texts: Elasticity of substitution between leisure in two periods

texts:
This is a basic question, but I am new to macro models. The question is from Romer's text.

Assume a household only has one member and has no initial wealth, and the household lives for two periods. We have

$$U=\ln(c_1)+b\ln(1-l_1)+e^{-\rho}[\ln(c_2)+b\ln(1-l_2)],$$
where $c_i=w_il_i$ and $\rho$ is a discount rate in $(0,1)$.

The text says "Because of the logarithmic functional form, the elasticity of substitution between leisure in the two periods is $1$." I tried to verify that the elasticity is $1$ as the following:

Let U_1 denote partial derivative of U with respect to $l_1$. Similar for $U_2$. Then,

$$E_{21}=\frac{d\ln(l_2/l_1)}{d\ln(U_1/U_2}=(\frac{dl_2}{l_2}-\frac{dl_1}{l_1})/(\frac{dU_1}{U_1}-\frac{dU_2}{U_2}),$$
where $U_1=\frac{1}{U_1}-\frac{b}{1-l_1}$ and $dU_1=(-\frac{1}{l_1^2}-\frac{b}{(1-l_1)^2})dl_1$. How chould $E_{21}=1$? In fact, I got something super messy. Therefore, I doubt if my approach is correct or not. Maybe my formula is not correct? Thanks in advance!


texts: How does GNU software development sustain economically?

texts:
I apologise if this question is out of topic, but it is simultaneously an economy and a programming question. If it should go to another SE communality, please indicate me.

In theory, GNU software is entirely developed by volunteers during their free time, or by companies that voluntary fund programmers to develop GNU software (by using income from another sector of their activity).

I understand how it can work perfectly fine for small-scale project that can be done in a couple of rainy weekends by a single individual (let's say for example a sudoku game), because after all computer programming is an extremely fun and rewarding hobby, and I have no problem seeing people developing small or medium programs during their free time and sharing them to the world.

The problem is that this scales extremely poorly for larger programs for the following reasons:

As fun as programming is, as the project that have to be implemented becomes larger, the time it takes to implement the desired functionality grows extremely quickly. A larger scale program takes an incredible amount of time to develop, for instance it could easily take 15 years of free time and vacation time for an individual to program an operating system, and by the time his software is released it'll be completely obsolete.
As other people write programs in another way that the way you would have done it, reading and understanding someone else's code takes a lot of time, in most cases as much as would writing your own code from scratch. Modifying another people's code and try to improve it, as it is encouraged by the GNU philosophy, is almost just as time consuming as developing your own clone of the said program with the functionality you'd like to add.
As soon as 2 or more people will have to collaborate to develop a larger program, this creates lots of decision-taking issues that would never arose on a single-developer project. The result is that, for example if a group of 2 programmers collaborate for a project that would take 10 years for a single man to make, they won't make it in 5 years but probably in 8.
If people that collaborate for the same project meets on the internet solely, it is easy for one member of the project to vanish suddenly (either because he lost interest or because he physically can't be on the internet anymore), thus making collaboration even harder

So, while I understand perfectly how simple programs can be developed with the GNU mindset, I absolutely don't see how such huge programs such as GNU/Linux or gcc are possible on this model. gcc is around 7 million lines of code. I know lines of code does not mean much, as in a later stage of a project the more productive programmer is the one that will actually remove lines of code (simplifying and/or optimizing the project), but this gives an overwiew how massive of a project gcc is.

So in theory, anyone can freely modify gcc during their free time, but in practice? It was developed by very professional people as a job, not as a hobby. Anyone making a compiler as a hobby will eventually give up as the cost/benefit is not worth it:

Developing a large program is such a long term huge project, they'd rather use their free time to have other activities that are more rewarding or more enjoyable in the short term
If they were to develop a large program anyway, they'd rather do it for a company that will pay them than doing it for free

In order to get people interested at developing a program such as GNU/Linux, gcc or Open Office in the long run, it should be rewarding. So my question is: Why is there people contributing to large GNU project, if they aren't getting a salary for it?


texts: What makes the Balance of Payments (BoP) to imbalance?

texts: Theoretically the capital account balance should fully offset the current account balance and the BoP should be zero for any economy. What causes the imbalance or discrepancy in the overall BoP ? What makes countries run BoP surplus or deficits ?


texts: What would be the income tax rate be if it were 'flattened'?

texts:
In some recent conversations/speeches (It's voting season), I have noticed many people do not understand how a marginal income tax system works.

Not understanding how they are only taxed at the higher rate, on the income in the higher bracket is one thing.

However for today's question I am looking to address people feel sore that when they work harder (e.g. overtime) they are taxed at a higher rate, so they would like a flat tax rate.

This is true perhaps for those who are the very top income earners. But for everyone below them this is not true. Because they would have had to paid the same, but higher, tax rate on the lower brackets of their income.

So my question is:

Assuming the same dollar amount of income tax for the government* stays the same, what would be the income tax rate be if the marginal tax rates were flatten to a single rate?

Bonus: At what income amount would be the tipping point be, where you would be better or worse off under these different rates.

*I am most interested in what this would be in New Zealand. However I am happy to take answers for any OECD country.

A flat tax rate would almost certainly have some secondary effects. Most likely they would have a negative effect on the total tax taking, and would also likely cause an increased demand on government services; requiring raising of taxes. What and the extent of those secondary effects are warrants a separate question (thesis probably!) So for the sake of simplicity, let's keep them out of scope, for this question.


texts:
I am a college student and I have recently learned about Nelson-Siegel-Svensson method which is used by the German Federal Bank to determine the yield curve. I have to generate yield curves of different shapes using historical data (β0, β1, β2, β3, τ1 and τ2) which I am free to choose myself. On the website of the German Federal Bank I see the monthly and daily estimated parameters for the period from September 1972 until today. I have the formula but I am not sure which numbers to use. Could somebody please explain to me, whether the monthly estimated parameters are suitable to generate an yield curve for the next 10 years? I am sorry, if the question is too easy. I would be very grateful, if anyone could help me to understand which parameters I can use.
Thank you very much!
Kind regards,
Amy


texts: What type of graph can be hepful to explain the type of errors that should be used?

texts:
I have a regression of wage on several variables, such as education, marriage and so on. I want to explain that it would be a better idea to use cluster errors, since we expect the wage to be correlated with abilities for each person, but I want to do so using a graph, what graph would you recommend me to use and why? When you have one regressor it is obvious, but here how to decide what variables to plot?

Since I am using stata I would appreciate if you could help me with an example of the code for the graph.


texts: When was the supply and demand model first used?

texts: Who created the supply and demand model in economics or when was it first used?


texts:
Suppose we have a graph whose axes are r (interest rate) and S/I/Y/whatever. I'm studying intertemporal models right now, and i got a bit confused.

According to my textbook, the area underneath S is the cost of savings (forgone current consumption), and the area underneath I is the returns on investment. After some digging, i think i've figured out the latter (investment curves are sums of individual corporate investment portfolios sorted from the largest to smallest in terms of returns, where the y (or r, in this case) axis is expected rate of returns). But what I don't get is the former - why is the area underneath the S curve the cost of saving?
*I understand why changing interest rates affect savings, both through the substitution and income/wealth effect, but that's not really helping me interpret the graph.


texts: Why is the Bank of Japan buying all the government bonds?

texts:
I've recently read that the Bank of Japan is continuously buying government bonds. Apparently, at the rate they are going, the BoC will own all the bonds by 2026, which means the government will essentially owe all its debt to itself.

What is the point of doing this? And once they buy all the bonds, does it mean that the debt of Japan will be nil?


texts: Burdett and Mortensen (1998), Equation (22), Integral by parts question

texts:
Suppose $F(x)$ and $H(x)$ are both cumulative prob dist functions on the support of $[b_0,b_1]$ and we know followings:

$$u(x|F)=\int_{b_0}^{x}\frac{m}{1+k[1-F(b)]} dH(b)$$

and from this

$$[1+k(1-F(x))]du(x|F)=mdH(x)$$

We also know that

$$G(w)(m-u(b_1|F))=\frac{k\int_{b_0}^w [F(w)-F(x)]du(x|F)}{1+k(1-F(w))}$$

Then in the paper, authors get following which is equation [22] in the paper

$$\frac{(m-u(b_1|F))dG(w)}{dF(w)}=\frac{kmH(w)}{[1+k[1-F(w)]]^2}$$

I really don't understand how the authors got this. Can somebody help me?


texts: Example of Law of One Price holds but No Arbitrage Fails

texts:
I have been told that no arbitrage is a stronger assumption than than the law of one price.

In particular, Law of One Price is equivalent to the existence of a stochastic discount factor, whereas no arbitrage is equivalent to the existence of a strictly positive stochastic discount factor.

Can someone give me an example where LOOP holds, but No Arbitrage fails?

Thanks.


texts: In quantitative tightening do banks have no choice in refusing to buy bonds from Central Banks (mainly Federal Reserve)

texts:
In light of the recent unease about interest rate rise, I've been taking a growing interest in how our economy actually works, something I've been trying to avoid.
So this forum is a way for me to clarify my (mis)understanding, so for some of you, I'm sorry for stating the bloody obvious.

Banks stopped borrowing money when people or corporations or even other banks defaulted on their loans. Banks even stopped lending to each other. As a result the economy wasn't growing. So to avoid another recession (or encourage spending in the current recession), the Feds decide to experiment with QE.

With their unlimited power, they created new money into being, and bought these debts, even bad debts (bonds) and equities/assets from these banks.

My focus is on the bonds that the Feds bought, and this is where my understanding starts to get fuzzy and wtfs/minute grows exponentially....

So these banks sold their bonds to the feds, and with this new loan they received, they can start lending back to people or corporations. But this also means they are paying interest rates to the Feds, but hopefully they are making good investments on the new loan (but what if they default on this new loan, rinse and repeat???)?
Because Feds have been introducing these magical money for years, bond prices were up, and thus interest rates decrease...

Quantitative tightening...
But cheap money is unsustainable and cannot go on forever (I'm still unclear on this but I will research more on this later).
So now the Feds are thinking of selling back the bonds (and presumably equities) they bought from the banks that sold it to them. Now, bonds price will plummet but interest rates will rise...

My question for now is:

Will the Feds now pay the banks interest rates on money that THEY magically created or are they exempt from this?

Do banks really really have to buy these bonds bank? Then interest rates just won't rise and the Feds are stock with bad debt until maturity, and it's essentially paid for, more or less.. What am I not understanding?


texts: I do not wish to get into the details of the Demonetisation implemented by the Indian Government on 8th November, 2016. Endless political debates have already been conducted advocating or berating this step. As an Economics student, I would like to get some technical insight into this action and the economic effects of demonetization in general.


texts: Do free-trade economies typically offer any protection for domestic markets?

texts:
The aimed-for outcome of the protectionist could be said to be the shielding of domestic markets from competition with an "unfair" advantage. For example, an emerging economy might have non-existent workers' rights enabling lower production cost.

However, discussions surrounding naive protectionist policies typically descend into "define a biscuit" type arguments. In short: the difficulty in defining the boundaries of tariffs quickly turns arguments to farce.

But there must be other, better ways to achieve the desired outcome. I have read that in the early 2000s Germany "protected" its intra-EU car sales by ensuring EU emissions regulations were closely aligned with the emissions of their own diesel engine technology making market entry by (for example) American cars with big petrol engines more difficult. Whether this is apochryphal or not, the point remains.

Do free-trade economies typically endeavour to protect themselves in ANY way, or does "free mean free" in the minds of these legislatures?


texts: Can the stock market grow faster than GDP indefinitely?

texts:
My understanding of conventional wisdom is that average long-term growth of advanced economies is expected to be significantly lower than the average long-term growth of the value of the largest firms in the stock market (e.g. the total value of the FTSE 100).  I also accept Kenny LJ's argument that GDP (and the stock market) can grow exponentially, indefinitely.

But if the largest firms in the stock market, taken as a group, always grow faster, doesn't that suggest either

an unsustainable trend, or
a fundamental restructuring of the economy is in progress?

Is there any limit to how many times larger FTSE 100 firms could be than the output of the entire economy, for instance?

EDIT: To be completely clear, I am not using the FTSE as a proxy for the wider stock market or private sector more generally, so I'm pretty sure survivor (or selection) bias is nothing to do with the answer.  I am literally asking about the size of the group of the largest $x$ companies listed today relative to the total economy.


texts: What are the advantages and disadvantages to a country's people when the national currency is the world's reserve currency?

texts:
Today, the world's reserve currency is USD. At the start of the 20th century, the reserve currency was the British Pound GBP.

Using U.S as an example to narrow the scope, what are the advantages and disadvantages Americans face with the USD being the reserve currency today?


texts: Dec 2015: What would cause natural gas and crude oil to go up?

texts:
Natural gas prices are down like crazy this year as you can see from the chart below:

I don't understand how these prices are maintainable. I know these this price trend is largely because of the abnormally warm weather this winter. I also noticed crude oil down a ton, and that the coal industry is almost dead.

If prices are down so much why are suppliers even continuing to supply gas when their margins are low and no one is buying it? What would save the industry?


texts: System of Differential Equations- Asymmetric First-Price Auction

texts:
I am working on a problem in my Auction Theory textbook regarding a two-player asymmetric first price auction. Assume the bidders are risk neutral. The problem statement is as follows:

    Suppose that bidder $1$'s value $X_{1}$ is distributed according to $F_{1}(x) = \frac{1}{4}(x-1)^{2}$ over $[1, 3]$, and bidder $2$'s value is distributed according to $\text{exp}(\frac{2}{3}x - 2)$ over $[0, 3]$. Show that $\beta_{1}(x) = x - 1$ and $\beta_{2}(x) = \frac{2}{3}x$ constitute equilibrium bidding strategies in a first price auction.

I am trying to work on deriving $\beta_{1}$ and $\beta_{2}$. Unfortunately, my knowledge of differential equations isn't terribly strong. Would someone be able to double check my work and let me know if I have logic errors? I have derived the correct bidding functions, but am not entirely confident my work is sound.

First, suppose the equilibrium bidding functions $\beta_{1} : [1, 3] \to \mathbb{R}_{+}, \beta_{2} : [0, 3] \to \mathbb{R}_{+}$ are strictly increasing and differentiable. Define $g_{1}(x) = \beta_{1}^{-1}(x)$ and $g_{2}(x) = \beta_{2}^{-1}(x)$.

Player $i$ with valuation $v$ can only vary his bid, so he seeks to find the optimal bid given by the optimization problem below.

$$\max_{b} F_{-i}(g_{-i}(b)) \cdot (v - b)$$

We consider the First Order Conditions:

$$F_{-i}(g_{-i}(b)) = \dfrac{f_{-i}(g_{-i}(b))}{\beta_{-i}^{\prime}(g_{-i}(b))} \cdot (v-b)$$

At equilibrium, $v = g_{i}(b)$. Applying this and noting $\dfrac{1}{\beta_{-i}^{\prime}(g_{-i}(b))} = (g_{-i}(b))^{\prime}$, we have:

$$(g_{-i}(b))^{\prime} = \dfrac{F_{-i}(g_{-i}(b))}{f_{-i}(g_{-i}(b))} \cdot \dfrac{1}{g_{i}(b) - b}$$

Plugging in each $F_{i}$, we obtain:

$$g_{2}^{\prime}(b) = \dfrac{3}{2} \cdot \dfrac{1}{g_{1}(b) - b}$$

And:

$$g_{1}^{\prime}(b) = \dfrac{1}{2} \cdot \dfrac{g_{1}(b) - 1}{g_{2}(b) - b}$$

At equilibrium, we have $\beta_{1}(3) = \beta_{2}(3)$. By individual rationality, $\beta_{2}(0) = 0 \implies g_{2}(0) = 0$.

While I could obviously use the problem statement that $\beta_{1}(x) = x - 1$ to conclude that $g_{1}(0) = 1$, I don't know how to justify this boundary condition independently. Does anyone have any insights into this?

Assuming this boundary condition though, I note:

$$g_{2}^{\prime}(0) = \dfrac{3}{2} \cdot \dfrac{1}{1 - 0} = \dfrac{3}{2}$$

From here, I can wave my hand and guess that $g_{2}^{\prime}(b) = \dfrac{3}{2}$, which would imply $g_{2}(b) = \dfrac{3}{2}b$. I'm not sure how to formally derive this though. Would anyone have insights into this?

Once I have $g_{2}(b) = \dfrac{3}{2}b$, I can plug into $g_{1}^{\prime}(b)$ to get:

$$g_{1}^{\prime}(b) = \dfrac{1}{2} \cdot \dfrac{g_{1}(b) - 1}{\dfrac{3}{2}b - b} = \dfrac{g_{1}(b) - 1}{b}$$

Which is a first order linear differential equation, whose solution is:

$g_{1}(b) = b + 1 \implies \beta_{1}(v) = v - 1$.

And we have $\beta_{2}(v) = \dfrac{2}{3}v$.

My work is certainly a little hand-wavy. I would greatly appreciate any help in solidifying the details. Thank you in advance for any help!


texts: What would be the effect on a tax on business cash flow instead of on income?

texts:
This came up in a pub discussion.  (yes, it was good beer...)

Suppose that instead of taxing companies on the net income they make, they were taxed at a much lower rate on cash flow, with no deductions for anything at all.

It would play hell with the financials market because every stock and bond transaction will be nibbled, so there would enormous pressure to buy and hold, compared to quick turn around.

It would affect mass market goods more than services.  Mass markets tend to run on fairly low margins, compared to services.

The lack of any deductions would be interesting.  Not sure what effect that would have.

It would be very simple, so a whole bunch of very smart people who have been working hard to keep a nickel out of the government's pocket could devote their talents to something else.


texts: Perturbing distributional strategies on a measure zero set

texts:
In the context of a Bayesian game, $\Gamma = \left< (\Theta_i,\mu_i)_{i \in N}, (A_i)_{i \in N}, (u_i)_{i \in N}\right>$ where type of agent $i$ is drawn from $\Theta_i$ according to a probability measure $\mu_i$, recall that a distributional strategy $\sigma_i$ is a probability measure on $\Theta_i \times A_i$ such that the marginal on $\Theta_i$ is $\mu_i$.

Let $(\sigma_i)_{i \in N}$ be a Bayes Nash equilibrium of $\Gamma$.

If $\sigma_i^{'} = \sigma_i$ almost everywhere, is $(\sigma^{'}_{i})_{i \in N}$ also a Bayes Nash equilibrium of $\Gamma$?


texts: Would directing more money to science and research and development be an effective response to recessions?

texts:
Typical responses to recessions is to follow Keynesian economics and support demand. Would directing money towards science and research and development be a better long term solution to recessions because in the long run it will create new industries (that would drive demand higher) and drive costs lower (aka increase long run supply)?
I know innovation and technological progress are difficult and can take a long time to show benefits (for example the PC was invented in the early 70s but productivity due to computers didn't really jump until the 90s) so would this method be too slow to be effective?


texts: What does the elasticity of substitution between capital and labour mean?

texts: For example, if i have elasticity of substitution equal to 5 and 0.6 what does it imply about the capital to labor ratio? When it is 5 does it imply that it is easier to replace labor with capital. As a result, the capital labor ratio goes up? For 0.6 it is vice-versa?


texts: How do you strategically vote to put someone in last place?

texts:
I watch a dumb reality TV show which has a certain number of contestants to start with, and every week one contestant is eliminated.  Here's how the elimination process works.  Every week a certain number of contestants is nominated for elimination.  And then viewers get to vote online on who they want to save from elimination.  (A viewer can only vote to save one person.). Whoever gets the least votes gets eliminated.

I'm interested in how to vote strategically in this process.  Now if I feel strongly about wanting someone not to be eliminated, it's clear what I should do: cast a vote to save them.  But my question is, what should I do if I feel strongly about wanting someone to be eliminated?

I think the answer is that I should vote to save whichever contestant I expect to receive the least votes out of the contestants other than the one I want eliminated.  That way, if there's a tie between that least popular contestant and the one I want eliminated, I'll break the tie and succeed in getting them eliminated.  (I think it's generally true that if voting is rational, the rational way to vote is the way you would if yours was the tie-breaking vote.) Is that right according to game theory?


texts: How to determine demand without the price of a good?

texts:
If I have the utility function of an individual that exhibits perfect substitutes, think (U=ax+by), and I'm given the price of good x and the budget M, then how am I supposed to determine the demand for good Y if I don't have the price of good Y?

I know for Cobb-Douglas style utility functions the optimal choice of good Y is given by Y=BM/price of good Y


texts:
How could I decide from a variable exactly, that is stock or flow type?

  Variables, which are measured at a point of time are called stock
  variables whereas variables measured over a period of time are flow
  variables. This means that stocks are non-recurring in nature whereas
  flows are recurring in nature.

I found, that number of unemployed people is stock and amount of salary is flow. As I know, salary is a fixed amount of money, but number of unemployed people can be changed really fast.


texts: What's special about Cobb–Douglas utility relative to the rest of the CES family?

texts:
My question concerns CES utility functions, which have the form
$$u(x) = \left(\sum_{j=1}^n a_j x_j^{\rho} \right)^{1/\rho}$$
for utility parameters $a_j$, an elasticity parameter $\rho$, and some allocation of goods given by $x$.
When $\rho=1$ we have linear utility,  or perfect substitution, with $$u(x) = a^T x$$ The level sets of $u$ are straight lines, and it is always possible to achieve the same utility by exchanging one good for another in some fixed ratio. I can see this arising in real life: Two bags of flour are perfectly interchangeable, and the only thing that matters to the buyer is their size and cost.
When $\rho \to -\infty$ we have Leontief utility, or perfect complementarity, with $$u(x) = \min_j a_j x_j$$ The level sets of $u$ are L-shaped, and  optimal utility is always achieved by purchasing goods in a  target ratio given by $a$. This also makes sense: If I am making a recipe that calls for two units of egg for every unit of sugar, having twice as much sugar makes no difference unless I also have twice as much egg.
Most situations are more complicated than this, however, and the nice thing about the CES form and its $\rho$ parameter is that it lets us capture situations that don't sit at one of these extremes. A baker can replace sugar with brown sugar, but not arbitrarily. Setting $\rho$ to some value between $1$ and $-\infty$ captures this imperfect substitutability. But the precise value of $\rho$ depends on the situation at hand: if the ingredients are pretty good substitutes, maybe $\rho = 0.8$; if they are fairly poor substitutes, maybe $\rho = -10$.
If we take the limit as $\rho \to 0$, we get a utility function that has a nice name,
the Cobb–Douglas utility function. It also has a nice form:
$$u(x) = \prod_j x_j^{a_j}$$
But is there anything that's truly special about this case?
From my standpoint, it looks like the Cobb–Douglas utility is just one arbitrary point along the continuum running from linear to Leontief. Perhaps it gets a name because it was discovered before the generalized CES family, but I can't see why there's anything especially meaningful about it beyond the simplicity of the form. Is this argument fair?
Is there a reason why we might assume $\rho$ is close to zero if we have ruled out the linear and Leontief cases?
Does Cobb–Douglas utility correspond to an "idealized" situation like the flour or egg/sugar examples above?


texts: How does the central bank changing interest rates change interest rates in the commerical banking sector?

texts: I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the federal funds rate changes the interest rate charged by commercial banks, e.g. Bank of America, Wells Fargo, etc.


texts: How to get the 3-digit SIC code from Datastream and merge ISIC to SIC?

texts:
When merging an ISIC-related dataset (dataset A) to a SIC-related Datastream dataset (Dataset B), I faced a problem with the three-digit SIC code.
Dasgupta,2019 shows how to match these two datasets:

Export data used to construct Export market leniency laws measure
comes from CEPII TradeProd Database that has bilateral trade flows for
more than 200 countries at ISIC industry level over 1980-2006. We
match them to the three-digit SIC and average over the respective
values within the three-digit SIC in case multiple three-digit ISIC
codes match to three-digit SIC codes.

I have a couple of questions as below:
1> How to get the 3-digit SIC from Datastream. Thompson Reuter described that item WC07023 is SIC Code 3, but when looking at this, I saw mainly 4-digit code. I show a part of my dataset B as below

As can be seen, in column WC07023, even column WC07022 (SIC Code 2), we have 4-digit codes rather than three.
And this is the ISIC 3-digit code from the dataset A

2> And could you explain to me the author's approach based on this sentence, it is quite ambiguous to me:

We match them to the three-digit SIC and average over the respective
values within the three-digit SIC in case multiple three-digit ISIC
codes match to three-digit SIC codes.


texts: Why we use revealed preferred condition in GARP instead of directly revealed preferred?

texts: The definition of revealed preferred seems like coming out of nowhere. Why there's a string of direct revealed preferences lie between? Can we use directly revealed preferred in GARP condition ------GARP says that if $x \succsim_{D} y$, $y \nsucceq_{D} x$?


texts: Methods or models to predict activity of clients of a bank?

texts:
I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious about it. The thing is I don't know where to find information about this. Is there a name for such type of analysis? Can you recommend any good book to learn such methods?

EDIT (19/11/15)

In particular I'm interested in methods to predict the activity of the clients, say we know their banking movements and we want to know who of them will no longer be active the next month/year, for example.


texts: Is Bayes correlated equilibrium relevant for dynamic games?

texts:
Consider the following classification of solution concepts

                   ║      static                dynamic         ║
 ==================+===================+========================+
  perfect info.    ║ Nash equil.       | subgame perfect equil. ║
                   +-------------------+------------------------+
  incomplete info.  ║ Bayes Nash equil. | perfect Bayes equil.   ║
 ==================+===================+========================+

I am wondering where Bergemann and Morris' Bayes correlated equilibrium fits in this table.

Some context

Based on the name, it seems that Bayes correlated equilibrium (BCE) is the incomplete information analogue of correlated equilibrium (a solution concept for static games), which seems to imply that BCE is a solution concept for the class of static, incomplete information games (lower left spot of the table).

The discussion in the Bergemann and Morris paper is focussed on how "signals" influence players' beliefs throughout a game. As far as I understand, signaling is only a concept that appears in dynamic games of incomplete information, which seems to imply that BCE is a solution concept for dynamic games of incomplete information (lower right spot).

Furthermore, the following statement on page 5 of the same paper states:

  Lehrer, Rosenberg, and Shmaya (2013) study solution concepts which are intermediate between Bayes correlated equilibrium and Bayes Nash equilibrium, and provide partial characterizations of how the set of equilibrium outcomes vary with the information structure.

The topic of the Lehrer paper is again related to signaling. This seems to further imply that BCE is a solution concept for dynamic games.

Question: Is Bayes correlated equilibrium a relevant solution concept for dynamic games of incomplete information? If not, has anyone generalized the notion to dynamic games?


texts: What is Economic Interpretation of three nonlinear equations?

texts:
I have the following nonlinear system

$w$ is wealth

$c$ is consumption

$r(w)$ is gross return on wealth

$a,b, d$ are parameters which are strictly positive and fixed.

$$\dot{w} =r(w)w-c$$

$$\dot{c}= a(w-b)$$

$$r(w)= 1+{d\over w^2}$$

I would like to make economic interpretation of these three equations.

—————

I can just say that

$${\partial r(w) \over \partial w}=-2{d\over w^3}<0$$ which means that as wealth increases, $r(w)$ will decrease.

$${\partial \dot{w}\over w} = {\partial r(w) \over \partial w}w+1+{d\over w^2} = 1-{d\over w^2}$$

which is positive if and only if $w>\sqrt{d}$.

So, under the condition $w>\sqrt{d}$, ${\partial \dot{w}\over \partial w} >0$ Which means that as wealth increases, $\dot {w}$ increases as well.

${\partial \dot{w}\over \partial c} >0$ Which means that as consumption increases, $\dot{w}$ decreases.

${\partial \dot{c}\over \partial w} >0$ Which means that as wealth increases, $\dot{c}$ increases as well.

——-

I have done these. Please share your opinions about interpretation. What is the economic meanings of these calculations?


texts: The decline in the number of domestic servants

texts:
does it mean that the market mechanism does not work—that the offer
of the going rate of wages does not secure a servant because servants
do not move to the highest bidder? This complaint—which would
be far from unanimous—would have economic significance because
it would imply that wages do not allocate servants: there is, however,
little empirical support for it.

From "Domestic Servants in the United States, 1900-1940" by George Stigler.
Did the number of domestic servants decline during the second half of the 20th century, and if so, what are the possible explanations for this decline?
Please post answers with academic references only.


texts: Proof that utility is nonincreasing in prices

texts:
The following is a proof that the indirect utility function is nonincreasing in prices, but I can't understand the last step. How do they conclude that $v(p_1, y) \ge$ from the previous reasoning?

  Consider $p_0\ge p_1$ and let $x_0$ solve the utility maximisation problem when $p = p_0$. Because $x_0\ge 0$, $(p_0 − p_1) · x_0 ≥ 0$. Hence, $p_1·x_0 ≤ p_0·x_0 ≤ y$, so that $x_0$ is feasible for the utility maximisation problem when $p = p_1$. We conclude that $v(p_1, y) ≥ u(x_0) = v(p_0, y)$.


texts:
From what I understand, the basic cost function looks like
$$C(x_i)=\sum_{i=1}^{n}w_ix_i$$

What I'm wondering is whether or not its possible to create a non-linear cost function which adjusts based on the bundle consumed.

Example:

Lets say we have a discrete case where our  bundle price changes based on the combination of goods in a non-intuitive way. as seen in the table below.
$$\begin{array}{|c|c|c|c|}
\hline Bundle\ Price&x_1&x_2&x_3
\\\hline 5&1&1&0
\\\hline 10&2&1&0
\\\hline 15&2&2&0
\\\hline 25&2&3&1
\\\hline
\end{array}$$

We see such pricing methods employed in a number of commercial businesses.

How does one model such a case1?

1. I would appreciate an answer that is more theoretical and does not rely upon regression , however if that is the only way to get an estimate i'll take it.


texts:
Under deposit insurance, if my bank goes bankrupt, the government reimburses my deposit up to a specified maximum.

Do banks pay for this insurance, and does it depend on their risk-taking?  If not, what is to stop banks from taking very high risks with deposits from private citizens (the ones unimportant enough to be below the threshold), knowing that the government takes the risk (and will likely opt to rescue the bank rather than repay all account-holders, should the bank fail)?

(Relevant: two main problems with deposit insurance)


texts: What is the returns to scale of the production function q = min {K, L^(1/2)}?

texts:
I learned that when there is decreasing returns to scale, the average cost is always increasing.
But the professor told us today that the other way around might not always be true. So if average cost is increasing, it might not necessarily mean that there is decreasing returns to scale.
The production function $q = \min \{K, L^{(1/2)}\}$ was one he gave us as something to think about as a possible counterexample.
we assumed that the input prices are 2 for capital and 1 for labor.
If we solve for this using cost minimization, we get $C(q) = 2q + q^2$ and the $AC(q) = 2 + q$ which is an increasing function.
And if I input $kK, kL$ in the production function where $k > 1$ , then the function becomes
$q = \min \{kK, (kL)^{1/2}\} = \min \{kK, k^{1/2} * L^{1/2}\}.$
How do I know what returns to scale this is showing?
if the min function was simply $q = \min \{ K, L \}$, then I could definitely tell that this is showing constant returns to scale since $\min \{kK, kL\} = k*\min\{K,L\}$,  but how do you mathematically solve for returns to scale for a function like the one above, $q = \min \{K, L^{1/2}\}$ ?
I don't know what step to take next after arriving at $\min \{kK, k^{1/2} * L^{1/2}\}$. I don't know what to extract out of the min function from this point on.
I would appreciate advice on how to continue to determine the returns to scale for this kind of example.


texts: Have Raj Chetty's Opportunity Atlas stats changed or been recalculated since early 2019?

texts:
During a talk at Google, Raj Chetty said "Fruitvale, in Oakland ... here you see that for black men growing up in low income families in Fruitvale, the average income in adulthood is 5,600 dollars" (see https://youtu.be/X2YzxpWKKz4?t=844).

However, at https://www.opportunityatlas.org/, I appear to see 15,000 dollars for the same statistic (note the selections for parent income, child race and child gender at the top right of the screenshot):

Have the numbers changed?  Has the methodology been adjusted?  What explains the difference?

I noticed a similar discrepancy related to incarceration rates:

During the Google presentation, Raj Chetty says "43% of the black men who grew up in this particular neighborhood [Fruitvale] are incarcerated ... on the date of the 2010 census", but Opportunity Atlas (viewed in December 2019) gives 17% for the same incarceration rate statistic.


texts: I have a large residential mortgage portfolio that has fixed and arm mortgages. I want to roughly calculate the amortization of the arm portfolio by year without delving into loan by loan calculations. Would that be possible to go by using weighted average margins, maturities, some assumptions on prepayment rate and index rate?


texts:
Suppose there are players on the network illustrated on the right (with 1 player on each vertex).

There are two players $H$ and $J$ that are on the ends of the green line. $H$ plays $A$ and player $J$ plays $B$. Players to the left of $H$ also play $A$ and to the right of $J$ each plays $B$.

Player $H$ deviating won't infect those to the left of $H$ iff $$x+w>y+z$$

Moreover, player $J$ defecting won't infect those to the right iff
$$4y+z>4w+x$$

Does this mean that $A$ is risk dominant for those to the left of $H$ and $B$ for those to the right of $J$?

Risk dominance: if a player had a uniform prior
over other players’ plays - so an equal chance of each other player playing A or B, then the risk dominant strategy would be the best expected payoff maximising choice for the player. I guess this is both satisfied for each case considered above. In the first case, one connection plays $A$ and the other $B$, so this gives a $0.5$ probability, and the risk dominant strategy should be played.


texts: What does "to be in the double digits to get inflation" mean?

texts:
Until last year, the Chinese government set 8 percent annual growth as a goal, and the economy frequently delivered several percentage points more than that.
  Then last March, the government pared the goal to 7.5 percent, and actual growth seems likely to be little higher.
  “The potential growth rate of the economy has come down,” Stephen Green, a China economist in the Hong Kong offices of Standard Chartered, said Sunday. “You don’t have to be in the double digits to get inflation.”
  Prices rose faster in December, according to government data released Friday. Consumer prices rose 2.5 percent from the level of a year earlier, their fastest pace since May.
  China Again Is Growing, More Slowly

Hi, I read this article and I do not understand what "be in the double digits" means here.
Could you please help me?
Thank you.


texts:
Consider a simple Keynesian economy in which the government expenditure ($G$) exactly equals its total tax revenue: $G = tY$ where $t$ is the tax rate and $Y$ is the national income. Suppose that the
government raises $t$. Then what happens to $Y$?.

My working: With the balanced budget multiplier in effect $Y$ becomes equal to $\frac I {(1- c) (1 - t)}$

However without the balanced budget in effect ( when taxes are increased over government expenditure), $Y$ becomes equal to $\frac {I + G} {1 - c(1-t)}$
Is the working right ?. How should I proceed in order to come to a solution ?.


texts: Understanding the effects of government deficit on international trade

texts:
Understand that I'm a total novice with regard to economics.  Also, while I ultimately have an axe to grind (doesn't everyone?) I'm not trying to do that honing here, I'm simply looking for a sanity check on my "logic" (such as it is).  I don't propose to discuss political implications here.

President Trump is proposing a "tax reform" package that is roughly estimated (based on two separate sources I found) at about $5T over 10 years.  Let's assume that the cost of this package is not significantly offset by spending cuts (at least not cuts that would exceed proposed spending increases in other programs).  So it's reasonable to assume that basically the entire amount would be borrowed, through Treasury securities and similar instruments.

Here it gets a little shaky.  Several sources tell me that foreign sources own about 1/3rd of the US government debt.  While it's obviously difficult to predict how much of the new debt would be purchased by whom, it's a reasonable spitball estimate to assume that about a third would be sold overseas, assuming interest rates remain at least as high as they are currently, and barring any significant change in overseas perceptions of the soundness of US securities, or of the US economy in general.

This means that foreign sources must come up with about $1.7T in US currency over ten years, thus removing the ability of that much US currency to purchase goods and services from the US (or benefiting from that much US currency being paid out of the US to buy foreign goods and services).

(The objection will be made that money is, uh, fungible, and so currencies other than US currency can be used to purchase US goods.  But if I spend my US dollars on T-bills then I will have to convert my rubles to dollars if I want to spend more dollars on US goods and services, and that conversion drives up the "cost" of the dollar, making US goods and services less "attractive".  When it balances out the net-net is to have removed that much US money from the pool of cash available to fund US exports.)

The cost to "create" a job in the US seems to be variously estimated at between \$40K and \$100K a year.  (I couldn't find any sources that were clear and explicit enough to be worth referencing, alas.)  (Most such estimates appear to be orientated towards tech sector jobs, and presumably manufacturing jobs would be "cheaper".)  But let's say that a job "costs" $50K/year -- we are "spitballing", after all.

So, dividing the \$1.7B by \$50K times ten years, I come up with 3.4 million jobs lost for a period of ten years, due to the proposed tax cuts.

Where is my "logic" here weakest?  Is my spitball aim terribly off anywhere?  Are there fatal flaws, or is it simply too fuzzy and "out there" to assess without losing your lunch?

Note: I'm trying to understand the above (presumed) effect in a vacuum of sorts, without considering any of the counterbalancing benefits of deficit spending and related issues.  Basically, I'm only looking for criticisms of my "math", and a "but you forgot about ..." answer is only relevant if it somehow modifies or negates that "math".  Yes, deficit spending has supposed benefits, but I'm not asking about that.


texts: I have been reading a paper by Bove & Elia (2011), where they quote a definition of the value of statistical life from Bellavance, Dionne & Lebeau (2009). I have tried making my peace with the necessity of this concept, but I have been rather confused by the used definition. It says that the value of a statistical life is a function of the willingness to pay to reduce the risk of death and the risk of death itself. However, the risk of death reduces the value of a statistical life. Why would it do that? Is it a weight as in an NPV calculation, where the risk of default reduces the expected cash flow?


texts: Optimal taxation and substitute commodities

texts: Reading Ramsey's paper: a contribution to the theory of taxation. It says that when we are dealing with rival goods we look if the tax that is going to be applied leave unchanged the proportions in wich these goods are consumed. Alike Ramsey presents that in order to avoid evasion by consume another good that it's no taxed. The tax must be applied in the commoditie that is least elastic. Taking into account the above, What happened when we are dealing with substitue commodites? Does the supposed that the consume of a good depends only of its price is still standing?


texts: The instrument in "The Colonial Origins of Comparative Development"

texts:
I am hoping to understand when an instrument is appropriate. For the purposes of this question, I'm considering a simplied version of the model in AJR (2000):
$$\begin{aligned}\text{GDP} &\sim \text{Exprop} + \text{Latitude} \\
\text{Exprop} &\sim \log{\text{Mortality}} + \text{Latitude}\end{aligned}$$
My questions are:

Does latitude need to be included? (If we believe that latitude has a causal effect on settler mortality, expropriation, and GDP, then my guess would be yes, since leaving it out would leave a correlation between log mortality and the residuals of GDP, through the effect of latitude?). Similarly/in general, would we need to control for anything that could possibly affect both the instrument and the outcome?
Do we need to assume that the entire causal effect of log mortality on GDP is mediated through expropriation? Would it not be an appropriate instrument if the log mortality -> GDP causality could be mediated through something else (e.g. genetic diversity, folk traditions not related to institutions, etc)?


texts: When should a company's revenue and share price grow faster or slower than the economy?

texts:
I was listening to a famous investor discuss an investment of his in an interview. He had bought shares in a bank that was quite successful, though it was a small bank. The bank is based in a highly under-developed country with a massive population. This country's economy has a high rate of growth (about 8%).

The investor made an interesting comment. He said,

  "of course, the bank is going to grow at 3x the growth rate of the
  country's GDP."

He didn't offer any further reasoning for this. And it wasn't clear whether he meant the bank's revenues or its stock price are going to grow at 3x.

However, this led to me thinking about an interesting issue that I had never considered before.

There must be some kind of model which helps us predict whether a company's (1) revenue and (2) stock price will grow faster or slower than the overall economy.

What are some of the variables and considerations in this model, and in what direction do they act (e.g. do they grow or reduce (1) or (2))?


texts: How can I use national accounts to estimate individual carbon footprints?

texts:
It’s easy to compute per capita greenhouse gas emissions for a country. I’d like to determine the proportion of this that is under the control of individual consumers, in the sense that they can choose to reduce it by changing their consumption decisions. (Which I am calling a ‘footprint’ here for lack of a better term, though in general the word is ambiguous.) So for example:

a car bought by a consumer is included in the footprint
Government spending on health is not

The latter does scale with the population, but at the margin the consumer has no option over whether to pay taxes & so no control over spending on health.
Assume for simplicity that each $1 of production has the same carbon intensity.
To a first approximation, consumption seems like a good scaling factor to go from per capita emissions to individual footprint. I can see problems, though:

If consumers save more via company shares or bonds, companies will increase investment, with associated carbon costs. I suppose consumers could avoid this by buying govt bonds, but the topic generally confuses me.

As I understand it, National accounts map all consumption by businesses onto consumers or the government. (Is that right?) But that doesn’t seem to distinguish between variable costs, which should correspond to embedded emissions in some final product & so be counted in individual footprints (as defined above) & fixed costs, which will not at the margin be affected by consumer choices.

I’d be grateful for any thoughts on how to do this right.


texts: The United States' position on the Laffer Curve

texts:
According to a 2012 IGM panel (cf. reference below), most experts believe that a federal income tax cut would lead to a higher GDP in five years, ceteris paribus. Is this effect purely Keynesian, and based on a presumption that the U.S. was still recovering from the recession and that greater fiscal stimulus was called for, or does it truly reflect a belief among the majority of mainstream economists that the U.S. federal tax regime is sitting on the wrong side of the Laffer curve as the title indicates?

Source: http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_2irlrss5UC27YXi


texts: Recover cost function from profit function

texts:
How do I recover the cost function from the profit function?

Suppose I have $$ \pi(p, w_1, w_2) = p^3 \cdot w_1 \cdot w_2 $$.

How do I get the cost function?

Using Hotelling's lemma I get the supply function: $$ y_s(p) = \frac{\partial  \pi(p, w_1, w_2)}{\partial p} = 3 p^2 \cdot w_1 \cdot w_2$$ and the input demands:
$$z_1(p, w)= - \frac{\partial  \pi(p, w_1, w_2)}{\partial w_l} = - p^3 w_2 $$ and $$z_2(p, w)= - \frac{\partial  \pi(p, w_1, w_2)}{\partial w_2} = - p^3 w_1 $$but what is the next step?

Note that the functional forms are hypothetical and highly probable to be invalid.


texts: How to explain these two discrepancies between BLS OES wage data and salaries of pro athletes?

texts:
I refer to the Occupational Employment Statistics published by the US Bureau of Labor Statistics, May 2015 edition.

Under occupation title "Athletes and Sports Competitors" (27-2021), we have the following figures:

  Total employment: 11,710.

  Mean annual wage: $\$80,490$.

  Annual 75th percentile wage: $\$89,780$.

The first two of the above statistics imply that total wages paid out to these 11,710 workers was 11,710 × $\$80,490$ = $\$942,537,900$ or a bit under $1b.

But there is a discrepancy between the above figures and the salary figures across the four major US professional sports leagues. The following are the latest annual salary figures from various sources (these shouldn't be too inconsistent from salaries a year or two earlier).

  MLB: 862 players, of which all 862 make at least $\$507,500$. Total salaries = $\$3,781,920,218$.

  NHL: 1719 players, of which all 1719 make at least $\$117,300$. Total salaries = $\$3,524,086,505$.

  NBA: 545 players, of which 505 make at least $\$100,000$. Total salaries = $\$2,942,055,947$.

  NHL: 767 players, of which 766 make at least $\$216,666$. Total salaries = $\$2,142,999,943$.

So there are at least two discrepancies:

1. The BLS says that the total annual wages paid to 11,170 "Athletes and Sports Competitors" was less than $\$1$b.

But in the four major professional sports leagues alone, over $\$12$b is paid out to 3,893 players.

2. The BLS says that the athlete at the 25th percentile (out of 11,170 workers) makes only $\$89,780$. This means that workers #1 — #2927 make $\$89,780$ or more, while workers #2928 — #11,170 make $\$89,780$.

But in the four major professional sports leagues alone, 3,852 players make at least $\$100,000$.

So far I've thought about (and ruled out) two possible explanations for the above discrepancies:

Top-coding of salaries.

This might explain the low estimate for mean annual wage. However, this would fail to explain why the 75%-ile wage is listed at only $\$89,780$.

"Athletes and Sports Competitors" does not include professional athletes.

But this is not consistent with this BLS webpage description of this category of work. There is a photo of a professional-looking baseball player and also this sentence: "Competition for most professional athlete jobs will remain very strong."

Another possible occupation title under which professional sports athletes might fall is "Entertainers and Performers, Sports and Related Workers, All Other" (27-2090, 27-2099), but here again we run into the same trouble. There are only 14,570 workers in this category and the 90th percentile hourly wage is only $\$36.35$.

I'm unable to think of any other explanation. I'd appreciate help from anyone who is more familiar with how the BLS OES are collected and calculated.

All data and sources used above are collected here.


texts:
In Thinking Fast and Slow Kahneman explains that people can sometimes save less because they underestimate the future benefit to themselves because they view present and future self differently. I learned elsewhere that this cognitive bias is called hyperbolic discounting. If I understand correctly this will affect young more than old because old person's future self is much closer to present self.
My question:
Are there any other cognitive biases that might decrease saving?  Also, are there some cognitive biases that affect saving of young more than saving of old? I would like to know more about this topic so please provide references if possible.


texts:
I am interested in economics from the perspective of mathematical physics and complexity theory. An important set of systems in complex systems are systems that are Turing Complete and are cases of universal computation.

This raises the issue of whether a virtual Turing Computer can be constructed in economics. Can accounting be considered a case of a universal computer? I find it interesting that the Ethereum cryptocurrency's support for smart contracts is Turing Complete.


texts: connection between foreign assets and trade surplus / deficits

texts:
I am reading Piketty's "Capital in the 21st Century" and in Chapter 5 he writes

"Furthermore, the evolution of a country's net foreign asset position is determined not only by the accumulation of trade surpluses or deficits but also by very large variations in the return on the country's financial assets and liabilities."

I am having difficulty understanding this statement. Specifically I do not see why there is necessarily a relationship between foreign assets and trade surpluses / deficits. It seems that country X needing nothing from the rest of the world can make a lot of coffee and sell it to country Y, running up a large trade surplus. This activity does not seem affect in any way the balance sheet of foreign assets. Nation Y buying the coffee does not own anything in country X, since the coffee sits in country Y upon completion of the purchase. Some goes for country X, since the currency it receives from Y would sit in country X.
Does possession of country Y's currency by country X constitute a foreign asset owned by country X?


texts:
I'm reading Ray Dalio's How the Economic Machine Works, and although I understand the role of credit in an economy, I don't understand whether credit actually adds any value to an economy.

Ray says that credit is what causes economic cycles (i.e. people borrow and invest when interest rates are low, and save when interest rates are high). This behavior leads to short term debt cycles in the economy.

However, Ray also says that these short-term cycles are centered around a long term productivity growth of around 2%.

So my question is as follows:
If productivity will always grow at around 2%, what is the point of credit? Aren't you simply borrowing from the future, and then subsequently paying off those debts? Would economic growth be the same without credit? Would the economy be as efficient?

Thanks

Edit: Here's the paragraph that I'm confused about. Is this paragraph saying that credit doesn't add anything to an economy (since long-term productivity growth is the same regardless?)


texts: Capital asset pricing model (CAPM) applied to countries

texts:
I'm struggling on trying to find a beta for an equially wighted profolio for three countries (A, B,C).

All the data I'm given are montlhy retunrs of each countrys market indexes and risk free rates for each one as well.

I know whow to apply CAPM to a given set of shares and use a national index (such as the S&P500) in order to calculate betas fo each share, however in this case I have multiple risk free rates an multiple return on indexes so I don't know how to use each piece of information when trying to apply the CAPM.

I'm not using covariance method, but an Excel regression on $x = rm-rf$ and $y = ri-rf$


texts: Why $nominal$ interest increases when inflation is expected to increase?

texts: Why is it that if lenders expect higher inflation in years to come, they will most likely increase $nominal$ rates of interest opposed to $real$ rates of interest?


texts: Do outputs of a country produced outside its borders contribute to its citizens' well-being?

texts:
For example, a Japanese automobile company of which manufacturing factory located in China. Do the outputs produce from the factory located in China contribute to the well being of the Chinese people or the Japanese people?

Why do outputs of a Japanese company manufactured in China counted in China's GDP instead of being counted as exports from Japan to China?


texts: Inverse/negative relationship between investments and interest rate

texts:
The investments (I) have a negative relationship with interest rate (r)
$$
I = e-f \cdot r.
$$

So $e$ can be interpreted as a minimum level of investments while $f$ can be interpreted as how much the interest rate (r) affects the investments (I) negatively.

I don't understand why an increment in interest rate (r) implies a negative effect on the investments (I).

I thought that my investments would become more valuable if the interest rate increases, so from my point of view, people would be more interested in investing if the interest rate increases.

I guess I have misunderstood something.


texts: The law of demand holds that ceteris paribis, a decrease of demand can be caused by an increase in price. However, it is also true that when demand decreases, the price will decrease, it will fall. How can one explain this seeming contradiction? I know it's because of the invisible hand of the market forces, but can I don't know how to specifically explain what is that makes this make sense, and ensures that it is not contradiction with the law of demand. Can someone please explain?


texts:
I had been searching for the GDP data of China and finally found it here.

The dataset gives the log real GDP data from 1992 (annual, quarterly and monthly). It doesn't specify the base year of the data, all it says is
"Implicit price deflator for GDP by value added, 1992Q1-", for the GDP deflator. Is there a way to find the base year for the real GDP data?


texts: What country has the highest requirements for loans?

texts:
I was looking to find countries with the toughest regulations on loans(general loans not any specific ones)

By that I mean:
 I mainly care to know where it is toughest for people to get a loan from a bank.

To consider is:

•   where requirements are highest for people to qualify for a loan

•   where banks do the most thorough checks in a persons financial status (like SCHUFA in Germany)

•   where do banks have to pass the most audits and tests to prove their business is legit

I was looking at IWF Data but could not really get that sort of info from there.

I am basically looking to invest in Banks and want to find the best country to do that based on their banking infrastructure. I want to find lenders that make SURE their clients pay by setting the bar very high (I know that doesn’t mean they won’t default anyways)


texts: Does one include inflation when computing elasticity?

texts: I am attempting to compute the price elasticity of a good with the help of a time series, and am unsure whether to correct the prices for inflation. Is there a standard argument for one or the other option? I would also be grateful for a reference.


texts:
Calculate the substitution and income effects for the following utility function:

$$ u(x,y)=\frac{x^a}{a}+\frac{y^a}{a}$$

I know that we are supposed to use the Slutsky equation which accounts for the substitution effect minus the income effect however I am not quite sure how to solve it. The only thing which I know how to do is derive the $x$ and I will get $x^{a-1}$ but after I am not sure what to do.


texts: Financial manipulation and Inflation as tools for sovereign debt default

texts:
In the book This Time Is Different, by Reinhart and Rogoff, in chapter 8, the authors state that

Higher minimum level of reserves (?)
And/or upper bound/ceiling to interest rates ( will help increase real inflation rate... however, isn't the nominal rate that which matters most for defaults?)

coupled with surges in inflation were, at certain historical moments, used to default on sovereign debt.
I understand how inflation can be used to 'default' on debt, but I'm not getting how the financial measures stated above would help...


texts: How to pin down the bias and its/their sources in derived technical change indices?

texts:
Using the following CES function I backed out factor-augmenting indices $A_1$ and $A_2$ using OECD country level macro data. This process is akin to Solow's (1956) method for deriving technology residuals. I want to examine the bias in the direction of technical change by examining the temporal evolution of the factor-augmenting indices.

$$Y=[((A_1L^\alpha) K^{(1-\alpha)})^\sigma+ A_2E^\sigma]^{1/\sigma}$$

The elasticity of substitution parameter $\sigma$ is 0.1 (Estimated using MLE). $Y$ is GDP. $E$ is energy flow.

There is no evidence of trend in the two technical change indices until the last few decades of the sample. From there on, the labour-augmenting index grows rapidly. The other index augmenting energy declines gradually. This divergence in the indices coincides with the sudden energy price shocks.

It might look pretty obvious that there was a labour saving and energy using bias in technical change. Though, I am stuck at this point, how would I link the derived factor-augmenting indices with factor prices and factor ratios to impart the technical change biases in a systematic way?

I tried a slightly different formulation because of the nesting of the Cobb-Douglas function in CES. The evidence pointed out by @luchonacho
 in previous posts shows that Cobb-Douglas is not an apropriate fit to the data given that there is little potential for $K$ and $L$ to be perfect substitutes.

An alternative formulation could be
$$Y=[(A_lL^\nu+ A_kK^\nu)^\frac{\sigma}{\nu}+ A_eE^\sigma]^{1/\sigma}$$
However, estimating $\nu$ and $\sigma$ would not be easy due to the nonlinearities in the relationship. Thus, the first formulation was adopted. Any suggestions welcome! Alternative formulation, methods etc.


texts:
Suppose that, in addition to physical capital and labour, an economy requires a fixed factor and a non-renewable resource to produce the final good. Prove that an economy with these input requirements may still be able to sustain growth in the long run.

What I think is that

Using the concept of resource intensity, we can examine how economic growth, population growth, and the growth of non-renewable resource use are related. Define y as GDP per capita, L as the size of the population, I as resource intensity, and R as resource consumption. The definition of resource intensity is:

$$I=R/yL$$
$$R=IyL$$

Now we can rewrite this equation in terms of growth rates

$$\hat{R} = \hat {I}+ \hat {y} + \hat {L}$$ .

This equation says, for example, that if output per capita is growing at 1% per year, population is growing at 1% per year, and resource intensity is constant, then total resource use will grow at 2% per year.
The equation can also be turned around and used to illustrate how resource limitations affect economic growth. For example, assume that the quantity of a nonrenewable resource available for use is constant, as in the case of a renewable resource that is al- ready being exploited at the maximum sustainable yield. This assumption implies that Rn = 0. The previous equation can then be rewritten as:
$$ \hat {y} =-\hat {I}— \hat {L}$$ .

In this form, the equation says that for output per capita to have a positive growth rate, resource intensity must be falling faster than population is growing.

For other nonrenewable resources, the ratio of the ultimately recoverable quantity of the resource to current use is higher, but the same result holds: Eventually, if use continues as its current rate, the re- source will run out. Indeed, a moment’s thought makes it obvious that no rate of depletion of a nonrenewable resource is sustainable indefinitely. In the case of renewable resources, it is possible to sustain use indefinitely, but only at a limited level. If GDP is growing and resource use is already at the maximum sustainable yield, then resource intensity (the quantity of resource used per unit of output) must fall over time.

These considerations would seem to suggest that our current level of resource consumption may indeed not be sustainable. The question is: Does that mean that our level of income is not sustainable?
The answer to this question is a definitive no, for two reasons. First, even though the resources that we use now exist in fixed supply, there are frequently possibilities for substituting different resources. Second, although resource deple- tion is a drag on growth, other factors, most notably technological progress, may be sufficient to overcome this drag and allow income to keep rising. We address these issues in turn.

I think so. What do you think about this question? And what is fixed factor? I cannot include it.

Thank you


texts: Pareto efficient quantity of public good (quasi-linear preferences)

texts: I am doing a question on finding the Pareto efficient quantity of a public good. Instead of using the condition $\sum MRS_i = c'(G)$ where $c(G)$ denotes the cost of the public good, it asks you to find the efficient quantity by maximising the sum of the agents' utilities. Apparently this is only valid if preferences are quasi-linear so whilst I can do the question I do not understand why this is a valid approach. Any help on this matter would be appreciated.


texts: What would cause the velocity of money (V) to increase / accelerate (or at least stop falling)

texts:
Given that:

MV=PY

Or

P = (M)(V) / Y

Where M is the money supply, V velocity of money, P price level and Y real GDP

Considering that the current rate of M2 is increasing at 7% per year over the last 12 months, and real GDP is now forecasted to decelerate from 1.9%/year to maybe as low as .4% by the end of Q4 2019, (according to the Atlanta Fed), am I correct to assume, going forward, that even the slightest sustained increase in (V) would rocket inflation from our current 1.7% per year to something resembling an inflation rate of over 7% in the very near future?

My primary question is this: what event(s) or scenerio(s) can you think of that would cause the velocity of money (V) to start increasing / accelerating again; or at the very least, stop falling like it has over the last 9 years?

Would V be expected to increase as a result of a mass exiting of the stock market (frigtened stock market investors liquidating their retirement holdings into cash and then spending it)?

For instance, the stock market starts falling and worried baby boomers start cashing out their retirement accounts and then start spending it on things like medical care, prescription drugs, on retirement housing, vacations, RVs, ect?

Or maybe baby boomers start dying and their children start taking the inheritance money and spending it all on consumer goods; buying sports cars, electronics, vacations, boats, ect?


texts:
For one of our class project we are required to do the following:

  Download U.S. real GDP in data trapezoid form (vintages)

I tried to search online for what does the data in trapezoid form means but could not find any answer, the trapezoid form is not mentioned in the textbook either. Does anyone happens to know what that term means?

The brackets behind the term say "vintages" and I managed to find a lot of datasets with vintages of real GDP such as this one from Eurostat but I am not sure if "vintages" are the trapezoid form because in none of the datasets that mention GDP vintages there are any mentions for the "trapezoid form"


texts: How could Greece-related worries drive US stocks down about 2% in a day?

texts:
Major US stock indices are down ~2% on Jun 29, and it's mostly associated with investor's worries related to the Greece crisis.

I understand about possible "chain reaction" and that a lot of companies may be exposed indirectly to Greece debt.

But given that, it seems silly that investors think that because of this average US companies lose 2% in values. I mean, Greece is relatively a small country and it doesn't have a very close link to the US economy (unlike, say, Canada). Even if all Greek government and banking bonds evaporate, the impact of all those would still be way less than 2% of an average US company, right?


texts: Statistical distribution of firms by revenue in competitive market

texts:
I would like to produce a simple distribution of competitive market firms based on  their revenues. I know the number of firms in the market n, the total market revenue TR and, therefore, also the average revenue per firm.

I had the idea that I could bin revenues and apply the Poisson distribution to populate a distribution of firms in the market based on revenue. For example, 2 firms with $0 - $2 M in revenues, 4 firms with $2 - $4 M in revenues, etc.

Is anyone familiar with any research regarding the distribution of firms' revenues in a competitive market that would provide guidance or confirmation of doing something like this?


texts: Is the definition of Investment variable in Economics?

texts:
I studied that Investment is the expenditure incurred on the procurement of such goods that would help us in production of goods and services.
And mainly consists of Fixed and Inventory Investment

Is this the only definition of investment in economics ?
Or definition of investment changes when we talk about different concepts ?


texts: Revelation principle when the type space is infinite

texts:
Consider a mechanism design problem in which the agents have type spaces that are uncountably infinite. I have a couple of questions which are numbered throughout this post.
The revelation principle states that any outcome that can be achieved by an indirect mechanism (where agents report something other than their types) can be achieved by a direct mechanism where agents report their type truthfully. This seems to introduce some practical issues when the type spaces are infinite.
(Q1) Does the revelation principle still apply when agents are unable to actually report their types to the mechanism?
Regardless, I understand that the revelation principle still has value from an analysis perspective. Presumably, one can envision a situation in which the mechanism has access to the true infinite types of each agent, and evaluate outcomes in this situation. Applying the contrapositive of the revelation principle: if we can't achieve a desired outcome in this situation, then there is no indirect mechanism in which the desired outcome can be achieved.
Back to the practical issue at hand. When it comes to implementation, we cannot ask agents to report their infinite types. Agents in any real implementation would need to report something smaller than their type space (that is, in an indirect mechanism).
(Q2) If we show that a desirable outcome is possible by a truthful direct mechanism, then there is some indirect mechanism that can also reach this outcome. How do we know which indirect mechanism can achieve this outcome?


texts: How to decide the best bid in an auction?

texts:
I am going to participate in a decision committee of a governmental auction in energy market. I want to learn more about how to decide which bid is the best in short/mid/long term.

Can you suggest me a solid source to read/learn about it?

Thanks!

Edit: Private sector is going to bid to rent a geothermal field to construct a power plant and produce electricity.

Edit2: Maybe my question was not clear. If one party is offering high amount of cash + low annual payments and the other body is offerıng low amount of cahs + high annual payments, which one I should accept? How can I do the risk analysis? So on ...


texts: How does currency peg affect pegging country's stock market returns?

texts:
How does Hong Kong's currency peg to USD affect stocks on the Hong Kong stock exchange?
If Hong Kong equities out-perform or under-perform US ones, then the demand for HKD will rise or fall respectively, and affect the currency peg. H.K. Monetary Authority will have to intervene.


texts: Why does an increase in money in circulation increases price levels?

texts: I'm a physics student who likes economics very much. I'm trying to get a simple explanation for inflation. I hope that there is one that doesn't involve people willingly rising prices. Thank you very much!


texts: Longitudinal microdata on house migration patterns

texts:
I am looking for a database that has longitudinal microdata for housing migration patterns.

Optimistically, the data would look something like:

In 2006, Person #2341 made $X, was Y years old, and lived in a Z year old house. In 2007, Person #2341 moved houses.

This way, I can see if we can use microdata to predict if a person is going to move within a year using his information currently via a logit regression.

The ACS database almost works, but it is ex post facto; it tells you the person moved a year ago (so I would be using a persons current information to predict if he moved LAST year; not what I want). I want to know if the person will move the following year, and theres no way to do this using ACS since it doesnt track the same person year to year.


texts: With regard to the recent 2 trillion dollar coronavirus package, is the money just being printed or borrowed? A gentleman from the tax payer union claims the taxpayer will eventually be on the hook.


texts: I'm not an economist, so this may be a stupid question, but why are high borrowing rates among individuals and corporations bad? Like, I've heard high student and credit card debt mentioned as reasons that we should expect another recession, but it seems to me, naively, that these would be a good proxy for general confidence in the economy on the part of lenders.  Why don't people cite high borrowing rates as evidence that there won't be another recession soon?


texts: Is there a statistic that shows which countries would be owed money if all external public debts were payed immediately?

texts:
The media loves to tout big debt figures whenever there is an economic crisis, but unless we know who owes money to who, it seems to me that these figures are useless since debt is all relative.  I know that economic policies are changing all the time, so the figures could shift, and that different states are paying their public debts at different interest rates. Therefore, looking at what I will call "collapsed external debt" is a gross oversimplification- but nonetheless I think this would be a useful heuristic figure when seeing who comes out on top today after all is said and done(although that would never actually happen).

If this figure does not exist or would not be useful in any way, then why not?


texts: What would happen in a modern economy if growth plateaus?

texts:
According to a Wikipedia article on a United Nations report,

The UN Population Division report of 2019 projects world population to continue growing, although at a steadily decreasing rate, and to reach 10.9 billion in 2100 with a growth rate at that time of close to zero.

Aiming for a low to zero or even negative growth rate for the world population makes sense, considering the limitations on living space and resources on the planet (though if the likes of Jeff Bezos and Elon Musk have their way, there will be expansion into outer space, creating new vistas of living space and resources). If the growth rate for the population is low, it would take considerable effort to maintain existing growth rates in the economy, since the number of people available to produce capital would be growing at a lower rate or not growing at all.
This inspires the question: If the growth rate of a modern economy, such as that of the United States or Canada, plateaus (meaning the amount of capital in the economy does not grow or grows very little), what would be the ramifications in the nation and internationally?
Some factors to consider:

Private and public retirement funds are invested in the economy and require growth in order to be able to pay its aging members.
Would fractional banking and the credit system live if there was zero to low growth for a long enough period of time?
What effect would there be on inflation?

I'm sure that there are many other factors other than these three to consider. Any thoughts would be appreciated. I have seen one post and another post, but they are more about "Why is growth good?" whereas I am wondering "What would happen to our existing system if we failed to have sustained exponential growth?"


texts: Real wage stagnation and union membership

texts:
In the United States, wages in real terms have seen very little change over approximately five decades:

(source: http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/ )

The reasons for this are many and varied.

Over approximately the same time period, union membership has fallen dramatically. BLS data since 1983 shows the following chart

(source: data roundup via https://www.bls.gov/news.release/union2.nr0.htm with the same chart in a more accessible article at https://www.bloomberg.com/news/articles/2018-01-19/union-membership-rate-in-u-s-held-at-record-low-of-10-7-in-17 ).

The reasons for this too are many and varied.

I think the causal relationship between the two is weak, but I'm wondering if there has been any research on whether or not there is a relationship, and to what degree.

Repeated, in question form: What is the relationship, if any, between declining union membership and real wage stagnation? Thank you.

Edit: UK data.

The UK has a report on union membership:  https://www.gov.uk/government/statistics/trade-union-statistics-2016 . One table lists "Trade union membership, UK, 1892 to 2015-16" in absolute terms; the series counting percent of employees only starts in 1989. But it shows that absolute membership peaked in 1979 and has been declining since.

In contrast with the United States, ever since the (absolute) union membership peak in 1979, real wages have increased in the UK (actually shown is since 1980), although they did take a dip after 2008.

(source: "Real Wages and Living Standards in the UK" )


texts: In my country, the only legal way to sell a gold bar is to sell it to the central bank. What are the reasons why some countries hoard gold bars?


texts: How encouragement design works practically?

texts: I'm trying to understand the encouragement design but I have some doubts. For example, if I want to introduce a voucher for teachers that can be used for professional development(the treatment) and I want to estimate its impact on student performance(dependent variable) obviously I have some problems, since not all the individuals in the treatment group will actually use the voucher. How can I introduce the encouragement design in this case? for example is it right if I send (randomly in the treatment group) some invitations to some professional developments program and I use their participation to these invitations as instrumental variable? And what's the difference with intention to treat?


texts: How to calculate how much the median income earner has to work to earn the country’s minimum wage?

texts:
I want to figure out how much time [hours/week] the 2017 median income earner for several countries had to work to earn the country's 2017 minimum wage.
The best data I've found is:

Median disposable income (current prices): https://stats.oecd.org/Index.aspx?DataSetCode=IDD

Real minimum wages (In 2019 constant prices at 2019 USD PPPs): https://stats.oecd.org/Index.aspx?DataSetCode=RMW

Here's my thinking:

Translate the median disposable income in current prices to 2017-USD: Purchasing Power Parities for private consumption (National currency per US dollar): https://stats.oecd.org/Index.aspx?DataSetCode=SNA_TABLE4. (Private consumption PPPs best suits my use case). This gives me Median disposable income (in 2017 USD PPPs).

Approximately translate the real minimum wages from 2019-USD to 2017-USD: CPI data for USA 2017 and 2019 by the U.S. Bureau of Labor Statistics: https://www.bls.gov/data/inflation_calculator.htm. This gives me Real minimum wages in 2017 USD.

Then once I have the Median disposable income (in 2017 USD PPPs) I can just divide that with the Real minimum wages in 2017 USD to get the time it would take the median income earner to earn the minimum wage.
Questions

How correct is my thinking? Improvements?

Would it be better to use the "Minimum wages at current prices in NCU" data (see following link)? I'm thinking that might make it so that I don't have to translate from 2019 USD PPPs to 2017 USD PPP (like I propose above). Link: https://stats.oecd.org/Index.aspx?DataSetCode=RMW

What about taxes? The Median disposable income (in 2017 USD PPPs) is without taxes and the Minimum income data is (presumably) before tax. Is this a problem? And if so: how do I solve it?

Open question: what would you do?

EDIT: Could these tax data be of any use?

https://data.oecd.org/tax/tax-on-personal-income.htm

https://stats.oecd.org/index.aspx?DataSetCode=TABLE_I5


texts: How can costs curves shift in the short-run?

texts:
I have been researching about Orsted economies of scale strategy and I am trying to argue that due to acquisitions and aliances, the costs curves of a firm may shift in the short-run, consequently influencing supply as well.
Is this possible and what are the other ways of shifting costs curve in the short-run?
Does this graph representation that I made seem correct?


texts: Well-informed citizen can contribute better to country's economy?

texts:
As the title stated, how can a person from the general public contribute to country's economy by being well-informed?

I understand one of the reason would be tax. If a person understands the importance of paying tax, then the person would be understand his responsibility and pay his tax promptly.

However, are there any other aspects can a informed person contribute to country's economy?


texts: Why labor-augmenting technological progress increases employment and wages?

texts:
My textbook says that advances in technology typically raise the marginal product of labor and shift the labor demand curve to the right and calls it labor-augmenting technological advances. The book then claims that this labor-augmenting advancement is responsible for the simultaneous growth in wages and employment.

I am struggling to make sense of this as the way I understand it is that if fewer workers are needed to produce a certain output quantity, then why would someone hire more workers and pay them higher wages when they can hire fewer workers and pay them lower wages (since more applicants will be per one spot)

Thank you for your response.

The book is Principles of economics by Gregory Mankiw, 8th edition pg 367 btw.


texts:
The main part of the question is as follows

(if you cannot read this, I can immediately write it)

My question is how to find the subgame perfect Nash equilibrium for the both cases $\bar{g_2}\ge \bar{g_1}$ and $\bar{g_2}< \bar{g_1}$

My attempt is

For firm 2

$$max [f_2(G)-c_2(g_2)]$$
$$max [\beta ln(g_1+g_2)-g_2]$$

By FOCs

$$\beta / (g_1+g_2)- 1=0$$

$$g_2=\beta -g_1$$

For firm 1

$$max [f_2(G)-c_2(g_2)]$$
$$max [\theta ln(g_1+\beta -g_1)-g_1]$$

I cannot get FOC with respect to $g_1$

At this point I’m stuck. How can I proceed this solution?

And I have another question

For the same question, I assume the following part

Again I need to find subgame perfect Nash equilibrium of this game where player 1 contributes a positive amount of public good.?

Sorry but I could not this part completely. Any helps will be appreciated.

Since I could not understand such type of questions for the SPE, I asked lots of time. Thanks.


texts: Measuring growth rate when values are negative

texts:
I am studying nightlights data and trying to model cross-sectional convergence in nightlights in India. However data has some stray light corrections, which has made some of the measurements below zero. Another point being, that the value of 0 has a representative meaning.
Hence any conventional way of measuring growth rates in literature is not applicable here.
In simple words: Nightlights are measured on a relative scale from 0 to 63. The corrections for cloud cover and ephemeral lights makes some of the data points negative. So:
It is analogous to ask what is the percentage growth in nightlights if it increases from - 1 DN to 0 DN
Even more problematic question is what is the percentage growth in nightlights if it increases from 0 DN to 2 DN.
I have already thought of adding an arbitrary but reasonable positive number to data points, to bring everything into a positive domain. But this is a very crude and not an elegant way to do this.


texts: Newly discovered (by mainstream investors) asset chart/theory

texts: I was reading an article about bitcoin in which a description was given of a chart/theory related to investor hype when an investment is first discovered by the mainstream. I've been unable to locate the article a second time. The phenomenon is as follows. There is an initial hype period during which the price soars, followed by a resounding crash, and finally a much more sustainably trajectory of growth. I'm looking for any information on this phenomenon. Who's work it is, article, paper, etc?


texts: Calculating the elasticity of substitution between factors of production

texts:
Following the work of Lu (1967) (Full text available here!) I got stuck trying to derive the elasticity of substitution between factors. He use the formula developed by Allen, that when the production function is linear and homogeneous is the following:

$$\sigma =\frac{\frac{\partial V}{\partial K}\frac{\partial V}{\partial L}}{V\frac{\partial^2 V}{\partial K\partial L}}$$

The partial derivatives of L and K and the cross second-order partial derivative are the following:

$$(1)\frac{\partial V}{\partial K}=\frac{dY}{dX}=\frac{1}{X}\left ( Y-\alpha X^{-\frac{c}{b}}Y^{\frac{1}{b}} \right )=\frac{1}{K}\left ( V-\frac{\partial V}{\partial L}\cdot L \right )$$
$$(2)\frac{\partial V}{\partial L}=Y-X\frac{dY}{dX}=\alpha X^{-\frac{c}{b}}Y^{\frac{1}{b}}$$
$$(3)\frac{\partial^2 V}{\partial K \partial L}=\frac{\alpha}{bL} X^{-\frac{c}{b}-1}Y^{\frac{1}{b}-1}\left ( X\frac{dY}{dX}-cY \right )$$

And the expected result (the one the author gets) is:

$$\sigma =\frac{b}{1-\frac{cf}{cf'}}$$

Is there anyone who can help me with this? Thanks.


texts: What is the best way to estimate a demand curve?

texts:
I did a linear regression on quantity sold and price for a good and simply the coefficients don't make any sense. number of observations = 16
Demand=1868 -14*P
Suply=0 +45*P
So p*= 1421.778  and Q*= 31.59507
Is there an error in the calculations? the P* =\$1421,778  does not make any sense since the product price is \$79. would it be due to the low number of observations? Or is a linear model not the most suitable for estimating a demand curve? if so which one would be best?


texts: Are there conventions in economics for coding the distance between states?

texts:
I know there are lots of gravity models in economics that take as an input distance between countries. My understanding is distance is typically coded based on the distance between capital cities, either in $L_2$ norm or great-circle distance. Most countries are small relative to the distances between them, and so maybe it doesn't matter much how they code the center of these countries for purposes of trade. But in my application I'm looking at US states, and many states are large enough that the internal placement of the location for calculating distances between states makes a difference. Additionally, state capitals are often not the economic center of the state (Carson City, NV and Albany, NY come to mind) nor the geographic center (North Folk, CA is hours away from Sacramento, CA), so I don't know of obvious choices.
Are there any standard choices I should know about here?
As a resource to others here are some sample data:

Average Latitude and Longitude for US States
US Census Centers of Population
List of geographic centers of each U.S. state

Would anyone provide a list of the economic center of each state?


texts:
Hi everyone, I am learning about the partial production function. I don't understand why a tangent it drawn next to the curve; I get that it shows the MPL. Does this mean diminishing marginal product of labour will be reached eventually? Also, it is always assumed that K0 is constant in partial production function?

Thank you


texts: Does it make sense to 'deflate' a sectoral price index in a regression analysis?

texts:
For instance, if one is running a regression with deflated prices for a given year and one of the independent variables is a price index for a given sector, does it make any sense to 'deflate' this variable or somehow extract the content that might be related to the general economy (assuming I am deflating with a more agregated variable, like a consumer price index)? One might think of demand estimation or supply estimation, if that helps.

My first thought was that I shouldn't bother, but now I'm thinking of running an auxiliary regression with the agreggated price index and the sectoral price index as a dependent variable and save the residuals -- does that make sense?

Edit: Added some more intuition, as follows:

Think of an equation of a residual demand such as $q_t$$=$$\beta p_t$+$\epsilon_t$, where $q_t$ are the quantities, $p_t$ is the price and $\epsilon_t$ is an estochastic error. But since $Cov(p_t,\epsilon_t)≠0$ -- the price $p_i$ is inherently endogenous in a demand function because of the existence of another equation defining price and quantities, the supply equation --, one should estimate demand adequately through instrumental variables estimation. Eligible instruments for demand are supply shifters, such as the company cost. But one could also use some sort price index of a sector as an instrument, a sector that sells inputs to the company out of which you are estimating the residual demand. The thing is that this price index might be related to the price index that you are using for deflating your variables. In that situation, how do you extract these fluctuations related to the general economy out of your price index being used as an instrument?


texts:
Let $\succeq$ be a rational preference relation over a non-empty set $X\equiv\mathbb{R}$ and suppose it satisfies:
$$
x\succeq y \implies x+z\succeq y+z,\forall z\in X
$$
Then I want to show that if $x\succeq 0$ then, $\forall\lambda=\frac{m}{2^n}$, we have $\lambda x\succeq 0$.

How can I show that?

Thanks for helping! :D

P.S.: The book I'm using is not really clear on the math hypothesis, especially on what sets everything is defined and so on, so I'm assuming $m,n\in\mathbb{N}$.


texts: When shall I use bootstrap standard error?

texts:
There are many papers use bootstrap standard error when they do econometrics.

My question are:

why do we need bootstrap standard error?
when to use it?


texts: Can a rescue package be considered as a subsidy to the industry?

texts:
In the BBC article, France announces €8bn rescue plan for car industry, it is mentioned that the car industry will be given a rescue package to avoid unemployment. Would this be considered as a subsidy given to the car industry?

If not, what is this microeconomics concept called?

Also, I read the statement:

"government would also give people upgrading to a less polluting car a €3,000 bonus, as part of a scheme open to 75% of French households".

I want to know what is this concept called in microeconomics;

the concept of giving money to the consumer for purchasing a good(the car), or rather an upfront discount by the government.
I don't think this can be considered as part of the subsidy as well because it doesn't reduce the production cost.

Link to article:

https://www.bbc.com/news/business-52814074?intlink_from_url=https://www.bbc.com/news/business/economy&link_location=live-reporting-story


texts: Are sales (discounts) an investment or a loss?

texts:
Are sales (discounts) during a promotional period considered an investment by the company/manufacturer to drag in more customers? Or a loss that wouldn't be paid back anytime in the future, but also drags in customers? If its the former (i.e investment) how do they pay back the money that's being discounted?

e.g A product officially costs 100USD. There's a sale for that product for 50% off (so that product is now 50USD), how do they make profit or get back that other 50USD?


texts: What does 'currency convertibility' mean?

texts:
As a student with almost zero background in economics, I've been struggling to comprehend the notion of the currency convertibility. Most of the definitons I've found online talk about the ease with which a country's currency can be converted into another currency. But what exactly is meant by the ease? Does it mean both currencies should be equal, or close to being equal, in their value or is it something else?

To provide context, I'm attaching the part of an article from nationalarchives.gov.uk talking about the American financial aid to Britain during and after the WWII. Also, as I'm not able to figure out the meaning of the word, I don't understand the following (the last) sentence of the extract either.

  The economic circumstances of the late 1940s tested relations between
  the unions and the Labour Party. Financial assistance through the
  American lend-lease system ended in the autumn of 1945. Although a
  further loan was negotiated in 1945, it was apparent that a great
  increase in production and exports would be necessary to prevent a
  balance of payments deficit. In the winter of 1947, a coal shortage
  produced an energy crisis, which threatened to undermine production.

  In July 1947, the Chancellor, Hugh Dalton, returned the pound to
  convertibility against the dollar (as required by the terms of the
  American loan). However, as dollar reserves rapidly flowed out of the
  country, a full-blown economic crisis followed and in August of the
  same year Dalton was forced to suspend the move.

Thank you in advance for the response, I'd very much appreciate it.


texts: What's the difference of economic capital and liquidity buffer?

texts: Economic capital is what for example a bank has and uses in order to stay solvent. Isn't this in a way a liquidity buffer? or what would be the difference between them?


texts: Bayesian-Nash equilibrium in a first-price auction

texts:
In a famous textbook example of a Bayesian-Nash equilibrium, there is a first-price auction with two independent players. Each player $i$ values the item as $v_i$, which is  distributed uniformly in $[0,1]$. It is assumed that the strategy of each player $i$ is to bid a fraction of his value, i.e:

$$ b_i(v_i) := a_i \cdot v_i$$

for some constant $a_i$. Then, we can conclude that, for every $a_1$, the best response of player 2 is to pick $a_2=1/2$. Hence, the only Bayes-Nash equilibrium of this form is $a_1=1/2, a_2=1/2$.

Now, I tried to slightly generalize the example by assuming the values of the players are distributed uniformly in $[c,d]$, for some constants $d>c>0$. But I did not find an equilibrium. Suppose player 1 bids $ a_i \cdot v_i$ and player 2 bids $ $a_2 \cdot v_2$. Then the expected utility of player 2 is:

$$ProbOfWinning(a_2)\cdot GainWhenWinning(a_2)$$

$$=Pr[a_1 v_1 < a_2 v_2]\cdot (1-a_2)v_2$$

$$=\frac{(a_2 v_2 /a_1)-c}{d-c}\cdot (1-a_2)v_2$$

Taking the derivative of this expression w.r.t $a_2$ gives that the best response of player 2 is:

$$
a_2 = {1\over 2} + {a_1 c\over 2 v_2}
$$

so the best $a_2$ depends on $v_2$. This means that the function from value to action is not linear as I initially assumed.

Do I have any mistake in the calculation? What is a Bayes-Nash equilibrium in this auction?


texts: What's the effect of the used car market on car price?

texts:
While justifying his decision to sell a one-use textbook to his students, a BYU econ professor states:

  A word about the Kearl text. I do not receive any royalties and have
  no economic interest in the text – when you buy the text, not a single
  penny goes to me. It’s designed to be a “disposable,” one-use text in
  order to keep the price down. (The used book market actually drives up
  the price of texts – to see why, think of what would happen to car
  prices if used car sales were not permitted.)

How does the used car markets drive up the price of the good? With an used market, the buyer is willing to pay more, knowing that he can resell later. However, without an used market, everyone is forced to buy new cars, raising demand, and thus raising the price of new cars. How to think about these countervailing effects?
Are the used books and used cars market actually analogous like the professor suggests? The professor and his publisher have a monopoly on the new textbook, but no one controls the new car market. Therefore, if people keep reselling text, the publisher will use their monopoly and raise the price of new books to compensate. In contrast, car manufacturers can't do so due to competitive pressure.


texts: Prove this indirect utility function is quasi-convex

texts:
The indirect utility function is as follows:

$$ v(m,p) = \frac{m}{p_{1}^{1/2} p_{2}^{1/4} p_{3}^{1/4}} $$

I need to prove that it is quasi-convex. I tried both definition of a quasiconvex function and the property of a convex lower contour set but couldn't get it.

This is a question in my homework so you may just want to give hint.