms can pay dividends and invest in new capital. New capital can be produced from output goods using a linear technology.

My Question: Taking the existence of dividends and investment into account, how does the goods market clearing condition look like in this case?


texts:
I've been reading (trying to brush up on my economics knowledge) and came across the equation: $q_D = a + b(P)$.  The variable $a$ is explained as "factors other than price affecting demand."

I read up on non-price determinants of demand (e.g. income changes, preference changes, etc); but, what I've not been able to satisfactorily understand is how $a$ is calculated from those determinants.

So in the equation: $q_D = 6 - 0.5(P)$, what does $6$ represent and how was it determined?


texts: Why are there infinitely many indifference curves?

texts: If an indifference curve shows quantities where a consumer's utility from consuming two goods are equal, then why are there infinitely many indifference curves? From the diagram, you can have Q1,Q2 on IC1, but then you'd have Q1,Q3 on the other indifference curve, wouldn't that mean the consumer would receive the same utility from consuming Q1 and Q2 as well as if he had consumed Q1 and Q3, i.e. for a given Q1, the consumption of Q2 gives the same amount of utility as Q3? Shouldn't this mean that the indifference curve should be unique?


texts: Why is market power presumably high when goods are fungible and demand relatively inelastic?

texts: What does the fact that the goods in an industry are fungible add to a market power analysis if you already know demand is relatively inelastic?


texts:
In a closed economy, the national income identities imply that $$S=I$$

However, the intuition is not clear to me. The saving is the part of national disposable income that is not consumed. $I$ is the sum of residential and nonresidential investment. When firms invest, they generally borrow to finance that investment. However, why is it the case that this would necessarily equal aggregate savings? Individuals might save, but firms (or households) need not borrow. Does $i$ include idle funds as well?


texts: When is a utility representation differentiable?

texts:
We know that if we start with a connected, separable product space $V_1\times,...,\times V_n$ and a complete, transitive, and continuous preference relation $\succsim$ on this product space, that there exists a continuous! utility representation $u:V_1\times,...,\times V_n\rightarrow \mathbb{R}$. However, continuity $\neq$ differentiability. Thus, I am curious under which conditions there even exists a differentiable utility function.

My first idea would be to at least restrict the product space to $\mathbb{R}^n$, but there may be counterexamples. For example, if $n=1$ and $u$ is the Weierstrass function, $u$ is continuous, but not differentiable.

Since in Economics we constantly work with differentiable utility, I am wondering which assumptions are necessary to ensure differentiability.


texts: Auction Theory: Proving that the found equilibrium is indeed optimal

texts:
I have been looking at auction theory and in the book Auction Theory by Krishna, there is one (seemingly simple) inequality that I just cannot follow.
Context: given a private valuation $x$, the optimal bidding strategy has been found $\beta(x)$. Now, the author wants to show that behaving and bidding as if you were of type $z$, $\beta(z)$ does not increase profits.
Then, calculating the difference between the profit in the optimum and the profit if you would behave as if you were of type $z$ leads to the following inequality.
$G(x)$ being a probability distriubtion:
$$\pi(\beta(x),x) - \pi( \beta(z),x) = G(z)(z-x) - \int_x^zG(y)dy \geq 0$$
The profit functions were calculated from a first-price auction in case it helps anyone.
My question is why the inequality holds. Why is $G(z)(z-x) - \int_x^zG(y)dy$ larger than 0?
I hope you can help me :)


texts:
I'm studying the pizza market, especially in Utah, and I would like to know if there are any pizza data sources. Can some kind of sales tax data be used to study pizza? Is there a straight up pizza study that collected data? How creative do I have to get to find data? Or how much might I need to pay to have someone collect it?

Any data related to these things will be awesome: pizza input markets, pizza production, pizza demand, pizza labor, pizza firms, anything pizza and economics.

I'm not sure exactly what variables I'm after, I was just going to see which are out there first. I put in a request to Yelp.com to get access to their data sets, but it's only allowed for a few universities right now, not mine. We're on a wait list. Other than that, I'm kind of stumped.


texts: Is there a standard way of classifying industries into primary, secondary, and tertiary?

texts: For example, does any government (or academic) have a mapping from industry to sector. For example, mining is primary industry, and retail is tertiary, and so on...


texts:
Good day. And sorry if it's a stupid question.
I came across a question on another q&a site earlier today. It was about a hypothetical scenario. The question was if everyone in a nation becomes self-sufficient, would GDP increase. There were answers where the answerers opined that it might actually reduce the GDP. Others had the opposite opinion.
I studied a bit about it and thought any product is counted in GDP. Am I correct?
Would personal produce (consumed by own) be counted in GDP calculation?


texts: Negative expected value; risk neutral choice

texts:
Suppose there are two options: (1) take a gamble with 50% chance you win \$100 and 50% chance you lose \$110 or (2) don't take the gamble at all and win/lose nothing. Would the risk-neutral take the gamble or not?

The definition of a risk-neutral individual is someone who is indifferent between a guaranteed amount and the expected outcome of the gamble, which is -\$5 in this case. But since \$0 is only guaranteed amount does that mean all individuals who would take the gamble are risk-seekers, since \$0 is greater than the expected payoff?


texts:
I'm trying to solve the following question:

"The seller wants to auction off a single item to two bidders, the valuation of each bidder is an iid draw from a uniform distribution on $[0,1]$ where the seller sets a reserve price, $r$, and has zero valuation for the item.

I was able to solve for the second price auction, such that the equilibrium bidding function is to bid your valuation for $v>r$ and to not enter if $v<r$.

For the first price auction, I usually go about solving for the bidding function by first calculating the probability that bidder i wins:

$\Pr(i\text{ wins})=\Pr(v_i > r) * \Pr(v_i > v_j)$.

Where I know that $\Pr(v_i > v_j) = (1-b^{-1}(b))$ which I can then use to derive the bidding function as usual in an ordinary FPA $(0,0)$.

My question is, how do I work the reserve price into the bidding function.


texts: I need data for forex rates because I'm working on a project to predict the rise and fall of the rates. Where can I find such data?


texts: Production function involving profit maximisation

texts:
Hi, I don't get how the answer of d is deduced in this question because I don't think I made any mistakes in my calculation and have also used all the information given. After knowing L is 800, I found out the did 200*Q which gives me 5656 and I worked out the profit to be negative but it is not -15000. What did I do wrong in my calculation?

Thanks


texts: Will the monopolist inevitably increase the price if demand grows?

texts:
Supposing that demand for a product in a monopolised market has grown, is it possible that equilibrium price will go down?

In most cases we simply draw curves D, MR, MC and make conclusions. I usually deal with linear demand and constant marginal costs, so nothing interesting.

It is naturally to say that the monopolist will increase the price to gain profit, even for inferior goods this seems true.


texts:
I keep seeing the terms first-order conditions and second-order conditions used in my undergrad economics class on production functions, monopolies, etc but I have no idea what these terms mean. It seems like a completely ambiguous term. What kind of conditions?

Can someone explain what these terms mean? If it is context dependent, provided some of them most elementary meanings you associate with the term.


texts: If the Yield (Y) of the cosnumers change, does the $Q_{D}$ remain parallel?

texts: Because we have a change in Yield (Y) which is a factor of demand, we have a move in the $Q_D$. However, not all changes in the Yield affect the $Q_D$ the same way right? For example, if we know that $E_Y=2$ and that $ΔΥ/Υ=20$%, from the elasticity we can compute $ΔQ/Q= 40$%, so $Q_{D'}=1,4Q_D$ so it's not parallel. For the change in $Q_{D'}$ to be parallel, however, will the exercise disclose that $Q_D$ and $Q_{D'}$ are parallel, or that the demand changes for some constant, e.g. $Q_{D'}= Q_D+30$. Am I right? Thanks a lot!


texts: Why is the marginal utility of money assumed to be constant in Marshallian Theory of Consumer Behaviour

texts: While studying the Marshallian Theory of Consumer Behaviour, I came across the assumption that the marginal utility of money is assumed to be constant. Can someone please explain why is this so?


texts: Social Welfare and Pareto Optimality in a Bayesian Game

texts:
In a normal form game with two players, we call a joint strategy $s=(s_1,s_2)$ a Pareto optimal outcome if for no joint strategy $s'$, for all players $i\in\{1,2\}$, we have $$u_i(s')\geq u_i(s)\qquad(1)$$ and also at least for one player $i$ $$u_i(s')>u_i(s).\qquad(2)$$

The social welfare of $s$ is defined as $$\sum_{i=1}^{2}u_i(s).\qquad(3)$$ If the social welfare of $s$ is maximal, then the joint strategy $s$ is a social optimum.

I want to use these definitions in a Bayesian game where the utility functions are defined as $u_i:A\times\Theta\to\mathbb{R}$, where $A$ is the action set and $\Theta$ is the type set.

Can we simply replace $u_i(s)$ in $(1),(2),(3)$ with $u_i(a,\theta)$? Or we have to consider the expected utility of a player?

How should we write the definitions if the game is in the ex-ante stage?


texts: Is there any economic meaning to log returns?

texts:
I recently had a discussion with a friend regarding log returns and any economic meaning that could have as a measure in the sense of "assessing the benefit received for compensating work done in a previous time period."

He rather suggested that this was a mathematical construct beneficial in constructing stories such as historical var for the assessment of risk (owing to their additive nature.. $\log(a/b)+\log(b/a)$ causing no information loss).

Is there any economic meaning that could be ascribed to log or arithmetic returns?


texts: What are the economics advantages for not rolling a debt (as a country)

texts:
Let's assume that a country has a GDP growth rate of approximately 1% per year (the number is not important). Then the government of such a country can theoretically roll its current debt and even contract new debt and keep the same ratio debt/GDP. Advantages of rolling the debt are easily understandable: you never pay back the principal, only the interests, and can invest money on constructing new infrastructures, or maintenance for the already constructed infrastructures. Conversely, I would like to know

What are the disadvantages of rolling the debt? In which case the advantages of rolling are greater than paying?

So to make it clear (see comments below), I am not talking about political reasons, but purely economical reasons.


texts: Real option effect of uncertainty - irreversiblity vs fixed cost

texts:
There is a growing literature (e.g. Bloom, 2009) studying negative macroeconomic impacts of heightened uncertainty. One channel through which uncertainty can discourage economic activity, and investment in particular, is via real option effect, where if firms face irreversibility or fixed cost in investment, higher uncertainty will encourage them to postpone investment, or exercise their "option to wait".

My question is: which of the two forms of nonconvex adjustment costs (fixed cost vs. irreversibility) is more important for this mechanism, and how do they differ in their effects? Is there any good reference explaining the issue, preferably in discrete-time setting? (I'm aware there's large literature on real options in continuous time, but so far I'm more familiar with discrete-time macroeconomic models).


texts: Difference between no perfect multicollinearity and no multicollinearity

texts:
Some textbooks (for example, Introductory Econometrics: A Modern Approach by Jeffrey Wooldridge) assume that no perfect multicollinearity for the OLS regression, while others (for example, Econometrics by Fumio Hayashi)  just assume that no multicollinearity. Are there any differences between these two assumptions? and what are the differences?

Thanks in advanced!


texts: Why does the EU need a clearing centre to circumvent US sanctions against Iran?

texts: As reported here and elsewhere, the EU is considering the creation of a clearing house to keep trading with Iran despite US sanctions. Why is it not possible for the EU to conduct normal financial transactions with Iran without the involvement of US institutions?


texts: Autonomous or non-autonomous optimal control system?

texts:
I have a following system with endogeneous discounting.
$c,k$ and $h(k)$ are consumption, capital and endogeneous discount function based on physical capital. (the properties of this function are not relevant with the question, so I don't write them in order to take less space in this post. The production function is increasing and concave as usual.)

$$\underset{\left\{ c_{t}\right\} }{max}\int_{t=0}^{\infty}\left[u\left(c_{t}\right)\right]e^{-\triangle}dt$$

My state variables are

$$\begin{align}
\dot{k_{t}}=f\left(k_{t}\right)-c_{t}\\
\dot{\triangle}_{t}=\rho + h\left(k_{t}\right)
\end{align}$$

I note $\triangle=\int_{0}^{t} (\rho + h\left(k_{t}\right))dt$

I write the present-value Hamiltonian as

$$\mathcal{H}^{present}=u\left(c\right)e^{-\triangle}+\tilde{\lambda_{1}}\left[f\left(k\right)-c\right]+\tilde{\lambda_{2}}\left[\rho + h\left(k\right)\right]$$

  In this model, my doubt is that if the system is autonomous or not because when I integrate $\dot{\triangle}$, I have $\triangle=
\rho t+ \int_{0}^{t}h\left(k_{t}\right)dt$, which depends explicitly on time $t$. So, evidently, this differential equation is non-autonomous.

Is this system really non-autonomous ?

What I try to do, in order to have an autonomous system is to define variables. Let's say $\lambda_{1}=\tilde{\lambda_{1}}e^{\triangle}$ and $\lambda_{2}=\tilde{\lambda_{2}}e^{\triangle}$. In this way, I write the current-value Hamiltonian ;

$$\mathcal{H}^{current}=u\left(c\right) +\lambda_{1}\left[f\left(k\right)-c\right]+\lambda_{2}\left[\rho + h\left(k\right)\right]$$

I am really stuck at this point. For the moment, the system seems to be autonomous as the Hamiltonian does not depend explicitly on time here but I can not really be sure.

Hints or suggestions are all welcome.


texts: Relationship between interest rate and rental price of capital

texts:
In Daron Acemoglu's Introduction to Modern Economic Growth (2009), P.32, it is stated that given assumption of exponential depreciation at the rate $\delta$ and normalization of price of final good to be 1, $r(t) = R(t) - \delta$ where $r(t)$ is interest rate, $R(t)$ is rental price of capital and $\delta$ is depreciation rate. The reason, which I agree, is that:

  A unit of final good can be consumed now or used as capital and rented to firms. In the latter case, a household receives $R(t)$ units of good in the next period as rental price for its savings, but loses $\delta$ units of its capital holdings, since $\delta$ fraction of capital depreciates over time. Thus the household has given up one unit of commodity dated t-1 and receives $1 + r(t) = R(t) + 1-\delta$ units of commodity dated t.

But, on P.330, when talking about overlapping generations model where $\delta = 0$, it is stated in equation (9.3): $1 + r(t) = R(t)$. Shouldn't it be $r(t) = R(t)$? I cannot find this is a typo like from http://www.econ.ku.dk/okocg/VV/VV-2015/Lectures%20and%20lecture%20notes/Errata-to-Acemoglu-book-VV-2015.pdf. Do I miss something?


texts: Intuition behind the Endogeneity Test (the Hausman Test)

texts:
Suppose we have the following simple regression model (time series framework)"
$$y_1=\beta_0+\beta_1 y_2+\beta_2 z_1 +\beta_3 z_2 +u,$$
where $z_1$ and $z_2$ are exogenous and $y_2$ is either exogeneous or endougenous (this is what we want to check). In order to determine whether or not $y_2$ is endogenous, we can apply endogeneity test (Hausman test), which follows the following procedure:
Estimate the reduced form for $y_2$, i.e. estiamte the following equation:
$$y_2=\alpha_0+\alpha_1z_1+\alpha_2z_2+\alpha_3z_3+\alpha_4z_4+\nu,$$
where $z_3$ and $z_4$ are instruments. Since each $z_j$ is uncorrelated with $u$, $y_2$ is uncorrelated with $u$ if and only if $v$ is uncorrelated with $u$; this is what we want to test. The easiest way to test this is to include $v$ as an additional regressor in structural eqaution and to do a $t$ test, i.e. estimate the model
$$y_1=\beta_0+\beta_1 y_2+\beta_2 z_1 +\beta_3 z_2 +\gamma_1\widehat\nu+error.$$
I don't understad this part. We want to determine whether $u$ and $\nu$ are correlated, but how we unleash it by including $\widehat \nu$ at the structural equation? Doing so, we esimate the impact of $\widehat \nu$ on $y_1$, rather than on $u$. Please explain the intuition.
P.S. In my understanding in order to determine whether $u$ and $\nu$ are correlated, we can apply the following steps:

Estimate $\widehat u$ from the structural equation,
Estimate $\widehat \nu$ from the reduced eqaution,
Regress $\widehat u$ on $\widehat \nu$.


texts: How does Limited Friction affect a two-period model? Does the Ricardian Equivalence hold?

texts:
Consider a two period model with limited commitment involved.

Each consumer
has a component of wealth which has value $pH$ in the future period, cannot be sold in the
current period, and can be pledged as collateral against loans. The government uses lump-sum
taxes $t$ and $t'$
in the current and future period, respectively, to fund its expenditures.

Suppose that there is limited commitment with respect to taxation as well. More precisely,
while all consumers pay their taxes in the current period, consumers might refuse to pay
their taxes in the future period.

Assume that in that case the government can seize the
consumer’s collateralisable wealth, but cannot confiscate income. Moreover, assume that if
a consumer fails to pay off his or her debts to private lenders, and also fails to pay her taxes,
the government has to be paid first from the consumer’s collateralisable wealth.

I'd like to say I don't think the RE holds here. But there's some other things I'm not sure about in a model like this.

How does the limited commitment friction affect the government’s budget constraint?.

Would the Lifetime Budget Constraint for the Government in this model be $G+\frac{G'}{1+r}=T+\frac{T'+pH}{1+r}$? Or would this be incorrect?

Also, how does a consumers collateral constraint change taking into account the limited commitment friction with respect to taxes? I have an idea it would look something like. $c\leq{y}$$-t+\frac{pH}{1+r}$? This is my work so far on constructing it, I'm not sure if just plodding pH into the constraint is correct though. But it does imply much like the model suggests that any pH owed is collected in the future period only due to illiquidity.

Also, what do you all think happens when the government reduces $t$ and increases $t'$ so that it's budget constraint will continue to hold? I'm sure the RE equivalence doesn't hold here. I think the optimal consumption choices of the household in the present and the future will lead to a consumption increase. But hey, I'm not exactly sure.
Edit: Ignore this for now, working with it for a possible solution.
$c+\frac{c'}{1+r}=y-t_cc+y'-\frac{t'_{c'}c'}{1+r}$


texts: Should I deflate a nominal variable when forecasting it?

texts: Say I have a structural equation that is forecasting Y. Y is a nominal financial variable that grows with time due to inflation. I have an economic determinant that is a rate and therefore does not increase with time. Is it wise or necessary to deflate Y so that the variables behave the same way? I do not particularly want Y deflated as this regression will be forecasted and this just introduces another hard to forecast variable.


texts: Why LRAS is not affected by increase in cost of production?

texts:
Problem:

in my course notes it's mentioned that AS is only affected by costs in the short run
but not in the long run which does not make sense because if cost of
production increase suppliers cannot continue producing at potential
output

My assumption:

the only assumption I could come up with is that the CB can increase
money supply which in turn shifts AD to the right so suppliers can continue
producing at potential output

however, I get why the inverse of this process works (if AD increases -> prices increase -> suppliers can produce above potential output for a while -> workers ask for higher wages -> SRAS decreases -> we get back to our potential output)
is my assumption correct? if not, what's the correct explanation?
Thanks in advance (and sorry for my bad art)


texts: Why might a monotone increasing but nonlinear transformation of a utility function not represent the same preferences?

texts:
According to a textbook, a monotone increasing but nonlinear transformation of a utility function might not represent the same preferences. Why is it so?

An example of such preference would be appreciated.


texts: Why is the 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity Curve significant, but not the 5-year minus 1-year?

texts:
I am new to investing and am trying to learn about economic indicators.

When the yield curve inverted this year on March 27th, the media published articles saying that this might indicate a recession. The Federal Reserve Bank of St. Louis site tracks the 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity curve, with the correlation with past recessions. It tracks a few other curves, correlating them with past recessions, perhaps because they are supposed to be significant with respect to recessions.

Thanks to Bob Baerker's answer on the Money site, I was able to get raw fed rate data. With this, I learned that the 5-year Treasury Constant Maturity Minus 1-year Treasury Maturity Curve was already inverted on 24th December, 2018, and has been almost constantly inverted since then!

So, why is it that nobody cares that this 5-year minus 1-year curve has been inverted since late last year, but everybody cares that the 10-year minus 3-month curve inverted this year? Why is it that the former is considered irrelevant to recessions, but the latter is considered relevant?


texts: Why doesn't anyone talk about GNW (Gross National Wealth)?

texts:
I just noticed a very interesting fact.

GDP of the United States: $18.5B

GDP of China: $11.4B

If we look at national wealth...

GNW of the United States: $84.8B

GNW of China: $24.1B

The margin of the GNW is 8.5 times higher of that of the GDP! Why is GDP so paraded and why do we never hear about national wealth?

Sources: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal), https://en.wikipedia.org/wiki/National_wealth


texts: Does multicolinearity of variables imply complementary inputs?

texts:
I've been thinking about how to answer this question How to econometrically identify perfect complements in production? and may think that multicollinearity has something to do with identifying such a process.

If I have a regression such that:

$$y=\beta_0+\beta_1x_1+\beta_2x_2+\mu$$

where $x_1$ and $x_2$ are correlated with each other.

does that imply that some function of the nature $\min\{x_1,x_2\}$ is present in the determination of $y$?


texts: What would happen if there was a one-time redistribution of wealth from the wealthiest 1% to the other 99% of people in the US?

texts:
If you think this is going to lead to answers which are too speculative, let me know, but I think it should be possible to at least make some strong educated guesses...

What would happen if there was a one-time redistribution of wealth from the wealthiest 1% of people in the US to the other 99% of people?

I was directed to this question on the website “Quora” by a friend the other day, and the answer posted there made me want to bang my head against the wall. I don’t want to say what it was because I don’t want to bias the answers, but it basically led to a never ending back-and-forth between my friend and myself, so I thought it was time to ask some qualified people to weigh in.

What would happen? I’m interested in both short-term and long-term consequences (as well as possible large-scale psychological consequences, though those might be outside the scope of this site).

With my friend we discussed whether it would be different depending on whether the 1%’s assets were first sold, then distributed, or first distributed, then sold. We discussed whether there would be buyers for the assets, given that those who previously had the most money now have none in this scenario. (Of course there could be buyers from foreign markets). We discussed whether it would affect employment and lending, given that the 1% by and large own businesses which employ a lot of people. We discussed whether various groups of people would choose to keep working and what kind of effect that would have.

You can find the stats to calculate this on the Internet, but just to speed things along, the numbers would wind up being a little under 100k per person (if minors are included).

I want to clarify that this was not (I hope) posed as a real suggestion - because robbing people of their assets just because they’ve been more successful than other people seems obviously morally wrong - the question is whether, in a practical sense, the consequences of this scenario would be good or bad overall, for the average individual, and for humanity as a whole, long-term.

Edit:

Assume that:

The total net worth of the USA is $84 trillion.
The population of the USA is 323 million.
The “wealthiest 1%” is any individual possessing $8 million or more in total assets.
The “wealthiest 1%” controls 38% of the nation’s wealth.
The time period is 2018.
The mechanism is government.


texts: Evaluate projects'/investments' impact on whole economy

texts: I have 200 ROI investment examples (projects) in a specific industry, say manufacturing of microprocessors. How and what methods can I use to evaluate the impact (GDP, added value, job growth, etc.) on a whole economy, say USA's, if a prime task is to show how such the investments positively affect the economy?


texts:
MRU has the following question on a quiz:

Suppose the government forced all bread manufacturers to sell their
products at a “fair price” that was half the current, free-market
price. To keep it simple, assume that people must wait in line to get
bread at the controlled price. Would consumer surplus rise, fall, or
can’t you tell with the information given?

According to them, the correct answer is:
 b. consumer surplus decreases.

I don't understand how they arrive at this answer.  It seems to me that without the price ceiling, the surplus will be close to 0, since there will be a price equilibrium.  With the ceiling, however, people are waiting in line, indicating that they would be willing to pay more for the bread if they could (the time spent waiting theoretically converts to money).  Thus, consumer surplus increases.  Or am I misunderstanding the question?


texts: How does a central bank create the money used for quantitative easing or lowering the value of their currency?

texts:
Up until last week, the Swiss central bank used Francs to buy Euros, in an effort to lower the value of the Franc; today the European central bank announced that it would use Euros to  buy bonds in order to fight deflation.

I assume that the central banks "create" the money used for these programs electronically. I would like to understand how this works. Can a central bank simply by fiat change its holdings of its own currency, and then use this new money in any way they please? Do they later have to "pay back" this money to balance the books, or can they simply forget about it?

Or more concretely: if the ECB buys bonds with newly created electronic money, and these bonds later default, would that be a problem for the ECB or could they laugh it off?


texts: How Are The Interest Rates Affected By Inflation Changes?

texts: I have been reading about how an increase in interest rates causes inflation to decrease as there is less money in circulation. However; I have never seen an article explaining how interest rates are affected by rising or falling inflation (The opposite).Could someone explain to me how interest rates are affected by a changing inflation rate?


texts: Why does Iceland have 5% interest but Sweden 0% interest with the same GDP growth?

texts:
Both countries have their own currencies, similar GDP growth and low inflation.  Yet Sweden has 0% central bank interest rates while Iceland has 5%.

Can someone explain?


texts: marginal utility of consuming vs marginal rate of substitution

texts:
good day all

I am taking second year economics, but my textbook is not very clear on this topic

A quoted from

  Intermediate Microeconomics and Its Application. Nicholson, Snyder. 11th Edition.

Used in question: 2 Extracts from textbook, 1 text and 1 graph:

  Indifference Curve Used as reference:

  Text Extract

Tutorial Question given by university:

My question:

From the extract, I understand that the MRS is determined by the change in hamburgers / change in softdrinks which gives MRS = |2|.

From my tutorial question, slightly different terminology was used ("consumption"), which resulted the answer shown.

I do not understand why the answer for the tutorial question is 1/5 and not 5 (based on the example from the book).

Help would be very much appreciated!


texts: Why is the risk premium always positive for risk averse individuals?

texts: I think this has to do with the definition of concavity and the fact that a risk averse person has a concave utility function, but I'm not sure how that helps.


texts: Beginner wanting to learn about economics/finance to explore career options?

texts: I want to explore the banking/financial industries more for potential career options, can you recommend any books/ free online courses and sources in general as a starting point to build on my knowledge and understanding of these areas (which is basically starting from zero), for now I want to read more broadly and have a better understanding before narrowing it down. So would I learn about markets, trading, and also economics concepts, and would you be able to recommend any topics that I should focus on for practicality rather than having to read topics which won't be as relevant?


texts:
Why is there Ricardian equivalence in Ramsey's model, but not in OLG?

I am looking for an intuitive explanation.


texts: How is the rest of the world making the US an interest free loan by holding US currency?

texts:
In the book "Macroeconomics" by Olivier Blanchard & David R. Johnson, the following appears:

In yet other countries, people who have emigrated to the United
States bring home U.S. dollar bills; or tourists pay some transactions
in dollars, and the bills stay in the country. This is, for example,
the case for Mexico or Thailand.
The fact that foreigners hold such a high proportion of
the dollar bills in circulation has two main macroeconomic
implications. First, the rest of the world, by being willing
to hold U.S. currency, is making in effect an interest-free
loan to the United States of $500 billion

By holding US bills of 500 billion, the rest of the world is making the US an interest free loan of $500 billion---could you please explain me how?