texts: Why do investment adjustment and capital adjustment costs yield different dynamics?

texts:
Both the Business Cycle and DSGE literature find that Investment adjustment costs and capital adjustment costs give rise to different dynamics for investment, output, consumption etc. Investment adjustment cost fit the data considerably better, leading to the familiar hump-shaped responses to a shock.
In general, capital accumulation in the presence of adjustment costs is given by:
$$K_{t+1}=\left(1-\kappa \phi(.) \right)I_t - \delta K_t$$
In the case of capital adjustment costs, $\phi(.)$ becomes a function of $\frac{I_t}{K_t}$, whereas under investment adjustment cost, we have $\phi(.)$ as a function of $\frac{I_t}{I_{t-1}}$ (with certain conditions imposed upon the functional form of $\phi(.)$ depending on the case we're dealing with but which I believe are largely unimportant for the difference in dynamics).
Since capital itself is just an accumulation of investment, I would have expected similiar effects in both types of adjustment costs - the smoothing of investment over time incl. anticipatory investment, potentially a buildup etc.
Why is it that they yield so different results? Can in principle similiar responses be reached in both models but it is a case of realistic calibration that causes these different responses, or do different mechanisms govern the two models of adjustment cost? Sadly I was not able to find either literature or lecture notes covering the reason for the difference; any help would be appreciated for the intuition behind the result.


texts: Bidder Count Impact on Uniform Price Economics

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Say we have an uniform price auction where 1 really rare stamp is for sale.  Only 5 randomly selected stamp collectors are invited to bid and the stamp ends up selling for 1 million dollars.  Now pretend that auction never happened.

If 6 randomly selected stamp collectors were invited instead of 5 in the previous example (again, original auction never happened), what expected percent increase in revenue should the stamp sell for - 10% more, 15% more?  Similarly, what if only 4 bidders were allowed to the auction?

In short, I'm trying to determine how increasing or decreasing bidder participation by 1 impacts the ultimate selling price on a percentage basis.  I'm sure lots of variables are at play, so am not sure if any economic theory can be used to address this.


texts: Proxies for technological change in an economy?

texts:
I am writing a paper on the application of Value-Added TFP to measurement of technological change. Just thinking of throwing in a few variables into my regression. I have ICT capital share (as seen in KLEMS dataset) as another proxy.

I would be grateful to hear your suggestions on other known proxies (if you know papers that relate to those proxies even better).


texts: Capital accumulation equation in steady-state (OLG model)

texts:
So I was given a question to derive the equation for aggregate capital accumulation. $K_{t+1}$, and explain if the economy has a stationary steady-state with zero growth.
The model is as follows, which includes automation capital (AI and robots). I apologise for the long question, it needs quite a setup but I am just having issues with the algebra towards the end.
Consider the following overlapping generations model. Households live for two periods, adulthood and old age. Young agents are equipped with one unit of time, supply this unit of time to the labour market and earn a wage income $w_t$. They consume $c_{1t}$ and save $s_{1t}$ to cover old-age consumption. In the second period of life agents retire and have no labour income anymore.
$$u_t = ln(c_{1t}) + βln(c_{2t+1})$$
The budget constraint of a young agent reads $w_t$ = $c_{1t}$ + $s_{1t}$.
The production function is:
$$Y_t=K_t^{\alpha}L_{st}^{\gamma}(P_t+L_{ut})^{1-\alpha-\gamma},         \alpha + \gamma <1 $$
where $K_t$ is physical capital, $P_t$ is automation capital, $L_{ut}$ represents unskilled labour and $L_{st}$ represents skilled labour. Perfect competition is assumed and there is no population growth. Unskilled labour and automation capital are perfect substitutes.
Hint: $K_{t+1}+P_{t+1}=s_{u1t}L_{ut}+s_{s1t}L_{st}$ where $s_{u1t}$ and $s_{s1t}$ are household savings for unskilled and skilled labour, respectively.
By maximizing utility, I have figured out that $s_{1t}=\frac{\beta}{1+\beta} w_t$. Each type of labour has different wages, which are equal to their marginal products. These are:
$$w_{ut}=(1-\alpha-\gamma)K_t^{\alpha}L_{st}^{\gamma}(P_t+L_{ut})^{-\alpha-\gamma}$$
$$w_{st}=\gamma K_t^{\alpha}L_{st}^{\gamma-1}(P_t+L_{ut})^{1-\alpha-\gamma}$$
I have also found a relationship between $P_{t}$ and $K_{t}$ by finding an interior capital market equilibrium (by equating marginal products of physical capital and automation capital), call it (23)
$$P_{t}=\frac{1-\alpha-\gamma}{\alpha} K_{t}-L_{ut}$$
which implies that $P_{t+1}=\frac{1-\alpha-\gamma}{\alpha} K_{t+1}-L_{ut+1}$.
These should be all the relevant terms to derive the capital accumulation using the hint (or not). I plugged in everything and tried to endogenize $K_{t+1}$ to have the right hand side only as constants. I put a picture down below of the algebra and what result I got. I would really appreciate any insight into the algebra and the result, if there is a better way to express it or if I made an error in the derivation. Thank you!


texts: Is there a natural intuitive interpretation of the **numerical value** of the coefficients of risk aversion?

texts:
We can write down the coefficient of absolute risk aversion $R_a$, or the coefficient of relative risk aversion $R_r$.

Are there intuitive interpretations of the numerical values of these coefficients? Let's say that someone has $R_a=5$ or $R_r=3$ for certain wealth level $W$, how would we interpret that number?


texts: How/why does foreign investment get scared by the monetary policy?

texts:
In an interview with Daron Acemoglu, he says "the hot money which was floating through Turkey has stopped after FED's declaration that we are going to give much more attention on monetary policy".
Basically I know some fundamental things like monetary policy interests with the foreign currency but dont get exactly how does it effect directly. Why or how do foreign investments get scared by monetary policy?


texts:
Behavioural economics has offered many insights into decision-making processes, and experimentally, many cognitive biases have been identified, nudges have been tested etc. Reading all such literature, it seems tempting to use techniques leveraging such biases in the real world. But recently I read that many startups tried using such techniques and saw not the intended, but in many cases the opposite effect of the applied interventions. The reason being of course, that they did not take into account the ifs and buts of the laboratory setting.

I wanted to know, if there are any resources like books, or courses etc. that teaches how to properly apply behavioural interventions in the real world. For example, if I have to design a menu for a canteen, how do I know in what order to list the items, or where to place them, to get the desired outcome?


texts: I was wondering how one could use a CES function in growth accounting exercise, does anyone have notes or resources that demonstrate this exercise? I've done growth accounting exercise using Cobb-D function, but never tried with CES.


texts: I am working on energy integration modelling in a system with prosumers. I was wondering if there is any well-known theory or model in the economics literature for markets (specially multi-commodity merkets) where market's players can be producer and consumer at the same time.


texts: Ttest and heteroscedasticity problem in no intercept model

texts:
I was running a t test over two regression betas with the assumption of equal variance. I know that if the condition of homoscedasticity do not hold then there are chances to have type 2 error but what if in my regression I do not have the intercept? (The models without errors do not require the error mean to be zero).
I am very confused, I may have mixing two different concepts so, please tell me the associated readings to get it more clear.


texts: Optimal production level for a typical firm in long-run

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Assuming all firms have identical cost functions. Now suppose there is an increasing shift in the demand curve. As we all know that for increasing costs case, both average costs (AC) and marginal costs (MC) faced by a typical firm would be higher. The question is, whether the optimal production level of a typical firm remains constant or increases (or decreases! is it possible?) as compared to previous long-run equilibrium position?

In other words, as both MC and AC curve will shift upward, can one predict with certainty the direction in which optimal production level moves to ensure MC=AC_min?


texts: Competitive vs complete and non-competitive vs incomplete marekts

texts: The very insightful questions that arise, when someone studies micro foundation are the following: What is the difference between competitive and complete marekts? When we refer to the first is it equivalent as to refer in the latter? Also, when we speak about non-competitive markets, can we also refer to them as incomplete markets? In addition to this, complete or incomplete markets have always the so-called Arrow-Debreu sense of complete/incomplete markets?


texts: 'One Unit Change in the Explanatory Variable'

texts:
I have a conceptual question in terms of econometrics.

I understand for example that the primary goal of econometrics is to use estimated parameters to calculate the average change in the dependent variable conditional upon a unit change in the independent/explanatory variable(s).

However, may I ask if this 'unit change' is represented by the standard deviation, or in fact is representative of a 1% change?

Any feedback/discussion on this would be appreciated,

Best,


texts: Correlation between nominal bond returns and growth

texts:
I read the following passage and the bolded section has me confused:

  In theory, assets earn a low (or negative) risk
  premium if they tend to perform well when the economy is weak. When growth
  and inflation are primarily driven by aggregate demand, nominal bond returns
  tend to be negatively correlated with growth and a relatively low term premium
  is warranted. Conversely, when growth and inflation are primarily driven by
  aggregate supply, nominal bond returns tend to be positively correlated with
  growth, necessitating a higher term premium.

I thought that growth and nominal bond returns were usually negatively correlated. Why would the growth being supply or demand-driven affect this correlation?

Thank you for any and all answers!


texts: Is Bill Gates wrong about supply demand curves?

texts:
In a recent tweet (Aug 14th, 2018, reproduced below), Bill Gates said that supply demand curves don't work for software because the first unit costs a lot and every unit after that is free. Isn't this just modeled by a horizontal supply line?

At the time I was in college, this was basically how the global economy worked...

This chart assumes that the total cost of production increases as supply increases. When a car company makes a new vehicle, the 10th car costs the same to manufacture as the 1000th.
But software doesn’t work like this. Microsoft might spend a lot of money to develop the first unit of a new program, but every unit after that is virtually free to produce.
Unlike the goods that powered our economy in the past, software is an intangible asset -- “something you can’t touch.” And it’s not the only example: data, insurance, e-books, even movies work in similar ways.
The portion of the global economy that doesn’t fit the old model just keeps getting larger. But the rules that govern the economy haven’t kept up. This is one of the biggest trends in the global economy that isn’t getting enough attention.
If you want to understand why this matters, I highly recommend the new book “Capitalism Without Capital” by @haskelecon and @stianwestlake. Here’s my review: link.


texts:
First, I'll introduce the observation and then ask the question.

I have a brother-in-law who has a quirk: given the same product and two prices for it in different stores, he's willing to pay the greater one. For instance, he preferred window panes cut from a more expensive store, even if they are the exact same thing. He also goes to expensive restaurants and order basic meals (say, beef with salad) so there's very little extra they can offer for a steep price increase. Trust me, I can continue providing examples until you convince yourself that he just like to pay more, given the opportunity.

I wonder how would one model such behavior. The easiest way is to give up and say he's irrational (his choices can be easily shown to be intransitive) and be thankful that he's a minority. I'd like to explore other alternatives:

There are prices in the utility function and $\frac{\partial U}{\partial p} \gt 0$ . This solves the problem but it introduces more issues. On the one hand, the price doesn't belong to a basket. On the other hand, he doesn't just spend all of his income to buy just an extremely overpriced glass pane, so they must be introduced carefully.
The basket has a "perceived as expensive" variable that accounts for the behavior. How would such variable differ from being just the price is intriguing...

Can you think of other alternatives, superior to these? Maybe ones that involve consumer aggregation?


texts: Apply Ito's Lemma to exponential martingale

texts:
$\newcommand{\dd}{\, \mathrm{d}}$
Consider the exponential martingale,
$$
\xi_t^\lambda = \exp \left\{ - \int_0^t \lambda_s \dd z_s - \frac 12 \int_0^T \lambda_s^2 \dd s \right\},
$$
that is used in the statement of Girsanov's theorem (this martingale represents the Radon-Nykodym derivative $\frac{\dd \mathbb Q^\lambda}{\dd \mathbb P}$.).

Exercise 2.4 in Munk's book Financial Asset Pricing Theory deals with applying Ito's lemma to this process.

Suppose
$$
X_t = \frac 12 \int_0^t \lambda _s^2 \dd s + \int_0^t \lambda_s \dd z_s.
$$
Part (a) asks us to argue that $\dd X_t = \frac 12 \lambda_t^2 \dd t + \lambda_t \dd z_t.$ Part (b) asks, "Suppose that the continuous-time stochastic process
$\xi = (\xi_t)$ is defined as $\xi_t = \exp\{-X_t\}$. Show that $\dd \xi_t = -\lambda_t \xi_t \dd z_t$."

Informally, we can argue part (a) by applying Ito's lemma,
\begin{align*}
\dd X_t &= \left( \frac 12 \lambda_t^2 + \lambda_t \dd z_t\right) \dd t + \lambda_t \dd z_t \\
  &= \frac 12 \lambda_t^2 \dd t + \lambda_t \dd z_t,
\end{align*}
and arguing that $\dd z_t \cdot \dd t = 0$.

How do we solve part (b)?


texts: What sort of impact would one expect on investment as a result of an approaching election?

texts:
I am looking to observe and possibly quantify private investment during election periods.

I am interested in any studies, particularly empirical, which discuss the impacts elections can have on the economy in the lead up to them. From what I can tell, there is typically a suppressing impact on investment but I'd like to see some work on it.


texts: Johansen cointegration analysis, cointegrating vectors and identification


texts: Relative risk aversion, a property of period or lifetime utility

texts:
This question is to be understood in the context of consumption based asset pricing.

I'm wondering whether relative risk aversion is a property of the period utility function, which is simply a function of a specific $c_t$ such as a power utility function $u(c)=c^{1-\gamma}/1-\gamma$, or if it is a property of the total / lifetime utility function, which is defined as a function over a consumption plan ($c_t$, $c_{t+1}$, ...), e.g. as an additive model over two periods $U(c_t)=u(c_t) + \beta E_t[u(c_{t+1})]$.

In this standard additive utility framework with e.g. the aforementioned CRRA power utility, this does not seem to make a difference as both would lead to $\gamma$ being the RRA.

However, it is less obvious in a recursive framework such as Epstein-Zin-Weil, as I'm not sure how the period utility function $u(c_t)$ would even look like.

Any help is greatly appreciated.


texts: Difference between objective and subjective distributions in asset pricing models?

texts:
How does one differentiate between "objective" and "subjective" probability distributions in asset pricing models?

In asset pricing, economists often make a distinction between the "subjective" and the "objective" probabilities of future states of the world. What do they mean by this?


texts: What is the "natural rate of interest" vs. "money interest rate"?

texts:
What exactly is the distinction that Knut Wicksell made in his Interest & Prices between

"natural rate of interest" or "natural interest" ("der natürliche
Kapital zins")

and the

"money rate of interest"?


texts: Are taxes supposed to be calculated depending on the seller, or the buyer?

texts:
We have a client that aims to ship his product internationally. (I think right now it mostly aims to be US and Canada, but the system would be open to people from all over the world to be bought)

Thing is, I can't seem to find a clear and definitive answer: Are taxes supposed to be calculated depending on the Buyers location, or the Sellers Location?

Examples:

If Seller is in the US, and Buyer is in BC, Canada; do I have to charge the BC GST/PST (about 12% on the price)?

If Seller is in QC, Canada and buyer is in the US, do I have to charge TPS/TVQ (about 15%)?

Also, in this case, there's a physical product being shipped, this isn't a webservice or something like that.


texts: Are prepaid cards, and gift cards considered a form of money?

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Are the followings considered a form of money

prepaid (debit) cards
gift cards (both bank-issued such as American Express gift cards, and store-issued such as Walmart gift cards) ?

Are their balances considered demand deposits, and therefore in M1?

Taking gift cards for example. They seem a form of money, but not exactly. Bank-issued gift cards are more likely to be a form of money than store-issued ones.

They can be used to buy products.
But gift cards are usually not allowed to resell, but I don't understand why they are resold on ebay and many websites if reselling them is illegal.
Cashing the balance of new or used gift cards are usually difficult. Cashing bank-issued gift cards seem more difficult than store-issued ones.
bank-issued gift cards are usually sold above their face values, while store-issued ones are usually not.
bank-issued gift cards can be used to purchase anywhere the bank is accepted (e.g. Amex), while store-issued gift cards can be only in specific stores.


texts: What is value in the context of microeconomic analys for case of monopoly profit maximization

texts:
I'm trying to refresh my microeconomics knowledge. And I have some "blind spots" I just can't fix.

Let's say we have a monopoly on the market. It's usual goal is to maximize it's profits. The point where $MR=MC$ will profit maximizing condition.

What is value in this context?
I mean, the good $Q$ is being Demanded by customers so value concept should be assigned to it, right? Is there a "value curve" or "marginal value curve" for such charts? Or value is utility, or benefit?

I'm confused about the usage of those terms.


texts: Source of commodity production statistics?

texts:
What would be a recommended source of historical data for commodity production amounts which is current up to the previous year or better?

For example, if I wanted to know the annual global production of steel (metric tonnes), timber, cotton, soybeans, aluminum, salt, sulfuric acid, asphalt, paperboard, wheat, kaolin, copper, silica, etc etc, where could I find that information. Note I want physical amounts (tonnes, bushels or whatever), not prices or dollar volume.


texts: Government Spending, Econimic Growth Correlation

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A major problem when testing hypothesis in economics is the lack of historical data. Is there research into the correlation between long term economic growth and government spending, that is based on a broad set of historical data?

The question of government contribution to economic growth is central to economics, so the relationship should be tested with as much as reliable data as possible. For example western countries were already compiling population, GDP and inflation data in the early 19th century. At the end of the 19th century any modern nation had the needed statistics. Even for periods before that GDP could be estimated and taken with a grain of salt.


texts:
What are the household holdings of financial products in China?
It seems to be generally accepted that real estate is the most popular savings product for households in China and perhaps it is also true in the wealthy countries for median households. I am specifically interested in financial products; not direct ownership in real estate; not life insurance; not small business participation or sole proprietorship.
Specifically what would the pie chart look like for the aggregate of all households if the categories were... certificates of deposit for fixed rates, CDs for floating rates, active equity mutual funds, "passive" equity mutual funds, equity ETFs, bond mutual funds, bond ETFs, China's so called "wealth management products" sold by banks and non-bank institutions, local government bonds, China bonds, deferred annuities, equity in widely held corporations ("stocks"). What are the categories of "wealth management products" in the way of short duration, long duration, fixed income, with deposit insurance, without deposit insurance, corporate issuer, government issuer, equity. If these are not the appropriate categories then feel free to make the categories more appropriate.


texts:
As far as I'm aware, the Federal Reserve has 4.5$ Billion on its balance sheet.

Where did it get the money for buying all those assets?

I understand that it makes money out of interest on the bonds it holds, but where did it get the money to buy those bonds in the first place?


texts: Is there a mathematical relationship between availability of land and real estate prices?

texts:
I’ve seen politicians, activists, think tanks etc proposing a (kind of) land value/property tax for ending speculative land hoarding. They say that builders hoard land and create artificial scarcity to elevate real estate prices. Since such a tax will be a deterrent on holding large plots/flats, they’ll make more land available and make housing more affordable.
E.g. of proposals
https://www.thehindu.com/opinion/open-page/the-case-for-a-land-value-tax/article5618157.ece
https://www.rahulmehta.com/improve_taxation.htm#a_0003
https://economictimes.com/wealth/personal-finance-news/tax-to-check-land-hoarding-likely/articleshow/2753834.cms
I have two questions:
Although I follow their logic, I was interested in estimating how much could real estate prices drop if say some x sq m of land is made available once such a tax is levied. How can I estimate this? is their a clear mathematical relationship between availability of land and their prices?
In addition, how can I predict how could the industry benefit from this? because now it will be easier to expand/start new businesses and as rent will decrease, it’ll also increase the spending power of people. Is it possible to predict its results based on something quantifiable, say income?


texts: What are the limitations that a country faces in increasing its Forex Reserve?

texts: The Forex Reserve of a country remains in the locker of its central bank and does not earn any interest for that country. What are the measures that the central bank of a country can take to overcome this and other related demerits. Further due to this demerit,does a country really have a saturation/limitation level beyond which it is uneconomical to pile up its Forex Reserve?


texts: What would be the consequences of Downsizing on the economy?

texts:
In the 2017 movie Downsizing, a chunk of the population decides to reduce their body size to just a few inches. What would be the consequences of this on the economy? I'd like to know chronologically what the important steps would be until the economy goes back to some stability.

In my scenario, the proportion of small vs big people in the country stays stable, let's say 50% of the population decide to Downsize, 50% stay normal-sized. I am considering an essentially free economy (let's say the current day US like in the movie) where trade between small and big people is initially not restricted, but could be in the form of laws or taxes later on.

(I do not have any background in economics, please make it as lay audience as possible!)


texts: MICROECONOMICS: Optimal quantity produced in a Perfect Competition Market

texts:
Suppose the Total Cost function of a firm in Perfect Competition is
  given by: $$C(q) = 450 + 15q + 2q^2$$

  The market price is $P = 15$ per unit

  Determine the optimal quantity produced by the firm

The trouble I'm having with this is a friend suggests the optimal quantity is q = 25 but that doesn't make sense to me.

Because when we calculate Marginal Cost = Marginal Revenue we get:

$$4q + 15 = 15$$

Which will yield an optimal quantity of 0 and not 25 when we solve for q.

The only way I can see it being equal to 25 is if the price is 115 and not 15 because of some typo. Any thoughts?


texts: Example of the change of measure proposed in Hansen (2012)

texts:
In this question, I'm continuing to explore the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies" (2012).

I'm trying to compute an example of the change of measure associated with multiplicative decomposition proposed in Hansen (2012). This question continues from the same example
discussed in this previous question.

$\newcommand{\E}{\mathbb E}$
Suppose that
$$
X_{t+1} = A X_t + B W_{t+1}
$$
where A has stable eigenvalues and $\{W_{t+1} : t = 0,1,... \}$ is an iid sequence of multivariate standard normally distributed random vectors. Suppose that
$$
\log M_{t+1} - \log M_t = D \cdot X_t + F \cdot W_{t+1}.
$$
I want to show that there exists a solution to the equation
$$
\E \left [ \frac{M_{t+1}}{M_t} e(X_{t+1}) \mid X_t = x \right ] = \exp(\eta) e(x) \tag{1}
$$
for $\log e(x) = H \cdot x.$

From the previous question we see that
$H' = D'(A - I)^{-1}$ and $\eta = (F + H'B)'(F + H'B)$. How would I compute the change of probability measure discussed in section 6.3 of Hansen's paper? Under this change of measure, what is the conditional distribution of $X_{t+1}$ conditioned on $X_t = x$?

Progress: In order to compute the proposed change of measure, I first need to complete the factorization described in equation (20) of the paper. Then I need to identify the factor $\tilde M_t$. In order to do this, I need to clarify how equation (1)
here fits into the framework outlined in the paper.


texts: Why do low-income earners tend to spend more?

texts:
I am reading an article in the Economist.
It is discussing the China's unbalanced economy especially the lower household consumption proportion in GDP than the global average. The writer thinks the poor social safety net in China plays a part in curbing the household consumption.
Then follows the below sentence.

As low-income earners have a higher propensity to spend, the lack of
support weighs on consumption more generally.

I don't quite understand why low-income earners have a higher tendency to consume.
I can't find any other supporting details in the article as if the writer takes it as a common sense.
Anybody could help to shed some light on it?
Thanks.


texts:
Given an inverse demand function for hangars: $$P = 3 - \frac{Q}{16,000}$$ and constant marginal cost of $1$, what is the equilibrium price and quantity of hangars in a monopoly?

In a perfectly competitive market we need $P = MC$, which gives us an equilibrium price of $1$ and quantity of $32,000$. However, in a monopoly we need $MC = MR$, and in this case that equates simply to price = $1$. Then, the demand gives us, again, an equilibrium quantity of $32,000$. Am I making some mistake somewhere, or are the equilibrium prices and quantities in a monopoly and competitive market in this example equal simply by coincidence?


texts: Impact of Fiscal and Monetary Policy during Great Recession on U.S. Economic Performance

texts:
What major fiscal and monetary policy actions were taken during the Great Recession (2007-2009)? What impact did they have on U.S. economic performance?

I understand how how the recession occurred in the first place. I know that as far as fiscal policies, Bush passed the Economic Stimulus Act of 2008 and also the Emergency Economic Stabilization Act of 2008 which established the Troubled Assets Relief Program. Obama passed the American Recovery and Reinvestment Act in early 2009. I also am familiar with the objectives of each. For monetary policy, I know what quantitative easing is and that the Fed controls interest rates.

My question is on what their impact on U.S. economic performance was. The more research I do, the more confused I'm getting. It of course seems all very political; Liberals interpreting data one way and Conservatives another. Some say it absolutely worked. Some say it failed miserably. Some just keep talking about the federal deficit. Some say it prevented a deeper economic recession or possibly even depression.
I'm leaning towards the latter. I'm not entirely sure though. If you could just point me in a direction and towards some reliable data that won't make my head spin (not too high level; I'm an econ newbie) it'd be really appreciated.
Thanks


texts: I am looking for practical models for decision making that include worst and best case scenarios

texts:
For example here is a simple decision matrix:

Source: https://toggl.com/blog/decision-matrix
Could I extend the above model with possible risks and benefits? - though I am wondering, if there is evidence that anything more complicated would result in better decisions.


texts: Effect of the Bank Home Loans of Property Prices

texts:
my name is Nick and I'm from Sydney, Australia.

In the last 5 years, our big cities such as Sydney and Melbourne has experienced rapid property price growth, they went so high and so fast that Sydney has been catapulted to top 5 least affordable cities. This rapid price growth has been accompanied by the extremely high quantity of mortgages issued by the various private banks, in fact, Australian banks are the most profitable banks in the world and currently, their main assets are home loans. I'm wondering of the correlation between high quantity of bank home loans and property prices.

As well how the inflation is influenced by the bank credits? Can the bank borrow more money in example from the overseas and therefore increase the money supply without increasing the actual production and purchasing power and driving the inflation upwards? Can same be applied to the property prices?

Are the prices rising so high as a result of increasing amount of affordable loans or vice versa, the demand for property has driven the supply of cheap loans?

As I understand this is actually a problem of the central bank (not corporate banks) not increasing the interest rates, they are at record level low right now. Actually, because the wages are as well at record level low as a percentage of GDP and stagnate the central bank afraid to increase the rates because people won't be able to repay the mortgage.

Regards,
Nick


texts: Has any work been done to try to figure out what a productive level of wealth and income inequality is in a country? i.e. the minimum to provide incentive for 'hard' work, and necessary risk taking in investments.


texts: Is the Nash product really maximised ex post?

texts:
In my game theory class this term, we studied Nash bargaining. It is only now when starting to prepare for the exam that I have come to realise there is something I fundamentally don't understand, and hope that somebody here might be able to help. :)
This is a question highlighting my issue:

The Nash bargaining solution to this is (confirmed with the lecturer) the payoff pair (3/2,3/2). This is achieved by player 1 playing T and player 2 mixing L and C with 1/4, 3/4 probability. The perhaps simplest way to find this solution is to find the midpoint of a tangent to the convex set of possible utilities.

My issue is, that I am not convinced that this maximises the Nash product s_1*s_2 (the disagreement pair is (0,0)).

IF one assumes that the payoff of player 1 and player 2 vary independently, then the above is indeed the solution because E[s_1] = 1/4*3 + 3/4*1 = 3/2 and E[s_2] = 1/4*0 + 3/4*2 = 3/2, which gives E[s_1*s_2] = 9/4 (which can be shown to be maximum).

However, the payoffs do not vary independently! (T,L) corresponds to Nash product 0 and (T,C) corresponds to 2. Hence the true expected value for the Nash product under this randomisation is 1/4*0+3/4*2=3/2. This is not optimal, as purely playing (T,C) gives a higher Nash product.

Hence, how comes that the Nash bargaining solution isn't actually maximising the Nash product? Where do I go wrong in my thinking?

Very many thanks in advance! :)


texts: Microeconomic foundation of discrete choice model

texts:
(1) Does the following result in a "valid" (in the sense of being consistent with the economic theory) market demand function?
A consumer $i$ maximizes a utility $u_{ij}$ in choosing one of J alternatives, $j=1,..,J$:
$u_{ij} = v_j - \alpha p_j + \epsilon_{ij}$
where $v_j$ is the utility of alternative $j$ without the effect of price (i.e. $-\alpha p_j$) and the logit error term $\epsilon_{ij}$.
The market demand results then as the choices of all consumers.

Is in accordance with economic theory to follow (1) and not assume a budget constraint but let the ultility of an alternative be directly affected by price?  And additionally assume that a consumer chooses one alternative (i.e., a corner solution follows directly from this assumption).  Does (1) result a  "valid" (in the sense of being consistent with the economic theory) market demand function ?

(2) Typically the theory of the microeconomic foundation of logit choice model (e.g.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1718571)  assumes that consumers maximize a utility function without the price effect but subject to a budget constraint. With a linear utility function, the maximization problem results in a corner solution of a consumer choosing only one choice alternative.
This setup (as outlined in the cited paper) leads than to the market demand.


texts: Difference between GDP and GNI in this exercise

texts:
Based on domestic production we observe the following income flows in a period:

  labor income of domestic residents: 150\$
  capital income received by foreign residents with a foreign citizenship: 5\$
  capital income of domestic residents with a foreign citizenship: 15\$
  capital income received by foreign residents with a domestic citizenship: 25\$
  capital income earned by domestic citizens with a domestic residence: 20\$

  Calculate the Gross Domestic Product (GDP) and the Gross National Income (GNI) of the economy:

Not sure how to solve this problem. As I understand GDP = 1+3+5, GNI = 1+4+5

I don't think that I understand how to treat foreign residents with foreign citizenship.


texts: What are the most common methods of determining valuation used by economists that claim Bit-Coin is on the verge of being a bubble

texts:
I have seen many economists saying that bit-coin is highly overvalued and on the verge of a massive corrections.  What are the most popular models being used to determine the proper price for bit coin?

I find it very hard to believe that these economists would base these opinions on this purely on conjecture based on the fact that bitcoin is a new technology, or not backed by a government.


texts: Prior to the 1996 Basel Accords, how did banks measure market risk?

texts:
Basel Accord amendment was brought into effect in 1998.

One of the features were:

Allows banks to use proprietary in-house models for measuring market risks

How were market risks measured before this, and why did they feel the need to amend it?


texts:
In an economy with two agents whose utility functions are
$$
U_A(x_1,x_2) = \alpha \cdot x_1 + x_2 \hskip 20pt U_B(y_1,y_2) = y_1 \cdot y_2.
$$

The given allocations are bundle (4,0) for A and bundle (1,5) for B.

Consider the following question

Taking into consideration the respective utilities for the bundles, we have $U_A=4\alpha$ and $U_B=5$. For this allocation to be a No Envy allocation, it has to be $4\alpha \geq 5$, which means alpha has to be greater than or equal to $\frac{5}{4}$.

Is this the right approach to solve this problem? If its not, please find the solution and show me the steps.


texts: Is comparative advantage undermined by a welfare state?

texts:
When liberalising trade with developing economies like China, states like the UK seek to benefit from the comparative advantage of cheaper imports.

Cheap imports undercut some native industries (eg. steel making, ship building, pottery) causing (at least in the short term) joblessness and associated negative social outcomes.

The thinking (IIUC) is that those displaced from the marketplace by the imports should move to higher-value-add industries, but in many cases this does not happen. For example towns like Stoke on Trent in the UK whose native industry was decimated (at least in part) by overseas competition, are characterised by chronic joblessness and associated social problems.

In a welfare state like the UK, the cost of those social problems are then borne by the state.

To what extent does this undermine the comparative advantage seen by the UK from cheap imports?


texts: How rate rise by the Fed, higher than market expectation will lead to strengthening of Dollar?

texts:
If the Fed follows through on its forecasts, though, and raises rates faster than markets expect in 2016, the dollar may well rise further, dampening inflation quickly

From : http://www.economist.com/news/finance-and-economics/21679806-first-three-pieces-federal-reserves-imminent-interest-rate-decision

What is the logic behind this? Thanks :)


texts: I am searching for some types of games that are played in linear demand functions. Altough I hear that there is a vast literatrure for games that are played in the intercept or the slope of the demand functions, there are no games palyed in both the intercept andthe slope, although I do not understand if the latter for a double game has any logic. I am intresting in some type of this game of Marzena Rostek and Marek Weretka, especially the static one. I am searching for any help in the maths that they use, where I can not understand them so much since they make very strange the notation. Does anybody know where to look for? They claim that they paly a Nash game in demand functions and they use some kind of stochastic intercept argument!


texts:
In high school, I've never really questioned the law of supply, taking it as a given.

As I begin an introductory economics course in university, "relearning" the fundamentals of Economics, I realise I'm coming up against some difficulties trying to genuinely understand a fundamental concept: the law of supply. I have searched for similar questions here that concern this but none address the specific nature of my question.

I was initially confused at the direct link between price and quantity supplied, given by my textbook, which states that at higher prices, producers will find it more profitable to produce more and will thus do so. At this point in the text, concepts of MC, MR, cost curves etc are a few chapters away, and I am somewhat clueless about them at the moment, but do feel free to use that in your explanation if needed - I know that ultimately, marginal cost has something to do with this but I'm not sure what (I've forgotten most of my high school stuff).

I guess a key concern is this: if more is produced, then total cost of producing also increases right and it may not always be more profitable to have more quantity supplied, unlike what my textbook says. So does the supply curve already account for this? I.e. at every point, the revenue earned will definitely be more than the cost? How can we just assume this?

The interesting thing is, I'm actually able to sort of understand it by reading values off the supply curve by looking at the x-axis (quantity) first (which is a valid approach) then y-axis (price), which is that if producers are to supply more, they will need greater revenue to cover greater costs of production to allow sustained profits (preferably increased profits, maybe same amount - but less important at this point).

In fact, this "inverted" law of supply is what I'd prefer. When I then try to "re-invert" this to try and understand the actual law of supply whereby price change is the cause and quantity supplied is the effect, I'm confused once more. Was hoping somebody could explain how exactly this works, preferably in relation to the explanation for the "inverted" law of supply.

Was wondering also if there's a "mathematical proof" for this - that'd be great, though the intuition behind it should preferably still be explained in plain simple words.


texts: Extensions of Nash equilibria to games with infinite strategies

texts:
In the Jehle and Reny textbook (which I should add I have not read much of beyond a few sections of interest), a theorem stating that there is always a (mixed) Nash equilibrium in finite strategic form games is proven. The book assumes that all players have the same number of actions available, but it's not difficult to imagine how this might be extended to the case where this isn't true.

What I'm interested in, however, is whether there is some extension of this to games, particularly those where there may be infinite choices. For instance, there's clearly no equilibrium in a game where a player wins by picking the highest number, but if we have, for instance, the same game, but where the number must be within the interval $[0, 100]$ (or any interval that contains its upper bound), the best response functions "converge". Similarly, I would also suspect that there need to be "well-behaved" cost and demand functions in competition models to get "good" results.

As such, I have two questions:

Is there any sort of well-defined setting in which a game with infinite strategy choices will have a Nash equilibrium?
What would relevant reading for this be?


texts: Difference between Unit Banking and Direct Banking

texts:
As the title says, I want to understand the differences between Unit Banking Systems and Direct Banking Systems.

Here are the few questions that'll help me understand:

Direct banks provide remote services online. Does Unit bank do so?
It's said that Unit banks do not have branches in other areas. Now how big or small is this area? A city? District? State? Can it have more than one one branches in the same area?
Unit banks have at least one branch from where the it is operated, where people go and deposit their money physically. But direct bank has no such branch. All the work is done on line (Of course they have an office though.) Is it right?

I assume they're both independent units. So kindly explain these and if there are other points besides these, please let me know.


texts: Is the international economic system too chaotic to "work towards" carbon emission reduction

texts:
I often get frustrated when I read calls to action on climate change.   It goes something like this: "Solutions are within reach - but we must act now!"

If one assumes that the international economic system is chaotic and reactive,  and that no one is in charge, where is the theory to back up what seems to be a wild claim that "we can act".  Who are "we", and are markets even able to deal with information about the common good or the future.

Suggestions for further reading on relevant theory would be appreciated.


texts: International Trade: Two country trade problem

texts:
A country (home) is pouplated with workers who produce either Food or Clothing. There are 200 workers producing food and 100 producing clothing. Each food worker produces 6 units of food and each clothing worker produces 3 units of clothing. Workers own the output they produce and trade with other workers. All workers share the same preferences over food and clothing represented by the utility function $U(D_c,D_f)=D_c(D_f)^2$.

  (a) What is the aggregate endowments of food and clothing in this economy?

Would the answer for this just be Ef= 200*6=1200 and Ec=100*3=300?

  (b) Now assume a foreign country with 600 food workers, 300 clothing workers with productivity levels 1 food worker produces 1 unit of food and 1 clothing worker produces 2 units of clothing. Describe the pattern of trade and verify that export supply matches import demand.

Firstly, I'm really confused over what the trade relative price equilibrium should be. I know that it will lie somewhere between these two country's autarky prices. Should I just assume that the trade relative price for the home country will be foreign country's autarky price?

My calculations are as follows:

1. Setting MRS = relative trade price (denoted by subscript w, I'm assuming it is the foreign country's autarky price)

$ \frac{D_f}{2D_c}=\frac{P_f}{P_c}^w = \frac{1}{2} \\ D_f=D_c $

2. Setting the budget constraint

$ \frac{P_c}{P_f}^w D_c + D_f = \frac{P_c}{P_f}^w E_c + E_f \\
\frac{1}{2}D_c + D_f = \frac{1}{2} \cdot 300 + 1200 = 1350 $

3. Plug (1) into (2)

$\frac{3}{2}D_f = 1350 \\  D_f = D_c = 900$

This somehow does not seem to make sense to me, and I feel that my answer is intuitively wrong. I would think home would export more of the good in which they have abundance (food) in order to import more clothing.


texts: When can I say that a utility function has constant marginal utility?

texts:
Does this utility function have increasing/decreasing or constant marginal utility?

$ U(x,y) = x^2 y^2 $

Now, $ f_x = 2xy^2 $, $ f_{xx} = 2y^2 $, $ f_y = 2yx^2 $, $f_{yy} = 2x^2 $

$ f_{xx} $ has no $ x $ term in it -- so is the marginal utillity of $ x$ constant or increasing? It increases as $ y $ increases, of course, but it stays constant if we increase $ x $. My textbook says that this is a case of increasing marginal utility, but I don't understand why. Similar problem for $ f_{yy} $ , which has no $ y $ term.


texts:
Monotonicity means the decision maker prefer more goods than less. It is not mentioned in textbook that SARP and GARP preasumed monotonicity, implicitly.
GARP: if $a$ is indirectly revealed preferred to $b$, then $b$ is not directly revealed strictly preferred to $a$.
SARP: if $a$ is indirectly revealed preferred to $b$, and $a\neq b$, then $b$ is not indirectly revealed preferred to $a$.
Because $aRb$ (directly revealed) means $ap_a\geq bp_a$ and $aR_sb$ (directly revealed strictly) means $ap_a>bp_a$, does that implies monotonicty if we assume the price is positive?


texts: The relationship between structural budget balance and cyclically adjusted budget balance?

texts:
What is the relationship between structural budget balance and the cyclically adjusted budget(CAB) balance?

I know that $PB=\textit{CAB}+AS$, where $PB$ is primary budget,  and $AS$ are the automatic stabilizers(tax revenues, unemployment benefits, etc. $AS$ term is counter-cyclical, i.e negative in recessions, positive in booms).

My question is, how do I relate, mathematically, the structural budget and the CAB?

Any help would be appreciated.


texts: Is Eurodollar borrowing close substitute for Fed funds borrowing?

texts: It is often stated that eurodollar borrowing is clost substitute for Fed funds borrowing. In other words, when US banks cannot fund themselves domestically, they might go to the eurodollar market and borrow some money to satisfy thier reserve requirment. Although it seems intuitive that in eurodollar borrowing you are borrowing from banks in other countries, I believe it implicitly involve a loss of reserve in a US bank. This is because since foreign banks cannot hold reserve at Fed and the borrower wish to borrow reserve, the only way this can happen is for the foreign bank to demand its US correspondant (the US bank where it deposits its dollar) to transfer the amount of reserve to the borrower. So implicitly, it is also the US bank that is lending its reserve. Am I correct?


texts:
$Y = X\hat{\beta} + Z\hat{\gamma} + e\\
(X'X)^{-1}X'Y = (X'X)^{-1}X'X\hat{\beta} + (X'X)^{-1}X'Z\hat{\gamma} + (X'X)^{-1}X'e\\
\hat{\beta}_{short} = \hat{\beta} + \hat{\delta}\hat{\gamma}
$

where $\hat{\beta}_{short}$ is the OLS estimator of the coefficient on $X$ from the misspecified model that omits $Z$, and $\hat{\delta}$ is from the regression $Z = X\hat{\delta} + \eta$.

This seems infinitely more simple than FWL proofs I've seen in econometrics textbooks. So what is this missing or getting wrong?


texts: Is ongoing economic growth possible without additional non-renewable inputs?

texts: Can ongoing economic growth occur without use of additional non-renewable inputs? That is, any additional inputs would only be from renewable resources: all non-renewable resources would be reused, recycled or removed from the economy.


texts:
I am looking at the balance sheet of Coca-Cola (https://www.marketwatch.com/investing/stock/coke/financials/balance-sheet), but I cannot guess where loans with banks are. These liabilities accounts are:

ST Debt & Current Portion LT Debt   25.23M  25.94M  6.45M   7.06M   7.53M
Short Term Debt     -   -   -   -   -
Current Portion of Long Term Debt   25.23M  25.94M  6.45M   7.06M   7.53M
Accounts Payable    79.48M  69.45M  109.87M 162M    251.98M
Income Tax Payable  -   2.52M   -   -   -
Other Current Liabilities   111.6M  110.91M 111.11M 157.49M 198.4M
Dividends Payable   -   -   -   -   -
Accrued Payroll     49.42M  49.4M   51.19M  68.99M  84.74M
Miscellaneous Current Liabilities   62.19M  61.52M  59.91M  88.49M  113.67M

But debt is bonds, accounts payable refer to money owed to suppliers (https://en.wikipedia.org/wiki/Accounts_payable). Is it under "Other Current Liabilities"?. How can I know? Anyone has experience looking at balance sheets? I'm learning this.


texts: Impact of Natural Disaster on Production Function

texts:
Say a natural disaster strikes. People were killed but the losses were small relative to the size of the work force. However, many buildings and infrastructures have been severely damaged. I'm thinking how would such an event impact the shape of the production function. Assume the production function is of Cobb-Douglas form.

On one hand, I'm compelled to say that the production function shifted down. The labor force is still there but there are now perhaps too many people to work the reduced amount of capital, so productivity of labor decreases, shifting the function downwards.

However, I also feel like it's just a movement. The technological level remains the same. We would just move further down the function as capital decreases.

Those are my thoughts. I'm having trouble thinking this through.


texts:
I first posted my question in the wrong forum (I did not know that there was an economic forum now) so I want to apologise for that by User Ben Bolker and User Robert. Also special thanks to User Robert who gave me the information with the econonomics forum!

So my question is about the Samuelson acceleration model. I am trying to help a friend of mine solve this question.  I am not an economic studied person. I attached the question and my answers and conclusions. Maybe some of you can give me a little bit of help. In the first case, I did interpret the whole topic wrong and was confused because of the difference and thought this should be possible with an derivation (which was absolutely wrong, in my opionion now). I found an old analysis economics book and there were some interesting facts about the question (I also attached these facts).

The main question is, is it possible to bring the function back to the standard form of an inhomogen linear style with index inversion or something else. You can see what I have done attached, but I could not change the following from t-1 to t+1 because I did not know how.

Maybe some specialists here can help me.

Thank You!

Cheers


texts: Solving for profit function $\pi (w,p)$ given the output of production function $f(z) = \sqrt{2z_1 + 3z_2}$

texts:
Solving for profit function $\pi (w,p)$ given the output production function $f(z) = \sqrt{2z_1 + 3z_2}$.
I approached this problem by trying to solve the $p\nabla f(z) = w$. This is derived from setting up the Lagrangian for the Profit Maximization Problem,
\begin{align*}
\text{maximize } &pf(z)-w^Tz\\\
\Rightarrow \mathcal{L}(z) &= pf(z) -w^Tz
\end{align*}
Then taking the partial of the Lagrange to zero,
\begin{align*}
\frac{\partial \mathcal{L}}{\partial z} = 0 = p\nabla f(z) - w\\
\Rightarrow p\nabla f(z) = w.
\end{align*}
The issue is, I thought that I could solve for an optimal $z^*$, but that does not seem possible, but I know that a solution exists.
To showing this issue simply, let $q=f(z)$, then the gradient is:
\begin{align}
\nabla f(z) = \begin{bmatrix}
1/q\\
3/2q
\end{bmatrix}
\end{align}
So solving our equation $p\nabla f(z) = w$, should let us solve for $z_1,z_2$, but as you can see,
\begin{align*}
\begin{bmatrix}
1/q\\
3/2q
\end{bmatrix} = \begin{bmatrix}
w_1/p\\
w_2/p
\end{bmatrix}\\
\Rightarrow \begin{bmatrix}
q\\
q
\end{bmatrix} = \begin{bmatrix}
p/w_1\\
3p/2w_2
\end{bmatrix}\\
\Rightarrow \begin{bmatrix}
\sqrt{2z_1 + 3z_2}\\
\sqrt{2z_1 + 3z_2}
\end{bmatrix} = \begin{bmatrix}
p/w_1\\
3p/2w_2
\end{bmatrix}
\end{align*}
This shows I cannot isolate $z_1$ or $z_2$. Without an optimal $z^*=<z_1^*,z_2^*>$, I cannot find my profit function $\pi(w,p) = pf(z^*) - w^Tz^*$.
EDIT
My guess is that actually, for some output $q$, my profit function is what I already solved for, $\pi(w,p)=\max{\{pw_1, 3p/2w_2\}}$
Can anyone confirm this?


texts: Lessons From Successfully small island economies

texts: What economic and development lessons/strategies can developing Caribbean countries learn from successfully small island nations like Singapore?


texts:
Current official estimates for the proposed UK railway line High Speed 2 are £42.6 billion for a 192 km line, or around £222 million (€287 million) per km (if my calculations are correct).  A 2020 review suggests it could even cost as much as £106 billion (€126 billion), or £552 million (€656 million) per km.

The French LGV Est total cost is around €4 billion for around 300 km, or €13 million per km — a factor 22 less than the initial UK price or a factor 50 less than the 2020 high estimate.

The German Nürnberg-Erfurt high speed railway line total cost is estimated at around €5.1 billion for 190 km, or around €27 million per km — a factor 10 less than the initial UK price or a factor 24 less than the updated price.

The Swedish planned Östlänken line is estimated to cost around 30 billion SEK (€3.2 billion) for 150 km, or around €21 million per km.

The French, German, and Swedish high speed railways are all in a range of 10–30 million €/km.  Why is the cost for the UK High Speed 2 a factor 10–50 higher?  What makes it so expensive?

The costs for a third runway at Heathrow Airport are estimated to be £18.6 billion £32 billionsource.  For comparison, the 2003 Polderbaan was €320 million, which is far less even when taking into account inflation.  Quoting the Financial Times:

  While an additional runway would indeed seem desirable, it would not be worth paying such exorbitant costs. Why such projects are so expensive and so difficult to implement in the UK is, to me, the big puzzle. It cannot just be because southern England is densely populated. So is north Holland, where Schiphol, with far more runways than Heathrow, is located.


texts:
Let $z_a$ and $z_b$ are two vectors of inputs. $z_a$ is variable in both long run and short run however $z_b$ is only variable in long run.

Now let's suppose that the price of one of the inputs in vector $z_a$ increases (let's say $z_a^i$), how would that effect the marginal cost in the long and short run? Can we compare the long run and short run marginal cost because of this price change?

I understand the relationship of long run and short run costs and marginal costs, however I am finding a hard time understanding these price change effects. Any help is appreciated.


texts:
My question is from over lapping generations
Question is as follows

I found that
$$k(t+1)= \frac{\beta(1-\alpha)}{(1+\beta)(1+n)}A(t)k(t)^{\alpha}$$
How can I deal with A(t) to find the steady state $k^*$?
By the way, at steady state,$ k(t+1)=k(t)=k^*$


texts: What links can be made between the marginal productivities of the factors of production and the costs of production


texts: Price of Anarchy when the cost is to society and not to the selfish agents

texts:
Let's say there is some scarce resource and several agents compete to access this resource. Each agent is able to convert the resources into products that are beneficial to society, but each agent has a different efficiency with which it does so. Therefore, society would like to see the most efficient agent get the resource. However, the agent that pays more gets the resource.

Is it possible to model this scenario in a Price of Anarchy calculation? What would the model look like?

In the introductory examples of Price of Anarchy, I've come across Braess's Paradox and Pigou's example, but these are situations where the cost is incurred by the selfish agents themselves. In my example given above, the cost is incurred by society. That's why I'm not sure how to go about it.


texts: What are a "nominal anchor" and an "intermediate target"? Any difference between them?

texts:
From the IMF:

The exchange rate thus serves as the nominal anchor or intermediate target of monetary policy.

The monetary authority uses its instruments to achieve a target growth rate for a monetary aggregate, such as reserve money, M1, or M2, and the targeted aggregate becomes the nominal anchor or intermediate target of monetary policy.

What are a "nominal anchor" and an "intermediate target"?
Are they just synonyms? If not, what are the difference(s) between them?


texts: Matlab code example for piecewise linear approximation and Euler Equation Iteration

texts:
Where I can find a good Matlab sample code that performs Euler equation iteration with piece-wise linear approximation of policy functions?

The Projection method I have in mind is something like described in the Finite Elements method in Aruoba, Fernandez-Villaverde, Rubio-Ramirez (JEDC 2006) or more generically Chapter 4 in Heer and Maussner "Dynamic General equilibrium models" (the examples in the cited references are either Fortran or Gauss).


texts: Trouble Understanding the Integral Underlying Random Utility Models

texts:
Given a utility function, $U_{nj} = V_{nj} + \varepsilon_{nj}$, it makes sense that we can find the probability the decision maker $n$ chooses alternative $i$ as:
$$Pr(U_{ni} > U_{nj} \forall j \neq i)$$
$$=Pr(V_{ni} + \varepsilon_{ni} > V_{nj} + \varepsilon_{nj} \forall j \neq i)$$
$$=Pr(\varepsilon_{nj} - \varepsilon_{ni} < V_{ni} - V_{nj} \forall j \neq i)$$
I am having an issue understanding the next step though, where:
$$Pr(\varepsilon_{nj} - \varepsilon_{ni} < V_{ni} - V_{nj} \forall j \neq i)$$
$$= \int_{\varepsilon} \text{I}(\varepsilon_{nj} - \varepsilon_{ni} < V_{ni} - V_{nj} \forall j \neq i)f(\varepsilon_n)d\varepsilon_n$$
Specifically, I am having trouble wrapping my head around why the joint density function, $f(\varepsilon_n)$, comes into play. I understand that this is one of the crucial aspects to understanding discrete choice models, since the choice of this joint density function underlies what model is to be used. Hence, I would like to gain a better understanding of why it is in here. If anyone would maybe have an example or a dumbed-down explanation of why this integral is what it is, I would appreciate it.


texts: Verify Indifference curves of two utility function to be the same

texts:
I'm being asked to verify that two utility functions, $U(x_1,x_2)$ and $V(x_1,x_2)$ have the same indifference curves and the same MRS.

There is no problem in verifying the MRS to be the same, but how can it be verified that the two utility functions have the same I.C.?
Should I assign a random level of utility and set them equal?


texts: Is an increase in the money supply (by buying government bonds) recorded in bank deposits or bank reserves?

texts: When the central bank pays 100 shekels for a bond held by the public, it is assumed that the 100 shekels are deposited. In this case, shouldn't it cause a 100 shekels increase in the bank deposit rather than in the bank reserve?


texts: Why is common stock included in bank capital?

texts: Capital represents the loss-absorbing capacity of a bank. I do not understand how shares issued in the past provide any indication of a bank's loss-absorbing capacity. I understand that common equity does not carry with it an obligation to repay, but it is not like banks can "draw down" on the value of its outstanding share in the event it experiences severe losses.


texts: Are there political economy models that include a "majority capture" of (protectionist) trade policy?

texts:
A highly cited model of protectionism is the "protection for sale" model or Grossman and Helpman. (For an [updated] evaluation of that model see for instance the Advanced International Trade textbook of Feenstra.)

However this model seems pretty limited to me in the view of Trump and Brexit. Modelling just lobby/industry groups carving/buying out increased protectionism in their own niches seems overtaken by events in which narrow democratic majorities capture the entire trade policy in a protectionist matter. Now (other) industry/trade groups seem to fight for niches in the opposite direction, i.e. being exempted from the overall tariffs increase; see Apple as an example.

Are there economic models that account for this new reality? (To some extent, this requires only a fairly trivial extension of "protection for sale", i.e. in an elevated protectionist environment, there will be groups lobbying for less protectionism, and their [anti-protectionist] niche-carving success will depend on their political clout (as a mirror of the process of buying protectionism). On the other hand, the conditions for a majoritarian capture of [increased] overall protectionism in a democracy doesn't seem so trivial.)


texts:
I'm interested to know economic justifications of forgetting in various fields.

On example is Green and Porter(1984). To sustain a Cartel, Cartel members have incentive to forget deviations in a sufficiently distant past.

Another is Ekmekciy(2011) which shows that a rating system works better if it stops publicize misconducts, once they're old enough.

Literature on a more abstract level is also welcomed, e.g. results like it's more socially desirable in a dynamic games, some agents are restricted to stationary strategies.


texts: Endogeneity problem with a dummy variable

texts:
I have a panel data model as following,
$$Y_{it}=intercept +B_1X_{it}+B_2Q_{it}+error_{it}$$

where $i$ is for firm and $t$= time.

$Y$= trade credit demand, $X$= inventory cycle, as inventory moves faster firms demand more trade credit. On the other hand because trade credit means extra inventory, the cycle would be affected by it, too.

I know that the model suffers from endogeneity because $Y$ affects $X$ and in return $X$ affects $Y$. Would it be a valid procedure if I tried to work around this issue by assigning a dummy variable and not use $X$ in the analysis at all by calculating first yearly average for the cycle and assign 1 if a firm is above the average for that year and 0 if below it.  Maybe the code I am using may clarify any vagueness.

in the R code below.

mydata=mydata%>%group_by(year)%>%mutate(mean_x=mean(x))
mydata=mydata%>%mutate(Dummy=case_when(X>=mean_x~1, TRUE~0))

and the model becomes as following:

$$Y_{it}=intercept+B_1 Dummy+B_2 Q_{it}+error_{it}$$

I hope I am clear enough. thanks in advance!


texts: Seemingly contradictory relationship between bond yields and economic growth?

texts:
I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields:

Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing investments, a reduction in IOER increases demand for bonds and therefore increases bond prices and reduces yields. Main idea: lower interest rates cause lower bond yields.

Economic growth occurs in low interest environments, so number one's "main idea" should hold: lower interest rates cause lower bond yields.

Economic growth leads to rising bond yields. From CNBC article:

"Bulls like Tchir insist that, in this case, the rise in bond yields is not a negative for stocks: “This time the rise in yields is coming from economic growth, stimulus, and infrastructure.  All of that is good for stocks.  That’s why this rise doesn’t scare me too much.”"

During times of slowing economic growth, demand for money decreases leading to reduced demand for loans and a resulting decrease in interest rates. This environment makes investors nervous so bonds become more attractive, driving up demand and therefore increasing price and reducing yield.

I am very confused about the relationship between interest rates and bond yields. I thought they moved in the same direction, but the above is confusing me. Any clarity? Thanks!


texts:
Is there a model for how much a philosopher produce in his lifespan?

If not, state the economical reason for why we pay the philosopher.


texts: Joint significance test in a difference-in-difference setting

texts:
I ran following difference-in-difference regression in software and have some questions about the interpretation of the resulting coefficients and their (joint) significance:
$$
P_{it} = \gamma_i + \lambda_t + \eta T_i + P^{C}_{t} + P^{f_1}_{t} + P^{f_2}_{t} + \delta_1 (T_i \times P^{C}_{t}) + \delta_2 (T_i \times P^{f_1}_{t}) + \delta_3 (T_i \times P^{f_2}_{t}) + \epsilon_{it},
$$
where $P_{it}$ (e.g. stock return ) is observed for firm $i$ on day $t$ during the first and second quarters of 2020. The parameters $\gamma_i$ and $\lambda_t$ denote fixed effects for firms and days, respectively. $T_i$ is a treatment dummy which equals 1 for firm $i$ if it is in Treatment group, 0 otherwise. The post-treatment indicators $P^{C}_{t}$, $P^{f_1}_{t}$,  $P^{f_2}_{t}$ index the different post-treatment epochs.
To be precise:

$P^{C}_{t}$ equals 1 in all firms from February 24th to June 30th,
2020, 0 otherwise
$P^{f_1}_{t}$ equals 1 in all firms from March 18th to June 30th,
2020, 0 otherwise
$P^{f_2}_{t}$ equals 1 in all firms from March 27th to June 30th,
2020, 0 otherwise

Note that $P^{f_1}_{t}$ and $P^{f_2}_{t}$ partially overlap with the post-treatment indicator $P^{C}_{t}$ in order to control for the two subsequent events (introduced March 18th & introduced March 27th). Furthermore, all post-treatment indicators 'turn on' at different points in time, but 'stay on' until June 30th.
The respective, exemplary dataset would look like:
$$
\begin{array}{ccc}
firm & day & T_i & P^{C}_t & P^{f_1}_t & P^{f_2}_t \\
\hline
 1 & 1 & 0 & 0 & 0 & 0 \\
 1 & 2 & 0 & 0 & 0 & 0 \\
 1 & 3 & 0 & 0 & 0 & 0 \\
 1 & 4 & 0 & 1 & 0 & 0 \\
 1 & 5 & 0 & 1 & 1 & 0 \\
 1 & 6 & 0 & 1 & 1 & 1 \\
\hline
 2 & 1 & 1 & 0 & 0 & 0 \\
 2 & 2 & 1 & 0 & 0 & 0 \\
 2 & 3 & 1 & 0 & 0 & 0 \\
 2 & 4 & 1 & 1 & 0 & 0 \\
 2 & 5 & 1 & 1 & 1 & 0 \\
 2 & 6 & 1 & 1 & 1 & 1 \\
\end{array}
$$
Running the regression in software results in following coefficients:

Variable
Coefficients ()

$T_i$
-0,000

$P^{C}_{t}$
-0.012***

$T_i$ * $P^{C}_{t}$
0,004***

$P^{f_1}_{t}$
0,020***

$T_i$ * $P^{f_1}_{t}$
-0.011***

$P^{f_2}_{t}$
-0,007***

$T_i$ * $P^{f_2}_{t}$
0.006***

Following exemplary statements can be drawn from the results:

$T_i$ * $P^{C}_{t}$: Firms in the Treatment group earned an average daily return of 0.4% percent relative to firms in the Control-group from February 24th to March 17th. The results are statistically significant at the 1% level.

$T_i$ * $P^{f_1}_{t}$: Firms in the Treatment-group earned an additional average daily return of -1,1% after the imposition of the first event introduced March 18th, 2020 compared to firms in the Control-group. The results are statistically significant at the 1% level. Furthermore, this results to an unique, overall average daily return of (+0,4% -1,1%) = -0,7% of firms in Treatment-group during March 18th and March 26th compared to firms in Control-group.

My questions is related to the last sentence: As stated in the last sentence I also want to make statements about the unique, overall effects within the individual time frames (by adding up subsequent coefficients on the interaction terms, just as I did above). Do I have to test for "joint significance" of the sum of coefficients to make valid statements? In other words, e.g. both coefficients on the first and second interaction term are statistically significant at the 1% level. Is this still the case if I add them up in order to get the unique effect? If not, how do I test this?
Thanks for the help, very much appreciated!


texts: Was the average person no better off in 1800 than in 100,000 BC?

texts:
I was somewhat surprised by the following claims by Gregory Clark in A Farewell to Alms, A Brief Economic History of the World (2007):

  the average person in the world of 1800 was no better off than the
  average person of 100,000 BC. Indeed in 1800 the bulk of the world’s population was poorer than their remote ancestors. The lucky denizens of wealthy societies such as eighteenth-century England or the Netherlands managed a material lifestyle equivalent to that of the Stone Age. But the vast swath of humanity in East and South Asia, particularly in China and Japan, eked out a living under conditions probably significantly poorer than those of cavemen. ... for the majority of the English as late as 1813 conditions were no better than for their naked ancestors of the African savannah.

So, would most economic historians agree with the above claims? Or have any openly disagreed with the above claims?


texts: Finding the covariance of a stock portfolio

texts:
So my question goes like this, I have the returns of 3 different stocks AAPL, NKE and BBRY
I make 4 portfolios out of them as follows:

and the question asks me to compute the correlation coefficient and covariance for each portfolio...
Now this seems a bit odd to me, since it already asked me to compute the covariance and correlation of each stock pair in an earlier question. Also, how would I go about doing it for the portfolio with 3 stocks?


texts: Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden

texts:
According to an article at Yahoo Finance, the Swedish central bank dropped its zero interest rate to -0.1 percent a couple of days ago (the article is dated to Thursday, February 12th, 2015).

Now, already in 2013 this article from Business Times reported that Swedish households were repaying their mortgages so slowly that it will take 140 years on average. It seems that the mortgage repayment system in Sweden is such that while a bank may set a theoretical limit on how soon the mortgage should be repaid, the individual is free to make interest-only repayments as long as they see fit. So the 140-year average length is not caused by lenders granting 140 year loans, but by the individuals simply paying them back at a rather slow pace.

If mortgage debts are already being paid on a rather low rate, can reducing the interest rate to below zero actually help the economy? Wouldn't this kind of decision just speed up a crash?

As to the Forex rate for the Swedish krona, can it be expected that this situation pushes down the value of the krona?

Update:
My reason for asking this question is because of the assumption that the Central Bank interest rate controls the rate at which other banks lend money to individual customers. Thus the central bank would set the interest rate low so as to lower the interest rates of loans in the country, and through this, to stimulate lending. This is what for example USA did during the first decade of this century.

I would have thought that stimulating lending in a situation where mortgages are being paid back at an extremely low rate would be a recipe for a house price bubble and subsequent crash(?)


texts: Growth regressions over 3-year periods; regressors in average or year values?

texts:
Say that I want to estimate a growth regression basically similar to the Augmented Solow Model one, except my dependent variable is not Y/L, but it's the average GDP growth over a 3-year period. As my independent variables, I'd take GDP at the beginning of the period and then average values of savings rate, human capital, etc... over the period. However, I've seen it done taking savings rate and such values for the last year of the period. So, it turns out something lie:

Avg Growth 2010-2012 = GDP 2010 + Sav Rate 2012 + Hum K 2012 etc...

When I estimate it, the coefficients are correct and significant, however I cannot understand if it's right. I'd understand taking all independent variables in first year values, or taking the rates as averages over the period, but I can't see why it would be correct to base the growth of the period over the last year's value.

Can somebody shed some light on this please? Could it just be a mistake?


texts: First Welfare theorem proof for local nonsatiation

texts: I know that the First Welfare theorem holds for pure exchange economies for strict monotonicity of preferences, and logically it should also hold for local nonsatiation, but does anyone have a simple proof for this?


texts: How do I determine the demand curve of a product through a survey?

texts:
I'm a student and I want to determine the demand for a product (and consequently determine what will happen if the price of the product increases). I don't have access to any businesses that can provide the data for me (price and demand at that price?

How do I estimate the demand curve or function by surveying people? What I currently have in mind is to ask people what amount of the product they'll demand at a given price and extrapolate this data for a city or a region.

Additionally, what'd be a good sample size for such a survey?


texts: Inertia and rational expectations DSGE models

texts: What types of inertia or other phenomena in the data are hard to model with New Keynesian or other DSGE models assuming rational expectations?


texts: What would happen if tomorrow all private and public debt was erased?

texts:
The question is what would happen if tomorrow all private and public (government) debt was erased? I am especially curious if normal daily economic activities would go on, what would the role of central banks be and how would the economy come into some equilibrium again.

The question is, indeed, a bit vague but I would like to know some opinions from various aspects. I think it is a very nice gedanken experiment.


texts: What do economist state as evidence that "structural reform" works?

texts: The typical recipe for countries to improve their growth rate and escape high indebtedness is to reduce expenditure and implement structural reform. What do people use as evidence of structural reform working?


texts: Why aren't open market operations a zero sum transaction?

texts:
I know that when the Federal Reserve buys Treasury bonds it increases the money supply, but I don't understand the process behind it. The model that I have given below (which is my best understanding of open market operations) is wrong and I need help understanding why.

  Suppose the US Government through the Treasury issues a \$100 bond with a yield of \$110. A third party purchases the bond and later sells it to the Federal Reserve for $105 during open market operations. Before the maturity date, the balance of the US Government is \$100, third party \$5, and Federal Reserve -\$105.
  At the maturity date, the balance of the US Government is -\$10, third party \$5, and Federal Reserve \$5.

This model erroneously depicts a zero sum transaction and not an increase in the money supply.


texts: Why does a positive output gap imply workers working overtime?

texts:
From Investopedia, "A positive output gap indicates a high demand for goods and services in an economy, which might be considered beneficial for an economy. However, the effect of excessively high demand is that businesses and employees must work beyond their maximum efficiency level to meet the level of demand."
And from Lumen: "when the economy is above full employment, then the unemployment rate is less than the natural unemployment rate and real GDP is greater than potential. Operating above potential is only possible for a short while, since it is analogous to workers working overtime."
Why do these websites claim that a positive output gap is not necessarily good? The unemployment rate is less than the natural unemployment rate (full employment rate) if the cyclical unemployment is lower, which means the economy is in an expansion. This means that more people have jobs, not the same workers are working more hours like these sites say, right? I understand that expansions are temporary, and there isn't always going to more output than expected, but why is having real GDP > potential GDP bad?
From what I know, potential GDP is the amount of output of an economy when everyone who should have a job has a job. During an expansion, people who normally couldn't get a job, has jobs because there are more jobs. This increases output. And so Real GDP > Potential GDP. That's it. I don't know why there would be a higher demand for goods, I don't get why workers would need to work overtime.
Can someone please clarify? Thanks!
Links:
https://www.investopedia.com/terms/o/outputgap.asp#:~:text=An%20output%20gap%20indicates%20the,be%20either%20positive%20or%20negative
https://courses.lumenlearning.com/wm-macroeconomics/chapter/natural-unemployment/#:~:text=The%20economy%20is%20considered%20to,equal%20to%20the%20natural%20rate.&text=By%20contrast%2C%20when%20the%20economy,GDP%20is%20less%20than%20potential


texts: Estimating causal effect for educated people on wages

texts:
I have a problem regarding causation and effect. I have a linear model
$ wage=\beta_0+\beta_1educ+\beta_2female+\beta_3hourseworked+errorterm$
When I need to estimate the causal effect for educated people on wages, I have chosen a subpopulation educ==1 (educated people) and made a regression in stata.
The used commands are
reg wages educ female hourseworked

From this regression I obtain 0 for the educated people, and it says that it is omitted. How can I find the causal effect of educated people on wages, when I have this problem?

I have tried to remove the intercept, from which I get an estimate causal effect of education, but is it correct just to remove the intercept?

Do I have to think about endogeneity - omitted variables - instruments?


texts: Macroeconomics: effect of technology/workforce in the short run

texts:
My friends and I have homework and we can't come to a consensus on these questions on how they affect aggregate demand, aggregate supply, and equilibrium:

Foreign investors building machineries with advanced technology for the country’s electronic
industry

For this we thought Supply up; AS to right; C up; AD to right; no change in equilibrium

Thousands of workers leaving the country in search of higher salary

and for this we thought: Supply down; AS left; C down; AD left;
no change in equilibrium


texts: What are the concepts in Linear Algebra that model the idea of Identification Strategy in Econometrics?

texts:
I just would like to know what concepts one should know before talking about identification strategies in econometrics. I see people studying such concepts but I'm not sure they realize (or even know) that probably there are concepts in Linear Algebra (or Multivariate Mathematical Analysis if that is the case) that probably would make their life easier had they known that beforehand. Since I'm currently studying a more rigorous approach to linear algebra (nothing fancy, but definitely proving everything), I would like to understand this "Identification Strategy" concept that I remember "learning" in an introductory econometrics course where I'm pretty sure no one even mentioned what was the math behind it, which I think is extremely important.

If you could be clear and didactic I would appreciate a lot.

Thank you!


texts: Difference between IS-LM-UIP and IS-LM-BP models?

texts:
My query is regarding the Mundell-Fleming model. I am reading the chapters on open-economy macroeconomics from Blanchard (I am following Blanchard mainly and I have read all the previous chapters). In Blanchard, the analysis of open-economy issues is done using the IS-LM-UIP model. Blanchard writes "The model presented here retains the spirit of the original Mundell-Fleming model but
differs in its details". I checked some other books like those by Dornbusch and Fischer and Froyen.  They have done the analysis using IS-LM-BP model. Can somebody tell me the difference between the two models? Is it possible to do all the analysis that can be done using IS-LM-BP model using IS-LM-UIP model? How much does Blanchard's version differ from the Mundell-Fleming model and the IS-LM-BP model?


texts: If the marginal cost is equal to 1, how does that imply marginal cost is equal to marginal benefit?

texts:
The function below is a utility function simplified after subject to an implied participation constraint.
$$
E\left(\pi_{n}\right)=e^{*}-E\left(s^{*}\right)=e^{*}-c\left(e^{*}\right)
$$ where $ \pi_n $ is net profits, s is salary, $ e^*$ is optimal effort and $ c(e^*) $ is the personal cost (disutility) of that effort

The function is maximized for $ e^* $ satisfying the first-order condition
$$
c^{\prime}\left(e^{*}\right)=1
$$
The text goes on to state that at the optimum, the marginal cost of effort, $c^{\prime}\left(e^{*}\right)$, equals the marginal benefit, 1.

Q: Where did marginal benefit just come from? I could be just forgetting some basics, but I don't recall MC = 1 as an implication that MC  =  MB?


texts: How can I represent players with different information given continuous choice ranges?

texts:
I must represent in extended (tree) form the following Game Theory problem:

A committee of experts must recommend a policy $a_1\in \mathbb R$ to Congress. Congress will then choose a policy $a_2\in \mathbb R$. The result of this policy is uncertain, determined by $x = a_2 + w$, where $w$ is random variable uniformly distributed between $[0,1]$, chosen by the "nature" player. The experts know the value of $w$, but the Congressmen are only aware that $w\sim U[0,1]$. The benefits to the congressmen and the experts are given by $-x^2$ and $-(x - 0.5)^2$, respectively.
So, the sequence of the game is the following: the nature player "chooses" $w$, then the experts choose an $a_1$ to recommend, and finally the congressmen choose $a_2$, the acutal policy.

My problem is the following: I can't figure out a way to represent the fact that the experts know the value of the continuous $w$, but the congressmen don't.


texts: Is a self-sustaining "loop" of economy a thing?

texts:
Let's have a hypothetical situation with 3 companies. Company A produces a machine part to certain extreme specifications. Their only client for this product is company B. Company B uses these to build gearing systems for very accurate control of a tool. Company B sells these exclusively to Company C. C makes these into manufacturing machines, which are bought by A because they are the only tool that is capable of building the part for B to the required specification.

This is a very simple example, but I think anyone can see how this can be extended to include multiple companies (perhaps even competing ones) where the only reason they exist is because they keep eachother going.

Is there a term for this in economy? Does this happen in reality?


texts: question about derivatives and net exposure

texts: What is the point, for a bank, of engaging in derivatives trading to cover risk if the intent is to reduce "net exposure" to zero, or as close thereto as possible? If the best case scenario is that you come out with zero gained, zero lost, why do this if there is no desire to make a profit? Doesn't all effort to profit involve some risk? If you write risk out of a transaction, thus have no expectation of profit, then why go to all the trouble? And, in any case, there is always some risk that a counter party might be unable to pay, despite putting up collateral. Sorry if this question is stupid, but I'd really like to understand this.


texts: Convenient S-shaped production function (i.e. with IRS and DRS) to derive a discontinuous demand for labor

texts:
Let say that a firm produces a commodity using only one input (i.e. Labor if we suppose to be in the very short run). Then we have a general production function of the following form $y=f(L)$, for $L≥0$, be the output obtained when $L$ units of Labor are employed.

We further assume that the first derivative (i.e. firm’s marginal product) is always $>0$, but ( assuming that f is twice differentiable), $f''(L)≥0$ in $[0,c]$, and $f''(L)≤0$ in $[c,∞)$. Hence, $f(L)$ is first convex and then concave, with $c$ as an inflection point.

When this is the case, contrary to the standard case of a concave production technology (with $f''(L)$ always $<0$), firms do not always make profits if they follow the standard rule for profit maximization (i.e. $\frac{dF(L)}{dL}=w$). Indeed, with IR, there are real wage levels that equal marginal returns for which labor costs exceed revenues. The value of output is less than labor costs for all employment levels lower than a critical employment level (let say $Lc$), that is the level where average productivity maximizes, or, where marginal productivity equals average productivity. For this reason the curve for demand of labor is first decreasing and then at a certain point falls to zero.

What can be a specific functional form suitable to represent this situation and that allows me to derive a curve of demand for work by firms with these characteristics?


texts: Are corporations free market on the outside and communist dictatorships on the inside?

texts:
See why we hate working for big companies
What do you think of the proposition that Modern capitalism raises the flag of the free market while pitting centrally planned organisations against each other?

Could firms introduce a free market internally? What would be the benefits and problems?


texts: How does one calculate an optimal consumption bundle if the MRS only contains one variable?

texts:
For example, say the MRS has simplified to the form $MRS(x,y) = -y$, given a utility function
\begin{equation*}
U(x, y) = e^{(x + ln(y))^{1/3}}
\end{equation*}

With a budget line of, say, $2x + y = 10$ which would yield a budget line slope of -2, equating the MRS to the BLS would simply yield $y = 2$, but there is no x to solve for in the equating of the two slopes.

Is the last step, in cases like this, to plug back into the budget constraint?  In which case, one would get $x = 4$, yielding an optimal consumption bundle of $(4, 2)$?


texts: What was the cause of the decline in remittances sent to Pakistan between 1982 and 2000?

texts: I am trying to find out what caused the 2-decade long decline in remittances as a % of GDP. I have spent an hour trying to search for explanations but haven't found anything. I know its a long shoot and thought it won't hurt to ask here to see if anyone can explain the cause


texts: Why are vacancy rate and unemployment rate negatively correlated?

texts:
Why is this the case?

Since Vacancy rate is defined as following,

let $A,Q,U$ denote number of vacancies in the economy, labor force, unemployed respectively.

$$\frac{A}{A+Q-U}$$

Here we can see that if unemployed increase vacancy rate would go up?

Why is there a negatively correlation then? Take the beveridge curve as an example :

https://en.wikipedia.org/wiki/Beveridge_curve


texts: What exactly people mean when they say "X is a $Y billion industry"?

texts: I'm reading the "Personal MBA" book right now and it says that "Yoga is $8 billion industry worldwide". What does it mean? And how can one calculate the amount of money in some industry?


texts: What, in the most literal sense, are eurodollars?

texts: There are readily available "definitions" including on this site, but I want to know what they are in a concrete sense.  Because the definitions make them basically sound like just electronic bank deposits in dollars at a foreign commercial bank, but in a literal sense this seems nonsensical unless those foreign banks (or the central bank in their country) have accounts at the US Fed. After all, to a commercial bank, electronic deposits are just a local accounting fiction, the movement of which gets accounted for at the end of the day by a net transfer of central bank reserves. So are they US treasury securities? or physical cash? or do foreign banks indeed have accounts at the fed?


texts:
In the solution to the problem below provided by my professor he applies a first order condition to the lagrangian for ct, getting pt for the partial derivative of the argument "$\frac{d}{dc_t(t)} \int p_t(w)*c_t(w)dw$". This is puzzling to me since the derivative of a indefinite integral of ct should be ct not 1.

What's going on with this derivative and is it correct?

$\frac{d}{dc_t(t)} \int p_t(w)*c_t(w)dw$ = $p_t(w)$

Edit: Removed hand written notes.


texts: Recovering information on Prices from Expenditure data

texts:
this is more of a "Research Based" Question where the answer may be open ended and really am wondering from all the experts here. Feel free to hammer me on this as I'm not 100% confident, my data work looks nice so far.

I'm interested in demand system estimation, however often times we only have expenditure data to work with. This is fine for estimating the linear expenditure system, however for for estimating much more interesting and useful demand systems like the Almost Ideal Demand System and Rotterdam demand system we require information on prices.

In short my question is:how do we recover information on prices from expenditure data in a time series when price and quantity aren't separated from eachother (i.e we only have knowledge of spending not the separate quantity and price information)

The following method I'm proposing is a follows:

Step 1: Note that $m_i=p_ix_i$ that is the expenditure on good $i$ is equal to price of good $i$ times its quantity . most expenditure data is indexed by time so a more accurate representation of this relationship is: $m_{it}=p_{it}x_{it}$

Step 2:In a competitive market where prices are stable the increase in expenditure on good $i$ comes from an increase demand for the product.

Step 3: obtain the fitted values for the regression model $\hat{m}_{it}=\alpha_0+\alpha_1t$ which is a simple regression which tells us how expenditure should evolve over time ignoring information on prices because we are assuming things are stable for the time being. If prices are constant througout time this is the same as $\hat{x}_{it}=\alpha+\alpha_1t$ since a transformation of $x_{it}$ by a scaler wont affect our estimates of what $\alpha_1$ is:

Step 4: Obtain price data by the use of the following relationship
$$\hat{p}_{it}=\frac{m_{it}}{\hat{m}_{it}}$$
or more specifically from our relationship in step 3:
$$\hat{p}_{it}=\frac{m_{it}}{\hat{x}_{it}}$$

Using relationship we have a series of data relating to prices.

I'm not sure if this is silly or something that useful for someone who has a hard time finding data. Does this make sense?


texts: Does it fall under fiscal, monetary, or supply-side, or perhaps some other group? Also (seeing as minimum wage is a form of price control policy), where does the broader "price control policy" fall?


texts: Game with an equilibrium in pure, but none in mixed strategies?

texts:
I came across the following game:

The question is to find potential equilibria in mixed and pure strategies. The solution says that there is an equilibrium in pure strategies (B,N), but none in mixed strategies. Mathematically this makes sense to me, since if you solve for the mixed strategy equilibrium, you get the solution that player 2 would have to play strategy L "-100%" of the time, in order to make player 1 indifferent between strategy A and strategy B.
What I don't comprehend however, is how this result is to be reconciled with Nash's theorem, which states that every game with a finite number of players and a finite number of pure strategies has at least one equilibrium in mixed strategies. In the case at hand, we do in fact have a finite number of players and pure strategies. So how is it possible that there is no mixed strategy equilibrium?


texts: How purchasing power reduces when currency is commodity money(say gold)

texts:
First of all I am new to Economics. I'm a B.Sc.(Mathematics) final year student. I was curious to learn Economics so I started with "Economics in one lesson" by Henry Hazlitt.

In this book I encountered few phrases like 'inflation' and 'purchasing power'. On Wikipedia I started reading about purchasing power. I was even unable to understand its first paragraph. The first para goes like:

  Purchasing power (sometimes retroactively called adjusted for inflation) is the number and quality or value of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it is probable that it would have been possible to buy a greater number of items than would be the case today, indicating that one would have had a greater purchasing power in the 1950s. Currency can be either a commodity money, like gold, silver and bitcoin, or fiat money emitted by government sanctioned agencies.

Suppose I have  10,000 in the year 2000 and at the same time my friend also have  10,000. We both wanted to save this money for future. I decided to put this cash in my lock whereas my friend decided to buy gold of it. For simplicity say my friend bought 1 kg of gold.

Now in year 2010, after 10 years, due to inflation, our purchasing power is reduced. Now my question is that in this 10 year period due to inflation the price of gold is also high, so for the same amount of 10,000 my purchasing power is reduced much more than my friend's. Why or how?

As I said I'm new to Economics so please be simple while explaining.

Any suggestions for further reading will also be appreciated.


texts: What are the recent advancements in building a unified theory of bounded rationality?

texts:
It seems that bounded rationality models focus on explaining a particular psychological bias, in a very specific way. In particular, its seems that the state of the art consensus is that one size does not fit all. The prevalence of framing effects makes this issue very difficult, but is there any way to think of a general approach to modelling bounded rationality.
Is it regret minimization, or random choice, or rational inattention?


texts:
I am wondering how the consumption of the unemployed varies over the business cycle. We know that wages of people getting fired in busts are higher than wages of people in booms (Mueller 2012), so there seems to be some variation in the "unemployed" sample over the business cycle.

This surely should have some consequences on consumption of unemployed people over the BC - are there stylized facts on that?

Im looking for stuff like

The longer the bust, the smaller average consumption of unemployed
in busts, average consumption of unemployed smaller/larger than in booms


texts: Will major economies be able to repay their debt?

texts: According to The Economist, lots of major economies are in debt to the extent of it consuming most of the countries' GDP. And the whole system almost seems to resemble a Ponzi scheme at a macro level. I'm sure this is a gross simplification of how things work and I'm no economist by any measure. But at some point, wouldn't the debt of these countries grow beyond the expectation that it will ever be paid off? How is it there is so much worldwide debt without the whole system ready to implode?


texts: Is population growth irrelevant with respect to per capita GDP growth

texts:
In Solow's growth model the growth rate of the output or GDP of a country is denoted by $g$. In the model this can be decomposed to
$$
g = g_l + g_k,
$$
where $g_l$ is the growth rate of the effective labor force and $g_k$ the growth rate of capital. If you calculate the growth rate of per capita GDP population growth will not play a role. (Per capita growth is 'kind of' like $g_k$, but not quite, as technological advancements  are factored into the growth rate of effective labor.)

Does historical data support the statement that the effect of population growth on per capita GDP growth is zero?

I did some limited searching and it seems that while US growth is sometimes set as an example to other western countries, the real difference is in population growth, not per capita GDP growth.

Source

Source

Am I being too superficial in my examination? Are there more subtle effects, such as a lagged effect due to the pension and elderly care systems?


texts: What does 'establishment' mean in real estate industry?

texts: I read data on real estate industry and there is a table titled "establishments". The title of it is "number of establishments in real estate for all establishment sizes". Is 'establishment' a terminology for real estate industry? Does 'establishment' here means construction sites? Thank you.


texts: Specification of the parameters of this utility function [Behavioral Economics]

texts:
This is from page 274 of "Advances in Behavioural Economics" by Camerer, Rabin, Loewenstein.
This chapter of the book is entitled "A theory about fairness, competition, and cooperation".

I have difficulty understanding parts of this equation. (see attachment).
I would need an explanation of the equation in detail (I assume this book is designed for graduate students, as I am currently an undergrad).
What do alpha and beta represent? What does monetary payoff mean exactly? Is it similar to game theory? Why is there a 0 in [xj-xi, 0]? And why is it 1/(n-1) and not n-1? This is very confusing for me, who has little mathematical background.