texts: What is low unemployment and low gdp growth symptomatic of?

texts:
Obviously there are caveats with GDP, if you build a bridge to nowhere it counts as GDP, but if you mow your own lawn or volunteer to pick up garbage it doesn't count, and so forth and so on. However, assuming unemployment is low, then one could argue people would have less time to preoccupy themselves with volunteer work and contribute to the "economy" as measured by GDP.

I had Germany in mind at the time of writing, so use Germany as a default for the economy in question for this post. Nonetheless, at the risk of going too broad, I think this question can just as easily be posed for the general case. So feel free to broaden the scope beyond Europe.

Question

What is the prevailing theory behind a country exhibiting low unemployment but also low or even negative growth in gdp?

For brevity, you can specify which GDP you assume (inflation-adjusted, income approach or expenditure approach) or for robustness you can try to address low unemployment coupled with low gdp growth implications under all 3 measures of GDP


texts:
There is a relatively simple equation for options price given certain assumptions known as the black schoels equation. According to Wikipedia it is surprising that an options price is completely determined given some variables such as variation of the underlying asset's annual return. Alternatively one can deduce the variation of the asset from options price.

I wonder that given now we are forced to exercise the option if things are as simple? (Also I'm simply asking from the same theoretical grounds that B.S. is valid. I don't care at this point about irregularities in real future derivatives, however if one feels they have thoroughly tackled the simpler theoretical grounds in their answer, then feel free to discuss any short comings if compelled.)


texts: Why aren't lengthier expirations offered, especially when a competitor offers it?

texts:
My grandparents in Canada screenshot from their Questrade IQ Edge.

Why wouldn't the options exchange sell options with lengthier expiration dates for Vanguard's Russell 2000 ETF, when they do for iShares's? Wouldn't Vanguard complain to Vanguard about this, because Vanguard desires to indirectly benefit from option traders who desire dates after 18 Dec 2020?

In general, why aren't lengthier expiration dates offered at all for some stocks or ETFs? For instance, FXB is the only ETF for GBP, but doubtless some traders desire dates after 18 Dec 2020?


texts: Can fiscal consolidation be expansionary?

texts:
In reading this article of Paul Krugman, we immediately see that in his opinion the literature that defended the possibility of the fiscal multiplier being negative for some high-debt countries, i.e. austerity have expansionary effects on output, is no longer supported.

Is this true?

What papers have since then been produced that support austerity? and what papers have been produced that go against austerity?

Any help would be appreciated.


texts: Why was Swiss National Bank in red by keeping fix exchange rate to Euro?

texts: When I read news about the action of Swiss National bank of not keeping fix ration to Euro any more, I read in all articles, that it was too expensive for Swiss National Bank to keep the fixed exchange rate. I don't really understand how can it be expensive. Swiss N.B was printing Swiss Franc and selling it for Euro? Right? How can be expensive printing and having Euro for free?


texts: What are the economic implications of regressing the same set of independent variables with different outcome variables

texts:
I was wondering if it is possible to make any economic implications by regressing the same set of independent variables with different outcome variables.

For instance, regressing [Industry, Years, Production Level] on [Revenue, Profits].

Given the above variables, if both models are significant, what would be the implications? Does it imply that [Industry, Years, Production Level] can be used to explained both the change of [Revenue, Profits].

If it is, what are the appropriate regression models? Are there any concerned issues regarding the results?


texts: Multidimensional screening and convexity of the surplus/rent function

texts:
I'm starting to read the literature of multidimensional screening models for monopolists selling $n$ goods to a continuum of buyers with $m=n$ dimensional types, and Rochet (1987) proves that a mechanism is implementable if and only if the surplus function is convex. Let $s(\theta)$ be the surplus function defined as $\max\{ u(x,\theta) -t(\theta)\}$ where $x \in \mathbb{R}^n$, and $t$ is the tariff function the monopolist announces by the Taxation Principle.

For example, the monopolist solves the problem of maximizing the following functional (assuming 0 cost of producing the good) $$\max J(t) = \int_D t(\theta) \mathrm{d} \theta = \int_D u(x,\theta)-s(\theta) \mathrm{d} \theta $$ where $\theta \in [0,1]^n$ and $t: [0,1]^n \to \mathbb{R}$.

My question is: what is the intuition behind the fact that $s(\theta)$ must be convex? What happens if the function is piecewise linear (and hence trivially convex) but globally concave, i.e. there are kinks along null-measure sets? Can you point me to any resources?


texts: Demand functions homogeneous of degree zero in prices and income - how this relates to budget exhaustion (solving a consumer's problem)

texts:
I have the following demand system:

It appears to me that each demand function is homogeneous of degree zero in prices and income as:

Why would this demand system not satisfy the following budget equation?

where I is exogenous. I would have thought the budget constraint would not have been satisfied only if one of the demand functions was not homogeneous of degree zero in prices and income.


texts: Understanding the elasticity of demand for a monopoly

texts:
Question: Your are working for a firm that is a monopoly. It is producing using technology that exhibits obvious decreasing returns to scale. After working with them for a while, a co-worker makes a mistake and accidentally increases the price per unit from \$10 to $11 for a week. You notice that the quantity sold drops by 5%. Management asks you to think about whether any strategic implications can be drawn from this episode. What do you write in your memo in response?

Answer: Quantity decreases by 5% while price increased by 10%, so total revenue increases. Since there are no economies of scale, cost decreases as you sell less and does total profit rises. Management should then raise the price.

I would like to clarify certain things about this answer. Intuitively I understand that if the percent increase in price is greater than the percent decrease in quantity then the firm is making profit. This, however, is not parallel with my understanding of elasticity. We know that a monopolist operates on the elastic portion of demand curve i.e. $|e|>1$ since this is where revenue is positive. Using this methodology for the question above, we should observe an $|e| > 1$. However this is not what we see, rather it is $|e|=|\frac{.05}{.10}|=|0.5|<1$. How come these two explanations are not parallel?


texts: Does the Coase Theorem account for malicious externalities?

texts:
The wikipedia page has a good summary:

  Coase developed his theorem when considering the regulation of radio frequencies. Competing radio stations could use the same frequencies and would therefore interfere with each other's broadcasts. The problem faced by regulators was how to eliminate interference and allocate frequencies to radio stations efficiently. What Coase proposed in 1959 was that as long as property rights in these frequencies were well defined, it ultimately did not matter if adjacent radio stations interfered with each other by broadcasting in the same frequency band. Furthermore, it did not matter to whom the property rights were granted. His reasoning was that the station able to reap the higher economic gain from broadcasting would have an incentive to pay the other station not to interfere. In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter which station had the initial right to broadcast; eventually, the right to broadcast would end up with the party that was able to put it to the most highly valued use.

This makes sense if you take the view that everyone broadcasting is only doing so to perform a legitimate service. However, if the practice of paying people not to interfere was prevalent, it would be very profitable to simply buy the most powerful transmitter available and set it up next to the most profitable radio station around and wait to get paid off. It's almost like saying that a gangster who demands protection money is simply operating under the Coase theorem and bargaining with shop owners who would like avoid the negative externalities of bricks thrown through their windows.

Does Coase somehow analyze this in his essay, and I'm missing it, or am I missing something else more fundamental that makes this irrelevant?


texts:
So, this is an economics question but the problem I have is a pure math problem I guess. So I have the following equation:f(x,y)

this function have the elasticity of substitution(EOS): 1/(1-beta). a,b are constants >0 and beta is also a constant, but is ≤1. So, the general equation for EOS is the following: σ =−(∂log(x/y)) / (∂log((∂f(x,y)/∂x)/(∂f(x,y)/∂y)))

From some calculus I got following result for the inner part of the denominator(without the log or derivative): (∂f(x,y)/∂x)/(∂f(x,y)/∂y)

For the numerator, I rewrite the expression to this(since it appear to be the case that we want to have x/y explicit):x/y

Taking the logarithm of this gives me following result:log(x/y)

Putting these together and insert in to the formula gives me:σ
(note that the index should not be i and j, but x and y, my fault)

Okay, so this is how far as I get. And what I don't get from here is the "∂"-part, what am I suppose to take the derivative off? With respect to what variable? Even though there can be som errors in my calculations leading to that expression I still don't understand how I can take the derivative of an expression like that. The main formula for me does not make sense.

Can someone please explain how I should continue?

(Sorry for a messy post, I could not figure out if there was an effective way of writing in calculations in the post so I went with pictures instead)

Kind regards, Fridein


texts: Two different definitions for a Complete Relation

texts:
Many sources show this definition for completeness of a relation
$$
\forall a, b \in A, a \neq b, (aRb) \text{ or } (bRa) \tag{1}
$$
Others show only
$$
\forall a, b \in A, (aRb) \text{ or } (bRa) \tag{2}
$$

My question, assuming that the first definition is correct, why does the definition of a complete relation include the $a \neq b$ in its definition?
My doubt is that when given a relation and asked whether it is complete or not, which definition should I use (1) or (2) as given in the question. And why should I use that definition?
For example- Given a relation On RxR
R={(x,y)| x is not equal to y}. Is this relation complete?
Now if I use definition (1), it is complete.
If I use definition (2), it is not complete. So which is the right answer and why?


texts: When a central bank buys government securities, is this exactly equivalent to printing money?

texts:
When a country's central bank buys that same country's government securities, is this exactly equivalent to printing money?
There seems to be no agreement on this.
Federal Reserve FAQ:

Is the Federal Reserve printing money in order to buy Treasury securities?
No.

Carlo Cottarelli (2017, Ch. 7 "Printing money"):

central banks, by printing money, can help governments spend more than they collect in taxes. The difference (the deficit) can be bridged by borrowing not from private savers but from the central bank, primarily through the central bank’s purchase of government securities. Public debt increases, but if the securities are held by the central bank, any interest paid to it goes back to the government, which receives its profits even in countries where the government formally does not own the central bank. In other words, the portion of public debt held by the central bank is not to be regarded as real debt, at least not in the immediate future. This is essentially what has happened to varying degrees in many advanced countries, which have continued to run sizable deficits since 2008.

Who is correct? (Or, why the seeming disagreement?)
Concrete example: Say John is hired to mow the White House lawn for \$100. What then is the difference between the following two scenarios?

The US Treasury prints a \$100 note, then uses it to pay John.
The US Treasury issues a \$100 bond that the Fed buys, then uses the \$100 deposited in its account to pay John.


texts:
I am trying to find the long run total cost function, given the firm's production function $y=L^α K^β$ where $α,β>0$ and two inputs $L$ and $K$ where $ L,K∈R_+^2$, with factor prices $w$ and $r$ where $w,r∈R_{++}^2$
So far, I have tried to solve $min$ $wL+rK s.t.y=L^α K^β$ which then I got $\mathcal{L}$$(L,K,λ)=wL+rK+λ(y-L^α K^β)$
Solving for FONC:
$\frac{∂L}{∂L}=0⟹w=αλL^{α-1} K^β$
$\frac{∂L}{∂K}=0⟹r=βλL^α K^{β-1}$
$\frac{∂L}{∂λ}=0⟹ y=L^α K^β$
Then dividing equation 1 by equation 2 I get:
$\frac{w}{r}=  \frac{αλL^{α-1} K^β}{βλL^α K^{β-1} }⟹\frac{w}{r}=  \frac{αK}{βL}⟹L=\frac{αr}{βw} K$
However, this is where I run into an issue...
When I substitute $L=\frac{αr}{βw} K$ back into equation 3 ($y=L^α K^β$), I get:
$y=(\frac{αr}{βw} K)^α K^β$
Which I don't know how to solve for $K$
I am wondering if I did something wrong, or how do I proceed to the next step, where I can solve for $K$ and $L$ and then proceed to use those values to find the long run total cost function.
Thanks
Pls. do like this
$y=(\frac{αr}{βw} K)^α K^β = (\frac{αr}{βw})^α K^{(β+α)}$ and then
$$ y (\frac{βw}{αr})^α = K^{(β+α)}$$ and finally
$$ y^\frac{1}{{(β+α)}} (\frac{βw}{αr})^\frac{α}{(β+α)} = K := K^\star(w,r,y)$$


texts: Microeconomic Modeling of Zero-Rated content

texts:
I'm currently writing my Bachelor Thesis which discusses the Question:

  Does Facebook's free Basics Programm (A website which lets people in poor countries access Internet Services without paying anything) enhances the economic welfare?

It is about zero rating content, which means that similar to t-mobiles "binge on" several services don't count against the data cap. Since I have no experience and no in-depth knowledge of microeconomics, I do not really know how to build this model.
I have several aspects that should be included:

We have 2 Content providers, one is this free basic program from Facebook, another one the regular Internet Service Provider like T-Mobile.
We have 2 consumer groups, one with low income which can only afford the free basic program, and a high income group which can afford the tmobile service
There has to be saturation in the consumers utility, so that they use Internet with a decreasing marginal utility

My questions are, how would you start a model like this? More Specifically, what should I calculate to come to a conclusion? How would you describe the two utility functions with respect of the saturation aspect?

If my question seems unclear, feel free to comment and I will try to specify my problem.


texts: Why not talk about utility functions on the surreal line when preferences are lexicographic, etc?

texts:
I've been reading about the surreal numbers out of curiosity. Though I don't totally understand them, I wonder why I don't see them used more often. Surreal numbers extend the real line to also include infinitesimal and infinite numbers (transfinite ordinals like $\omega$ which is identified with the cardinal number $\aleph_0$, itself the cardinality of $\mathbb{N}$).

Often, there are interesting preferences which can't be represented by a real-valued utility function. The obvious example is for lexicographic preferences. But why not have $u:\mathbb{R}^n\rightarrow S^*$, like $u(a,b)=a+\frac{b}{\omega}$?

Lexicographic probability spaces are another place where these numbers could have application. If we want to differentiate between two probability zero events, let one have probability $\frac{1}{\omega}$ and the other $\frac{2}{\omega}$.

One might ask, sure you can use them, but what's the point? What do we gain? Fair question. I just kind of think the use would make things cleaner--making lexicographic prob spaces less of a tortured construction perhaps.


texts:
I am from non-economic study background.

I recently came across this line by J.C. Hosten

  "To Lower costs per unit of output, people usually increase the size of their operations"

I read the wiki page of the Economies of scale.
And saw the diagram that as the size of operation/production was increasing the cost a decreasing.

My Question is, Why it happens?


texts: Notation conventions for superscripts and subscripts

texts:
I want to establish a consistent notation in my work, however, I struggle with the correct notation when more than one condition is present.

First, I am wondering what to put in the superscripts and what in subscripts.

I figured that the following is often in superscripts:

denoting that something is optimal, e.g., $p^*$
describing that something is a special condition, e.g., $p^{\alpha=1}$
denoting critical values, e.g., $b^{crit}$

I figured that the following is often in subscripts:

denoting an individuum, firm, combination, $p_i$, $\pi_j$, $p_{ij}$
numbers of different solutions $c_1$, $c_2$

Some cases were not very consistent

"states" or strategic alternatives are sometimes sub/subscripted, $\pi_M$ and $\pi^M$

So my first question is: Is there a rule, guideline or best practice for what to put where?

Second, I am wondering how to correctly write combinations of different subscripts or superscripts.

As an example, one could take the first derivative of the optimal price. Would that be ${\pi^*}^{'}$  ({\pi^*}^{'}) or is it better to write $\pi^{'*}$ (\pi^{'*}) or $\pi^{*'}$ (\pi^{*'})?
Similarly, how do we combine for example special conditions and optimal values $p^{\alpha=1,*}$ or $p^{*,\alpha=1}$, ${p^{\alpha=1}}^{*}$ or ${p^{*}}^{\alpha=1}$?
Where do we place numbered solutions for specific conditions when both are used in subscripts (e.g., $c_1$ in $\pi_M$)? is it  $c_{1M}$, $c_{M1}$,  $c_{M,1}$,  $c_{1,M}$?

So my second question is: Is there a rule, guideline or best practice of how to combine different subscripts vs. superscripts


texts:
Can someone please verify whether or not my knowledge is accurate.

From what I understand, the intent of the envelope theorem is to make a shortcut from indirect utility to the expenditure function. That being said, what you can do once you have obtained your indirect utility, is derive it in terms of I (income) and this will give you the expenditure function (hicksian demand). Is this correct or am I totally off?


texts:
A consumer has utility function $U(x,y)=(x−2)y$, where $x≥2$ and $y≥0$. The price of $x$ is $P_x$, the price of $y$ is $P_y$ and the consumer's income is $I>2P_x$. ($x$ and $y$ do not have to be integers.)

I ended up with the demand functions for $x$ and $y$ to be $\frac I {2P_x}+1$ and $\frac I {2P_y}−\frac {P_x}{P_y}$ respectively.

The question then gives $P_x=1$ and $P_y=2$ and asks me to draw the Engel curve of $x$.

Assuming my demand functions are correct (I am still new to the concept of utility maximisation and derivation of demand functions), I have found three points to plot the curve: $(3,4)$, $(4,6)$ and $(5,8)$. This would result in a linear Engel curve.

I would like to know if I have gone wrong anywhere along the way, as I have always thought Engel curves to be, as the name suggests, curves. If my answer is correct, may I know what kind of good would have a linear Engel curve?

For example, I do know that Engel curves have a positive and negative gradient for normal and inferior goods respectively. Moreover, if the curve tends towards the x or y-axis, the good is a necessity and a luxury respectively.

If I could get examples for linear Engel curves with positive and negative gradients respectively, that will be great!


texts:
The producer surplus is objective because the it is the total revenue minus the total variable cost. For example, if the producer sold 100 goods at 5 each, and the total variable cost was 300, then his surplus is 200. The total revenue and variable cost is object because it is numerical, a seller can not change these numbers based on his own perceptions or feeling.

But the demand curve is different from consumer to consumer, the consumer surplus is defined as The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them. The consumer places on the good is entirely subjective, therefore is it correct to say how big your consumer surplus is entirely up to the individual consumer? And even for the same consumer, the consumer's value placed on a good can change from time to time, for example, the value I place on going to see a movie on a date with a possibility of getting laid later that night is much higher than the value I place on going to a movie by myself even thought the product is exactly the same. But my two consumer surplus would have a enormous difference.


texts:
I understand that quasi-linear functions have a general form

$U(x_1,x_2,...,x_n,y) = f(x_1,x_2,...,x_n) + y$

and that for a quasi-linear function, the income effect with respect to the other variables of the function ($x_1,x_2,...,x_n$) are all $0$, i.e., income has no effect on the consumption of those goods.
I also read online that a if a preference is quasi-linear, then indifference curves are parallel.

However, I came across this function, $U(x,y)=e^xy$, where the income effect with respect to $y$ is $0$, when the price of $y$ changed. Is this also a quasi-linear function, since IE is $0$? Plotting the graph of this function, I see that the indifference curves are actually not parallel.

$U(x,y)$">


texts: By buying stocks, am I as an individual measurably affecting the economy?

texts: I know that participating in an IPO is directly helping the company, because my money is going straight into their bank account. I know that the stock market as a whole has an effect on the economy. However, what would be the measurable effect of me buying $1,000,000 of, say, Amazon? They've already IPO'd, so it's just a million of my dollars getting spread out between other random people who were selling regardless of whether or not I, personally, am buying. I guess all it does is create a slight upward pressure on the stock? Can the effect of that upward pressure be quantified in some way that means something to a layman, e.g. "it creates 1 new job in the US" or "it's equivalent to spending a million on arbitrary consumer products"?


texts: My macroeconomics book(Mankiw 7th ed.) states the following: Economic Profit = Y − (MPL × L) − (MPK × K ). It also states that the (economic) profit of a firm equals the output minus the total real wages and rent paid. This I understand. However, I don't understand how MPL * L can equal the real wage, since there is diminishing returns to scale. So the extra production that a new worker now would add(my understanding of Marginal product of labour), is less than the extra production that every previous worker added, so how can we use MPL to compute the total real wage of all workers/units of labours in the firm(vice versa for MPK)?


texts: How to interpret the difference between natural level and steady state in Macroeconomic theory

texts:
I am reading Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications by Gali.

In this question I am going to use the output $Y_t$ as an example. I am going to use the notation from Gali.

$y$ is notation for the steady state.
$y_t^n$ is notation for the the natural level of output.
$\tilde{y}_t = y_t-y_t^n$ is the output gap: deviation from the natural level.
$\hat{y}_t = y_t-y$ is the deviation from steady state.

My question is: Intuitively speaking, what is the difference between steady state level and natural level?

Note: $y_t = \log Y_t$


texts: How to intuitively understand the 'Intuitive criterion'?

texts: The intuitive criterion by Cho and Kreps is a refinement to minimise the set of perfect Bayesian equilibria in signalling games. What would a simple and intuitive example to explain this criterion be? Assume any undergrad student should be easily able to appreciate the refinement through the example.


texts: Do the republican tax cuts cost more than forgiving student loan debt?

texts:
It is alleged by this article in the Guardian that the republican tax cuts cost more money than the total student loan debt bubble. The accuracy of this claim was briefly discussed in this post via the Skeptics stack-exchange; the comments on this post also suggest moving the discussion to this forum.

Can someone provide more details to clarify the answer as to whether the republican tax cuts cost more or less than forgiving total student loan debt?


texts: Homogeneous Utilities: Anything other than CES?

texts: Does there exist any homogeneous utility function, i.e., $u(\lambda \mathbf{x}) = \lambda u(\mathbf{x})$, that is not a special case of the CES (or nested CES) family of utility functions or its limits (i.e., including Leontief and Cobb-Douglas)? I have been thinking a lot about this but cannot think of any example. If so, does homogeneity imply constant elasticity of substitution?


texts: Is there a typo in Sims(2002) paper on solving linear expectations model?

texts:
Here's the Sims(2002) paper. It's equal to the published version.

The author gives the following example:

And tries to write it in the matrix notation of (1) in the paper.

However, his solution - in (4) - puts $\epsilon (t)$ in the first equation of (2) instead of $\nu (t-1)$, and $\nu (t-1)$ instead of $\epsilon (t)$. Is this correct, and why?

Also, when I try to write the the first equation of (2) the time notation doesn't match. The other two equations in (2) do match.

Any help would be appreciated.


texts: ARCH Model - Expectation of Absolute Value

texts:
I have a time series model:

$$y_t = \sigma_t \epsilon_t$$

$$\sigma_t = w + \gamma|y_{t-1}|$$

Where $\epsilon_t$ are i.i.d normally distributed with mean zero and variance one. Suppose t = $0, ±1, ±2, ±3, \ldots$ and that the process $y_t$ is weakly and strongly stationary.

a) What restrictions on the parameters w and $\gamma$ seem sensible?

b) Calculate $E|y_t|$ assuming that this quantity is finite, noting that $E|\epsilon_{t-1}| = \sqrt{\frac{2}{\pi}}$

(c) Write $|y_t|$ as an AR(1) process and hence calculate the autocorrelation function of absolute returns:
$$p_j = \frac{cov(|y_t|, |y_{t-j}|)}{cov(|y_t|, |y_{0}|)}$$

So for (a) I feel like: $\gamma \in [0, 1)$ should be reasonable as we expect periods of high-volatility to cluster. Do we need to assume w > 0 for a positive standard deviation? I think these make a difference on the answer for b:

$$ E|y_t| = E[|\sigma_t \epsilon_t|] = E[|\sigma_t| |\epsilon_t|]$$
$$ \text{as they are independent:} $$
$$ = E[|\sigma_t|] E[|\epsilon_t|] = E[|w + \gamma|y_{t-1}||]\sqrt{\frac{2}{\pi}}$$
$$ \text{as we assumed w and $\gamma$ are positive:}$$
$$ = E[w + \gamma|y_{t-1}|]\sqrt{\frac{2}{\pi}} = \{w + \gamma E[|y_{t-1}|]\}\sqrt{\frac{2}{\pi}} $$
$$ \text{as we have a weakly stationary series:}$$
$$ E|y_t| = \{w + \gamma E[|y_{t}|]\}\sqrt{\frac{2}{\pi}} \implies E|y_t| = \frac{w\sqrt{\frac{2}{\pi}}}{1 - \gamma \sqrt{\frac{2}{\pi}}} $$

Is this right or have I done some hocus pocus?

For (c) I'm stuck:

I get $|y_t| = \{w + \gamma |y_{t-1}|\}|\epsilon_t|$ but can't make anything useful out of the covariance.

Any help is much appreciated. I'm not too familiar with ARCH/GARCH models.


texts: What prevents a government from issuing debt to finance riskier investments?

texts:
Germany has a 10Y bond yield of -0.336%. Meanwhile, Brazil has a 10Y bond yield of 6.415%.

Why doesn't the German government issue bonds in order to buy Brazilian bonds? It seems a no-brainer win. Actually, the German government could also issue bonds to invest in the stock market. Sure, there is a risk involved, but on average seems a winner.


texts: How does a refinance allow a mortgage to be repaid?

texts:
A textbook I'm reading states (talking about the years leading up to the financial crisis):

  As long as housing prices increased, these mortgages were secure: the
  borrower
      rapidly accumulated equity in the house that could be taken out in a refinance,
      allowing the mortgage to be repaid.

How would this work exactly? I know that many people took out home equity loans, but I'm not exactly sure how accumulated equity would end up making liabilities easier to pay back.


texts: Can a position at a hedge fund be securitized?

texts:
Let's say that I'm an investor in a hedge fund, a recession just hit and I need cash asap. But the hedge fund either has infrequent redemption, or it locks my fund in, until the market gets better and they can liquidate the assets at a better price.

If I need money, can I securitize my position at the fund? So i can either sell that as an asset at a discount or use it as a collateral.


texts: How can I determine if a token economic is viable?

texts:
Given a system where you incentivize people to do actions in a system, we might have good and bad actors.

I would like to know if there is a software or framework where I could put the different A actors and the different Act actions that they could do -- so I could link A-Act actors-actions to R reward.

I could visualize what could happen to the system by varying the different values of R, the different number of actions/actors.


texts:
Is there a framework for determining the limit of what can be borrowed?

For example, lets say an institution with 1 trillion USD wanted to hold 5 trillion USD in government bonds, would there be a collection of other institutions willing and capable of lending the 4 trillion, is there a way to determine the maximum liquidity of an ecosystem?


texts: Why do central banks currently favor cheap money policies?

texts:
Currently, central banks around the world are setting very low interest rates.

According to Taylor rules, which most central banks can be shown to roughly follow, this implies that they believe that the natural level of output is greater than the current level of output and/or current inflation is below its target. Looking at real GDP per capita charts (e.g., US, Eurozone, World), I could not see that we are far below the medium-run trend in real GDP. Therefore, I am wondering what current factors drive central banks to implement low interest rates?


texts:
Why do we need central bank ?
surely the government can print currency and regulate banks by conducting audits through finance ministry and so on.
Why do we need central bank ?


texts:
Let's say we want to determine the impact of $y_2$ on $y_1$, which are related as follows:
$$y_1 = f(y_2, x_1,e)$$
where
$$e = g(y_3,x_2, u_1), \space  y_2 = h(y_4,x_3, u_2), \space y_3 = m(y_4, x_4,u_3)$$
and the $u$'s are the exogenous errors. Substituting, we have
$$y_1 = f(h(y_4,x_3, u_2),x_1, g(m(y_4, x_4,u_3),x_2, u_1))$$
We can see here that there is a correlation between both arguments of $f$. Therefore, if we do not control for $y_4$ in $f$, we would have endogeneity because then $h$ would be correlated with the error. Is this correct?
In other words, we are looking for $\frac{\partial f}{\partial h}$, but a change in $h$ without holding $y_4$ constant in $g$ implies that our estimate of $\frac{\partial f}{\partial h}$ is not ceteris paribus; when we adjust $h$, we also adjust $g$.
My main concern here is whether it matters that the correlation between $y_2$ and the error in $f$ occurs through two functions: $g$ and $m$.


texts:
I heard a real estate agent say “as a city’s population increases so will the household income.” He went on and gave an example of how a city had a population growth of 20% and a household income increase of 30%. He explained stated again that “whenever there is an increase in population there is an increase in household income.”

Can you please explain the connection between the two ?


texts:
I'm trying to find out about the history of South Africa's government debt. However, I couldn't manage to find suitable literature or websites showing the history. It is also very difficult to find data on the national treasury website of South Africa.
Does anybody have any hints or literature tips?


texts: King-Plosser-Rebello Preferences: Scale leisure

texts:
KPR preferences are given by

$$ U(c, l) = \frac{\left(cv(l)\right)^{1-\sigma}-1}{1-\sigma}$$

with concave increasing $v$ and $c$, $l$ denoting consumption and leisure. In the limiting case of $\sigma\to 1$, we receive the standard additively-separable preferences

$$ U(c,l) = \log c + v(l)$$

In the latter case, if I want to scale the relevance of leisure in total preferences, I can rewrite the preferences as $\log c + Av(l)$, and use $A$ for this matter.

How do I do that - scale leisure - in the general case?

If I rewrite the nominator as $(c A v(l))^{1-\sigma}$, it is not clear to me whether $A$ is scaling $c$ or $l$ (probably neither).


texts:
The conditional mean of $Y$
  given $X$
  is:$$E[Y|X]=\int yf(y|x)dy$$
  What is the relation to the linear model? I have read somewhere that when X
  and $Y$
  are normal (their marginal distributions), then the conditional mean of $Y$
  becomes a linear function of $X$.
  How can I see this?


texts: What are some interesting papers using Machine Learning in economics/finance?

texts:
I'm about to write my Master's thesis, and I'm really interested in Machine Learning. Do you know any interesting applications of Machine Learning in economics? And preferably, in Finance?
Doing my Master's in Economics I have written two papers:

Using Neural Networks to outperform the Black Scholes model in pricing options
Using Deep Learning to outperform GARCH-type models in forecasting realised variance.

However, I struggle to find an interesting subject for my thesis. What papers/applications do you know?
Thanks in advance!


texts:
Consider a simple consumer's problem:
Max $u(X)$ s.t.  $\sum_i^l p_i x_i\leq \sum_i^l p_i w_i$
$w$ is initial endowment.
We can set the Lagrangian function to solve this problem.
$L=u(X)+\lambda (  \sum_i^l p_i w_i +\sum_i^l p_i x_i)$
But some may set the Lagrangian function as differenct way.
$L=u(X)+\lambda (  \sum_i^l p_i x_i -\sum_i^l p_i w_i)$
The result of calculation is same except the sign of Lagrangian multiplier $\lambda$
For the consumer's problem, which way is correct?
Edit after comment: There is a typo at the first equation in this
question. $\sum_i^l p_i w_i +\sum_i^l p_i x_i$ should be changed as
$\sum_i^l p_i w_i -\sum_i^l p_i x_i$


texts: What type of data packages am I looking for?

texts:
I did a bit of googling and I see there are companies that sell market research data, and wanted to know if anyone knows more about it.

I am specifically looking for consumer interest in the allergic to foods category; for people who are allergic to certain foods, what is their interest in foods manufactured with their needs in mind.

Do you know of a company that has good data on the subject? I've come across a company, Epsilon, that says they can sell me data from surveys relating to what I'm interested in.

In passing the representative mentioned that although they are not the biggest company with the most amount of data regarding what I requested, they still have a large amount of data.

So I'm wondering which other companies are there out there that might have the date on this.


texts: Is there a way to adjust trade data between China and EU member countries for the Rotterdam effect?

texts:
Basically Eurostat trade data for individual EU member countries with China seems to have some substantial artefacts probably because most EU imports from China arrive in Dutch ports, even though their ultimate destination is probably all over the EU. It's hard to explain otherwise the huge figure for Dutch imports (and thus trade balance) from/with China relative to Dutch population, economy, etc.

Are there any data sources or papers that try to adjust for this Rotterdam effect, i.e. figure out where those Chinese imports are really headed in the EU (and adjust the trade figures per member country accordingly)?
(Thanks to Henry for pointing out the right term.) Eurostat actually acknowledges the issue in a FAQ, but does not try to quantify it:

The quasi-transit is known to impact mostly the Member States with big ports at the external border to the European Union and in particular the Netherlands. This is why its impact on figures is known as the ‘Rotterdam effect’. In case of imports, the goods destined to other EU Member States arriving in Dutch ports are recorded, according to Community rules, as extra-EU imports by the Netherlands (the country where goods are released for free circulation) and as dispatches from the Netherlands to the Member States of actual destination even though there is no link with economy of the Netherlands.
The quasi-transit is known to impact more the imports but exports are also affected. In exceptional cases, the customs clearance occurs not in the actual Member State of export but in the Member State of exit, i.e. in the Member State from which the goods are taken out of the EU customs territory.


texts: Are my conclusions correct in context of these examples of forceful extraction of money?

texts:
There are two examples, one for a bandit, the another one is for the government.

Suppose we have a simple economy, a bandit and a teacher.
The teacher can teach the bandit, but the bandit can't offer anything of value to the teacher.

Suppose at the start the bandit has \$100, while the teacher has \$0. The bandit pays for lessons $100 and the teacher consequently teaches them. Now the teacher has all the money and the bandit has nothing but their gun. If we will stop here GDP will be \$100 because Consumption=\$100, while everything else is zero.

But our bandit being bandit uses their gun to take all money from the teacher. Here we go again, the bandit has \$100, while the teacher has zero. And again, our bandit pays \$100 for lessons. If we will stop here our GDP will increase by \$100, totaling to \$200. Conclusion #1: We will be able to increase our GDP with these robbing-spending cycles, each cycle increasing GDP by \$100.

Now let's replace our bandit with the government. Our bandit declares themselves to be the Sovereign over these lands, with God given divine right to take people's money by force, (i.e. to tax them). The teacher recognizes them as their Sovereign. We replace our robbing-spending cycle with taxing-spending cycle. The Sovereign pays for lessons, the teacher enjoys sitting on the money for a while and then they get taxed of all of their money. This time Consumption=0, but Government Expenditures increase by \$100 for each iteration of the cycle ("The State is me", as our Sovereign would say). Conclusion #2:  We will be able to increase our GDP with these taxing-spending cycles, each cycle increasing GDP by \$100.


texts: Intuition behind Euler Lagrange equation in economics

texts:
When being exposed to the concept of the Euler Lagrange equation as a mathematical concept, many ideas from the physical sciences are used to explain its relevance in terms of choice of shortest path, brachistochrone problem which are great for educational purposes however in the context of economics it is difficult.
The paper that comes to mind which is explict about the Euler Lagrange condition in terms of solving is Grossman 1972 (the famous grossman model of demand for health). The continuous time variant of the model (on page 28-29 of the PDF) has the following condition associated with it (notation changed for simplicity from time denoted by $i$ to being denoted by $t$) we get:
$$\frac{\partial Q}{\partial H(t)}-\frac{\partial}{\partial t}\frac{\partial Q}{\partial \dot{H}(t)}=0$$
or
$$\frac{\partial Q}{\partial H(t)}=\frac{\partial}{\partial t}\frac{\partial Q}{\partial \dot{H}(t)}$$
What is the economic interpretation of this result?


texts: Definition of subgame perfect Nash equilibrium

texts:
Take a two-stage game with complete information and simultaneous actions in each state:

(1) Player 1 and 2 simultaneously choose action $a_1\in A_1$  and
$a_2\in A_2$ respectively.

(2) Player 1 and 2 observe the outcome of the 1st stage
$(a_1, a_2)$, then simultaneously choose action  $a_3\in A_3$ and
$a_4\in A_4$ respectively.

Payoffs are $u_i(a_1, a_2, a_3, a_4)$ for $i = 1,2$.

As equilibrium concept I use subgame perfect Nash equilibrium. I find it by
backward induction:

(A) find the functions $a^*_3(\cdot)$  and $a^*_4(\cdot)$ such that $\forall (a_1,a_2)\in A_1\times A_2$

$$
\begin{cases}
a_3^*(a_1, a_2)\in argmax_{a_3(\cdot)}u_1(a_1, a_2, a_3(a_1, a_2), a_4(a_1, a_2))\\
a_4^*(a_1, a_2)\in argmax_{a_4(\cdot)}u_2(a_1, a_2, a_3(a_1, a_2), a_4(a_1, a_2))\\
\end{cases}
$$

(B) find $(a_1^*, a_2^*)\in A_1\times A_2$ such that
$$
\begin{cases}
a_1^*\in argmax_{a_1}u_1(a_1, a_2, a^*_3(a_1, a_2), a^*_4(a_1, a_2))\\
a_2^*\in argmax_{a_2}u_2(a_1, a_2, a^*_3(a_1, a_2), a^*_4(a_1, a_2))\\
\end{cases}
$$

Question: a subgame perfect Nash equilibrium is
$$
\{a_1^*, a_2^*, \underbrace{a^*_3(\cdot), a^*_4(\cdot)}_{\text{Functions}}\}
$$
or
$$
\{a_1^*, a_2^*, \underbrace{a^*_3(a_1^*), a^*_4(a_2^*)}_{\text{Point in the image set of the functions $a^*_3(\cdot), a^*_4(\cdot)$}}\}
$$
?


texts: Does open source software contribute to GDP?

texts: Does open source software contribute to the GDP of a nation? If yes then how, and how does it depend on the increase in usage? For instance, would an increase in the usage of open source software increase GDP, or would it decrease GDP?


texts: How to operationalize agglomeration economies?

texts: How most common way to operationalize the concept of agglomeration economies? I am new in research field. I even don't know what conceptual definition means.


texts: Currency Values, Developing Economies and Balance of Trade

texts:
For a developing economy like India, where balance of trade is negative, is it good to have a weak dollar or a strong dollar?

Dollar value increases (Rupee, the local currency, weakens), imports (especially of oil) are done at an extremely high price, that leads to pressure on inflation and people (Central Bank etc.) are concerned. Personally as an exporter, we are a viable business today primarily because of a strong dollar, if the currency remained where it was two years back, our business would have made great losses and probably even shut down.

My thought process is if the local currency becomes very weak, imports would become expensive; while some imports like oil cannot be avoided, many other goods that are imported today would become viable to be produced locally, this means lesser imports in the long run, and similarly since exports would produce more revenue, more businesses would become viable and hence in the long run exports would increase.  This would eventually result in positive balance of trade and the effect would be a positive spiral.

Given the short term inflationary shock and long term benefits of employment and thereby prosperity, is it generally better if the Central Bank doesn't interfere in currency devaluation and lets the Market find its own equilibrium.

The primary question stems from the worry that it is a common conception in India that with a strong dollar the country will be doomed.

If my argument is weak, can anyone explain why?


texts: When do we have diminishing marginal returns to labor?

texts: When we have a production function exhibiting constant returns to scale, with only labor and technology, why don't we have any diminishing marginal returns to labor?


texts: IS-LM Effect of Change in Consumer Confidence

texts:
What is the effect of government reforms (unspecified) that decrease customer's confidence about their future wages (analysed using the IS-LM model)?

I think that less confidence about future wages will cause people to save more (rise in MPS or equivalently a fall in MPC). This causes the autonomous component of the IS curve to decrease, and the gradient to become flatter.

Using the following model:

$$Y = \frac{1}{(1-c_1-d_1)}\cdot A - \frac{d_2}{(1-c_1-d_1)}\cdot i $$

According to my textbook, however, this is incorrect. It suggests that the IS curve is shifted to the right, leading to an increase in $i$ and $Y$.

Could somebody kindly shed some light on this for me?

Thanks!


texts: Quasi-Linear Production and Inefficiency

texts:
For quasi-linear production of $F(K,L)= \sqrt{K}+L $. I know for the optimal efficiency to exist $q \geq \frac{w}{2r}$ where w is the cost labour and r is the cost of capital.
My question is what happened when the firm chooses to produce in $ q \leq \frac{w}{2r}$ condition? Would such a situation covert the production function into substitution function?


texts:
Most individuals refer to the former USSR as a "communist" nation, but, in reality, it was only a "socialist" nation with a high level of governmental control in all areas of its citizens' lives.
Have there been any true "communist" nations as Marx envisioned?


texts: Difference between Opportunity cost and marginal cost

texts:
I understand that the marginal cost is the cost of producing one additional unit of a good or service.

Is it correct to say that the opportunity cost is part of the marginal cost (I'm trying to figure out what is meant by this picture below)?

And secondly, is this statement correct "whatever a producer receive aboves its opportunity cost of providing the good/service is its producer surplus?" I read this online. Isn't it suggesting that the opportunity cost is the marginal benefit (because price received minus the points on the supply curve is producer surplus)?


texts:
I am having some difficulty in understanding the following use of the penance strategy as a strategy to support compliance in the repeated game presented in Asheim et al. (2006). I understand penance in the following way:

  Begin in the cooperative phase where both states choose compliance; if
  State A then defects, the other State B immediately switches to defect
  for all subsequent periods until and including the first period that
  State A reverts to compliance. After that period, State B also reverts
  to compliance

Now, in their work Asheim et al. state the following:

  We assume that compliance in the global agreement is sustained by way
  of the "Penance" strategy. This strategy specifies that a
  participating country plays cooperate except if another participating
  country has been the sole deviator from Penance in the previous
  period, in which case defect is played.

My doubt has to do with the use of the word "sole". Specifically, following the penance strategy in a game with 3 or more players, is the punishment the same whether a single player deviates or more than one does?


texts: Which model gives a more accurate representation of growth?

texts: Does the Solow model or the combined Romer - Solow model give a more accurate representation of growth?


texts: Producer Econometrics: Univariate modelling with missing data

texts:
Im interested in forecasting revenue for 2018.

Year           Revenue
 2010        $22,306,000
 2011        $22,420,000
 2012        $23,010,000
 2013             NA
 2014        $25,430,000
 2015        $25,601,000
 2016        $25,267,000
 2017        $23,895,400

Im unable to identify the appropriate model (AR,MA,ARMA ect.) since the use ACF and the PACF is not possible since i lack data for 2013.

How would i deal with such an issue? (preferably using R)


texts: Why in most macro models technology is labor-augmenting?

texts:
Take Romer's advanced macro book as reference. In it the Solow model,the Ramsey model and the Diamond OLG all contain the fundamental $A_t$  variable representing technological progress.
In all these models, technology affects only labor, that is:
$Y_t = F(K_t,A_t L_t)$

Now my question is why is such assumption so prevalent in these models. It seems to me that when we imagine technology as affecting output we think of the Northrop loom, the Bessemer steel, the container, the railroad. You know, stuff. All these seem to me to be mostly capital-augmenting technologies.
So why do we tend to assume labor-augmenting technology instead?


texts: How can perfectly competitive firms earn zero profits?

texts:
Consider a firm that chooses the quantity of labour $L$ to hire which maximises its profits. As usual, we suppose that output $Y$ is increasing in $L$ but at a strictly decreasing rate; and for simplicity, we suppose that labour is the only input used in production. The firm takes wages $w$ and the price of its output $p$ as given (which is meant to capture the notion that the goods and labour market are 'perfectly competitive').

As everyone knows, the firm should hire labour until it has driven the marginal revenue product of labour down to the wage. That is, the optimal quantity of labour $L^*$ must satisfy

$ w=MPL(L^*)p$

Here is the puzzle. If the firm chooses this level of $L$, it will make no profit from the last worker. But since $MPL$ is strictly decreasing in $L$, that means it makes a positive profit on all of the previous workers. As a result, the firm must make a profit - something which is meant to be impossible in perfect competition, at least in the long run!

To see the point graphically, note that the firm's profits are given by the triangle below the 'VMPL curve' and above the market wage:

Clearly, the area of this triangle is positive!

Before opening this up to discussion, I'll review some possible solutions:

One might think that the solution relates to the distinction between 'economic profit' and 'accounting profit'. However, this is a mistake. Suppose that there are no costs associated with production other than the wage bill (e.g. decision making is 'free'). Then there is no distinction to be drawn (economic profit = accounting profit) and yet the puzzle persists.
One might think that, under perfect competition, prices (whether $w$ or $p$) somehow adjust to wipe out the profits. But, as can easily be seen (e.g. from the graph), profits will be strictly positive for any $w$ and $p$ that induces $L^* > 0$.
As you will have noticed, the firm won't make any profit if MPL is flat. Perhaps this needs to hold in the long run?
One final solution (my favourite) is that, in perfect competition, the only firms will exist are those which minimise their average costs. One might think that this then induces near zero $L^*$ and thus near zero profits. But here one hits a technical problem: there is no value of $L > 0$ which minimises average costs. For any $L^* > 0$ you choose, average costs will be lower if $L = L^* - \epsilon$ for some $\epsilon > 0$.

Thanks in advance for any thoughts on this!


texts: Convention / standard methodology for calculating real prices?

texts:
Is there an established professional standard used by economic / financial institutions for including or excluding i) the starting year/period, and ii) the end year/period when calculating real prices (i.e. when multiplying nominal values by a multiplier)?

Theoretically, there are four (mutually exclusive) possibilities

Include start period inflation, include end year inflation
Include start period inflation, exclude end year inflation
Exclude start period inflation, include end year inflation
Exclude start period inflation, exclude end year inflation

Example

Converting $100 from 2008 into 2010 dollars.

Suppose inflation was 2% in 2008, 3% in 2009, and 4% in 2010.

Applying the four methods gives four answers, like so

Method 1

Multiplying by the inflation in all of 2008, 2009, and 2010 (i.e. including start year and end year)

$100 * (1 + 0.02) * (1 + 0.03) * (1 + 0.04) = 109.26

Method 2

Multiplying by the inflation in all of 2008 and 2009 (not including end year)

$100 * (1 + 0.02) * (1 + 0.03) = 105.06

Method 3

Multiplying the 2008 price by the inflation in 2009 and 2010 (not including start year)

$100 * (1 + 0.03) * (1 + 0.04) = 107.12

Method 4

Multiplying by only the years in between (i.e. not including the start year nor end year)
i.e.

$100 * (1 + 0.03) = 103

Would all professionals calculate the real value the same way and, if so, which way?


texts:
Can the amount of loans and deposits in entire banking system differ significantly?
When regarding the entire banking system, what factors impact the loans to deposits ratio?  Is it roughly constant or can change dramatically? Dose the amount of nonperforming loans play a rule in its determination? Can a straightforward equation be drawn for difference between the amount of loans and deposits in entire banking sector by variable like money supply, base money etc.?
Based on my understanding of money multiplier concept, there must be a one-to-one relationship between amount of loans and deposits in entire banking system and so the loan to deposit ratio must be roughly constant. Is it true?


texts: Interpretation of a 2SLS Coefficient - Civil War Determinants

texts:
I am a bit confused because of the interpretation of a coefficient in my analysis. I am using 2SLS in two different subsamples with economic growth as endogenous variable. It is instrumented by a variable for natural disasters. The outcome variable is a measure of civil conflict onset. The first stage shows that if natural disasters increase, economic growth decreases. The second stage then provides a positive coefficient for one subsample, while it produces a negative coefficient in the other subsample.
Does a positive coefficient in the second stage mean that a decrease in economic growth (as a consequence of increased natural disasters) decreases the risk of conflict onset?
I am confused because I do not know how to interpret the coefficients since the instrument is negatively correlated to the instrumented variable. If natural disasters would increase economic growth, then the interpretation would be easier since the direction is the same.
Below, you find my LaTeX Output Table. I hope this will help. The coefficients I am interested in are on the one hand -0.0312 and     0.0210 on the other hand.
I know, there is no F test and no control in the analysis. This analysis is not supposed to be sophisticated, it is basically just a means to understand the interpretation of those coefficients.

\begin{table}[t!]\centering
\begin{threeparttable}
\renewcommand{\arraystretch}{1.2} % Default value: 1
\def\sym#1{\ifmmode^{#1}\else\(^{#1}\)\fi}
\begin{tabular}{l*{3}{c}}
\hline\hline
            &\multicolumn{1}{c}{(1)}&\multicolumn{1}{c}{(2)}&\multicolumn{1}{c}{(3)}\\
            &\multicolumn{1}{c}{GDP growth p.c.}&\multicolumn{1}{c}{Onset of Conflict}&\multicolumn{1}{c}{Onset of Conflict}\\
\hline
GDP growth p.c.&                     &    -0.0312\sym{**}&     0.0210\sym{**}        \\
            &                     &     (-2.01)         &      (2.00)         \\
Natural Disasters&      -18.02\sym{***}&     Instrument&              Instrument       \\
            &     (-3.39)         &              &                     \\
\hline
Observations       &        3894         &        3894         &        3894         \\

\end{tabular}
\end{threeparttable}
\end{table}

The code produces following table:
$$
\begin{array}{|l|c|c|c|}
 \hline
   & \text{(1)} & \text{(2)} & \text{(3)} \\
   & \text{GDP growth p.c.} & \text{Onset of Conflict} & \text{Onset of Conflict} \\ \hline
\text{GDP growth p.c.} & & -0.0312^{**}  & 0.0210^{∗∗} \\
 & & (-2.01) & (2.00) \\
\text{Natural Disasters} & -18.02^{***} & \text{Instrument} & \text{Instrument}  \\
 & (-3.39) & & \\ \hline
 \text{Observations} & 3894 & 3894 & 3894 \\ \hline
\end{array}
$$


texts:
What are the most advanced theoretical models about  "learning" such as learning-by-doing or learning from others?

Overall, learning in economics spans different areas. Here there is a largely incomplete list:

One of the pioneers of "learning" in economics is Arrow with his 1962 paper. In his paper, Arrow discusses the economics implications of theories about learning in social psychology. The main focus here is about firms "learning" over time. (For a recent survey of models within this literature: Thompson, 2010)
In the same year (1962), G.S. Becker adds another milestone. Becker's paper is a must read. From the point of view of individual agents, learning is an investment: it involves immediate costs and gives future gains. It raises the question of why firms should pay money for training their workforce in competitive markets (i.e., wages equal marginal costs). It also makes an important distinction between "general" (reusable) and "specific" knowledge.
Following up on Becker's work, a large literature in labor economics (e.g., Rosen, 1972) pushes the same question a little bit further. This literature culminates in Acemoglu and Pishke (1999) paper showing that market frictions are a possible explanation for firms paying for training.
A more recent literature has started to look at "learning" from a wholly different point of view: how people learn to play games. This literature originates from the results of many experimental works showing a number of anomalies in behavior compared to theory. A standard reference here is the book "Learning in games" by Fudenberg and Levine. (The book is somewhat old and there is much of research going on in this area. So I am not sure what would be an updated reference.)

Can you help me create a better list? I am looking for either area of work I have overlooked (e.g., is there something in behavioral literature?) or more advanced references for each of the listed topics.


texts:
What hypothetical benefits and problems would a country have if it decided to have positive balance? That is, to have its debt much smaller than its assets. Similar to what Norway does.
And reverse, what would happen if Norway would decide to go full-USA and take loans untill the balance will reach 100% yearly gdp in debt, and then spend all this money on its industries, social programs.
Im mostly interested in comparing this two extremes, long term effects, over decades. I realise that any such massive change will cause short term disturbance. Mostly interested in cases where a country goes from 100% yearly gdp debt to 100% yearly gdp in assets, and the reverse, in a few decades, to be able to compare similar magnitude of change.
And in the very long term, would assets having country, outcompete the debt having countries? Would Norway as is slowly gain more and more capital and grow faster than USA, or would USA having money earlier invest it wisely and grow so fast that it would outpace the debt management? What conditions would change the outcome? What path is more stable against catastrophes? Does any path change how likely that a country would participate in a war?


texts: Regarding the role of the Fed in controlling interest rates

texts: When it is said that the Fed cut interest rates, does this refer to the discount rate, fed fund rate or both?


texts: Did Bitcoin increase the money supply of the world?

texts: I was reading about M2 and it somehow got me asking this question: did Bitcoin, by merely popping into existence, increase the money supply of the world? Is it classified as "near money"?


texts: What class of homothetic functions $y=f(x_1,x_2,...,x_n)$ is also homothetic in any $n-1$ factors, with the $n$-th factor held fixed at some level?


texts: Choosing the nondominant strategy in a duopoly

texts:
Would a company ever choose a nondominant strategy in a duopoly?

Let's take this specific example (2007 AP MicroEcon B #2). Two airlines, Airtouch and Windward, are scheduling flights for either morning or evening. There is no collusion, but both airlines know the same profit matrix, as below. (edit: This is also a one-shot game)

                           Windward
           Profit      Morning | Evening
                   ----------------------
           Morning | 1000, 700 | 700, 600
Airtouch           ----------------------
           Evening | 750, 950  | 900, 800

Windward has a dominant strategy of choosing the morning; Airtouch has no dominant strategy.

Airtouch, of course, is dependent on Windward for its decision. If Windward's best decision is morning, Airtouch will choose morning. Same for evening.

If we go with the given solution, Windward would choose the dominant strategy of morning, and Airtouch would then have to go with the morning as well.

But then Windward (and Airtouch, since they have all the same information) realizes that Airtouch is entirely dependent, so if Windward chooses the non-dominant strategy of the evening, it will have a greater profit (800) than it would in the morning (700), even though it is not the dominant strategy.

So then both would go for the evening.

Is there something wrong with this reasoning? Particularly, is Airtouch necessarily dependent if Windward has a sketchy dominant strategy like this? I would think that since Windward begins with the dominant strategy, it holds the initiative, but I'm not certain.

(This, of course, assumes perfect reasoning on both sides, which in real life is definitely not a justifiable thing to presume.)


texts: What types services count as intermediary consumption when calculating GDP?

texts:
What types of services count as intermediary consumption when calculating GDP? I'm not quite sure where the line is drawn. The examples below try to illustrate my confusion.
Say a supermarket provider licenses a piece of logistics software to use when routing its goods to each of its stores. That feels like it is intermediate consumption as the software is being used to deliver goods to people for consumption and therefore shouldn't be included in GDP but will be reflected in the final price the consumer pays. However, licensing the logistics software creates new capital as they will now be able to use the software and they weren't able to before. This sounds like investment. Therefore, if it is counted as investment, then it should contribute to GDP. If it is the case that licensing the software counts as investment, if the supermarket provider has to relicense the software for use every year does that mean that it is counted as investment every year?
Another example would be a FinTech company providing fraud detection software for a bank. It sounds wrong that the FinTech company wouldn't directly contribute to GDP even though its software is simply being used by banks to provide better services for their customers and therefore should just be reflected in the prices and terms of services for the bank's customers.
Thanks for any help in advance :)


texts: If aggregate demand and supply do not have a specific value, what is the point of the formula?

texts:
I have been learning about aggregate supply and demand. I have just read this answer which states:

"Aggregate supply is a relationship of price level and output. It is a function, or a curve, or a table. It is not a single value. If we know a particular price level, then we can determine the level of output that would correspond with that. The GDP for 2006 is determined by plugging in the price level of 2006 to the AS curve for 2006, and seeing what output is produced at that price level."

I don't understand, I have learnt the formula AD = C + I + G + (X - M). Wouldn't that give a specific numerical value?


texts: implied volatility, how to get parameters?

texts:
I understand how to calculate volatility and how to calculate call or put price.
However I don't understand something about input parameters.

For an example.

enter link description here

At the moment I am writing this post, implied volatility for Appl with 190 Strike Call is 22,69%. My question is, based on what TERM? (Time). Because if you want to calculate real implied volatility you must need to know what period of time to include. Time to excerise doesn't tell you much, if you don't know what period you must watch. One month, half a year, one year, 2 years etc.. I assume this 22,69 implied volatility is based on days_to_expire_parameters/some_period. I am trying to figure what is this some_period. I


texts:
Does book value per common share include intangible assets?
As far as I know, its formula is common stockholder's equity divided by shares outstanding? If shareholder's equity includes intangible assets, then book value per common share should also, right?


texts:
Would YouTubers see a sense in having a trade union?

For example, to establish policies how much the value of their contribution is.

The controversy here is, professional YouTubers make a bet for their income on the platform and have to accept its conditions, on the other hand YT has enough dominance and yet dependant on YouTubers making the bet their content will get them enough ad turnover.


texts: What was the "free Coynage" referred to in Dudley North's (1691) Discourses Upon Trade?

texts:
Dudley North (1691):

  I call to witness the vast Sums that have been coyned in England, since the free Coynage was set up; What is become of it all? no body believes it to be in the Nation, and it cannot well be all transported, the Penalties for so doing being so great. The case is plain, it being exported, as I verily believe little of it is, the Melting-Pot devours all.

What was the "free Coynage" referred to here? When was it "set up"? (Was it for example some specific law?)


texts: Implications for Labour after a Productivity Shock, RBC Model

texts:
I am trying to understand the implication for labour after a one time productivity shock where $A_t$ follows a AR (1) process with persistence $\rho_A=0.95$. It is stated the following : labour initially jumps up above st.st. by about 0.35% and after 15 periods falls below st.st. The return to work $w_t$  (substitution effect) is not sufficiently offset by the drop in $C_t^{-\sigma}$ (wealth/income effect) as a rising interest rate induces households to save. I don’t really understand this paragraph.

After optimisation for the firm, I have the following equations: $$r_t=\alpha(\frac{A_tL_t}{K_t})$$ and $$w_t=(1-\alpha) (\frac{K_t}{A_tL_t})^\alpha A_t$$ and for the household theEuler Equation $$C_t^{-\sigma}=\beta E_tC{t+1}^{-\sigma}[r_{t+1}+(1-\delta)]$$ and labour supply $$\chi L_t^{\gamma-1}=C_t^{-\sigma}w_t$$.


texts: What obstacles/economic barriers do stock exchanges face in developing countries?

texts:
My friend is doing research on cyber security in stock exchanges, and she noticed that the stock exchanges in developing countries aren't as popular or well put together as stock exchanges in developed countries. Not necessarily in terms of cyber security, but just in general.

Why is that? Could the stock exchange's management be to blame for the lesser quality? Or what supply/demand forces are at work that might put exogenous barriers on the management?


texts: How to use schooling years information to better identify the returns to education

texts: Assume that you have the dates of birth of the individuals in the dataset. Imagine that in 1985, the Ghanaian government has decided to raise the school leaving age from 10 to 15 years old. How would you use that information to better identify the returns to education (describe identification strategy, method, underlying assumption)?


texts: How to relate real rate of return on capital to bond interest rate: Lagrangian

texts:
Suppose that household resource constrain equation is as follows:
$$P_tC_t + Q_tB_t+ P_tI_t \leq W_tL_t+R_tK_t+B_{t-1}+D_t$$
where $P_t$ is price at time $t$, $Q_t$ is the price of one bond quantity, $B_t$ is bond quantity, $I_t$ is investment, $W_t$ is wage, $L_t$ is labor amount, $R_t$ is nominal capital rental rate, $K_t$ is capital at tie $t$, $D_t$ is dividends.

Taking it into Lagrangian at $t=0$:
$E_0 \sum_{t=0}^{\infty}\beta^t U(C_t,L_t) - \lambda_t[P_tC_t + Q_tB_t+ P_tI_t - (W_tL_t+R_tK_t+B_{t-1}+D_t)]$

Taking partial derivative of lagrangian respect to $K_{t+1}$ where $K_{t+1} = (1-\delta)K_t + I_t$ seems to produce:
$$\frac{\lambda_t}{\lambda_{t+1}} = \frac{R_{t+1}}{P_{t+1}}$$ (Dropped expectation sign, but should be there)

And taking partial derivative of the lagrangian respect to $B_t$:

$$\frac{\lambda_t}{\lambda_{t+1}} = \frac{P_t}{P_{t+1}}\frac{1}{Q_t}$$

Equating these two,

$$R_{t+1} = \frac{P_t}{Q_t}$$

Taking $-\log Q_t = i_t$

$$\hat{R_{t+1}} = \hat{P_t} - \hat{Q_t} = \hat{P_t}+i_t$$
where $\hat{X} = \log X$.

This does not seem to be a right formula to me, and I must have made some mistake. What did I do wrong here?


texts:
Let $\succeq$ be a preorder, i.e., it is reflexive and transitive on $X$. Prove that there exists an index set $N$ and a multi-utility function $u:X \rightarrow \mathbb{R}^N$ such that $x \succeq y$ if and only if $[u(x)](n) > [u(y)](n)$ for all $n \in N$.

I know, for example, the relation $x \succeq y$ on $\mathbb{R}^2$ if $x_1 \ge y_1$ and $x_2 \ge y_2$ can be represented with $N= \{1,2\}$ and the multi-utility function defined by $u(x) = (x_1, x_2)$. But, I am unsure of how to do the general proof.


texts:
In the last few years, the estimator proposed by Bajari, Benkard, and Levin ('07) for dynamic games has been gaining popularity. It is relatively straight forward and is one of the only viable options for estimating dynamic games with both continuous state space and continuous decision variables. I have heard from a few people, though, concerns about what it is really identifying (possibly not the structural parameters it's supposed to be identifying).

My question is three-fold. 1) what are the specific concerns about identification with BBL, 2) when do they (not) matter, and 3) is there a way of getting around the identification issues without having to, say, approximate the state/actions as discrete.


texts: If a put seller shorted 7500 shares, and a put buyer exercised 49 contracts, why'd the put seller still be short 2600 shares?

texts:
I don't understand Wikipedia's example on Pin risk (options). As I colored in green, the put buyer exercises $\color{LimeGreen}{49}$ contracts. The bolded sentence presumes that the trader already shorted \$7500 shares. So why'd the trader $\color{red}{\text{still be short 2600 shares}}$?

Example
A trader has sold 75 put contracts on XYZ Corp. stock, struck at \$50 and expiring on Saturday, October 20, 2012. On Friday, October 19—the last day these contracts are traded—XYZ stock closes at \$49.97, which means the options are \$0.03 in-the-money. Because each contract represents an obligation to buy 100 shares of XYZ stock at \$50.00, the trader will have to buy anywhere from 0 shares to 7500 shares of XYZ stock as a result of the puts being exercised. In fact, $\color{LimeGreen}{\text{only 49 of the contracts are exercised}}$, meaning that the trader must buy $\color{LimeGreen}{\text{4900 shares of the underlier}}$. If at the close on Friday, October 19, the trader's position in XYZ stock was short 7,500 shares, then on Monday, October 22,  $\color{red}{\text{the trader would still be short 2600 shares}}$, instead of flat as the trader had hoped. The trader must now buy back these 2600 shares in order to avoid being exposed to risk that XYZ will increase in price.


texts: How does imposing 100 percent cash margin requirement on imports help to stabilize foreign exchange reserves of a country?

texts:
My country is facing a critical depreciation of its currency's exchange rate and the central bank has introduced a 100 percent cash margin requirement on a selected set of imports.

My main problem is how this can help to stabilize the currency?
The selected set of imports include some products which my country doesn't manufacture at all. So how can this help stabilize the exchange rate if people still keep consuming the imported goods because they have no other alternative?


texts: What is the difference between Solow growth, classical growth, and neoclassical growth?

texts:
My friends and I are taking some introductory macroeconomics courses and these terms keep getting thrown around without being clear how they are related.

Can someone provide brief definitions for each of these and how they are different?


texts:
In their equation (5), Kaplan and Menzio claim that the price distribution in their Burdett-Judd market is given by

$$ F(p, u) = \{u \cdot A_1 \left[1 - \left(1 - B_1(u)\right)\frac{(r-c)p}{(p-c)r}y_u\right] \\
+ (1-u) \cdot A_2 \left[1 - (1 - B_2(u))\frac{(r-c)p}{(p-c)r}*w(u)\right]
 \}/C$$

For positive $A_i$, $B_i$, $C$, where $u$ denotes the unemployment rate and $p$ denotes the price. They continue claiming that

$F$ is continuous
has connected support

$c$ is the households outside option, $r$ is the reservation price, hence the distribution should only give positive mass to prices between $[c, r]$.

$$ B_1(u) = 2\nu(u)\frac{\psi_u}{1+\psi_u}$$

where $\nu(\sigma(u)) = \frac{s}{b} = \frac{1-u}{1+u(\psi_u - \psi_e)}$. In their calibration: $\psi_e = 0.02$, $\psi_u = 0.27$. Hence

$$ B_1(u) = 2\frac{1-u}{1+0.25u}\frac{0.27}{1+0.27}$$

The Issue

For example, at an unemployment rate of $0.05$, we have $B_1(0.05) = .38$. However, for $p = c + \epsilon$ (for small $\epsilon$), the denominator $p-c$ becomes very small small.

This means that the product of $1-B_1(0.05)\cdot (r-c)\cdots$ becomes very  large. One minus that is an very large negative number. The denominator $C$ is positive. A similar phenomenon happens with $B_2(0.05)$.

They call $F(p, u)$ the distribution. I assume this means the pdf. Can a pdf have negative values? Or what am I missing here?


texts: How government borrowing from central bank increases money supply in economy?

texts:
Yes, public finance by government may lead to increase in money supply in economy. But, if govt borrows money from central bank, less amount of money is left with central bank to lend it to banks and hence less money supply in economy.
I am unable to figure it out.


texts: What famous company that turned a loss at its first year(s) but then became profitable?

texts: In a discussion with a friend, he mentioned that a new company may fail to gain profits for several years before it becomes profitable. I asked him for examples but he did not know any. I though of Amazon, but I think they made "some" profit in their first year. Could you please tell me What famous company name that turned a loss at its first year(s) but then became profitable? It would be great if you have an easy reference for me to refer to. I am not in financial business.


texts: What's the actual relationship between deflation, spending and saving?

texts: I am pretty confused with this concept. Since deflation is a result of decreasing prices, it means that the demand for goods and services rise therefore stimulating more spending. But on the other hand it is also a matter of fact that it encourages people to save (see potential in the increasing value of money over time).


texts: Formula for the unconditional variance of the sum of observations from an autoregressive time series

texts:
I have notes that say that we can make the following calculations. I'm a little confused about some of the calculations that are being made. What assumptions would I need to get the following results? Or are there errors? Specifically, I am confused by equation (1) below. In particular, this is strange to me because if I let $\rho = -1$, then equation (1) sometimes gives negative variance. (Perhaps the calculation is undefined when $\rho = -1$?)

Let $r_{t,t+n} = \sum_{i=1}^n r_{t+i}$. Suppose that $r_t$ is an AR(1) process (say with errors given by a mean zero Normal distribution with variance $\sigma^2$) where
$$
\text{Cov}(r_t,r_{t+j}) = \rho^j \sigma^2
$$
and thus
$$
\text{Corr}(r_t, r_{t+j}) = \rho^j.
$$

The notes that I have say that $\text{Var}(r_{t,t+2}) = 2(1 + \rho) \sigma^2$ and that
$$
\text{Var}(r_{t,t+n}) = \left( n + 2 \sum_{i=1}^{n-1} \rho^i (n-i) \right) \sigma^2. \tag{1}
$$

(FWIW, this question deals with cumulative (log) returns.)


texts: Why are constant price elasticities reported?

texts:
Price elasticity of demand $\mathrm{e_{D,P} = \dfrac{dD}{dP}. \dfrac{P}{Q^*}}$ clearly depends on the levels of price and quantity.
Then why is everywhere (research papers, textbooks etc.)  a constant estimate provided?
Also, doesn't the non-constancy of the price elasticity render the comparative statics $e_{P^*,\alpha} = \dfrac{e_{D,\alpha}}{e_{S,P}- e_{D,P}}$ invalid?


texts:
What forecasting models would you recommend to forecast the GDP?

Through a quick research I have found that VEC, VAR, SVAR models are the most common. Are they though good forecasters? Or are they just good at "analyzing" the sample(through Granger tests, IRF's etc) and bad out-of-sample forecasters?

What about the unvariate autoregresive family, Or other types of models? Which would be better in your experience for forecasting this variable?

Thanks in advance


texts: How can Aggregate Supply = National Income

texts:
I have researched two seemingly contradictory definitions for Aggregate Supply, and I don't know how to reconcile them:

The total level of income in an economy over a given period of time.

or

The total productive capacity of an economy, i.e the potential output when all factors of production are fully utilised.

How can these both be true?


texts: How can the Swiss exchange rate be very biased in a free market?

texts:
In 2002, when Germany, France, Italy and Austria adopted the Euro currency, the exchange rate with Switzerland was 1.60 CHF (Swiss Franc) = 1€ (Euro).
The prices and salaries in Switzerland were slightly higher than in its neighbours, but reasonably so.

Since then the Swiss franc has been more and more valuable and today reaches the rate of 1.04 CHF = 1€. The prices and salaries in Switzerland are over two times higher than in the neighbouring countries.

Depending on the way of computing this (price of food, price of housing, prices of insurances, lower range salaries or median salaries), the purchasing power parity exchange rate should be between 1.80 CHF and 2.50 CHF for 1€.

Since the exchange rate is so biased, in a free market it should be easy for Swiss people to buy stuff in neighbouring countries for cheap prices, and re-sell them at a more competitive prices in Switzerland. That would have the effect of lowering prices, creating deflation, and equalizing prices with neighbouring countries.

So my question is : Why doesn't such a regulation of the exchange rate happen? What actually happens is the opposite : The price bias becomes wider and wider, leading to a ridiculous situation where for example a piece of bread costs over 2 times more in one side of the border than on the other side, with all the side issues this causes.


texts: Empirical evidence on what makes a border adjustment successful at correcting a distortion without exporting externalities?

texts:
One of the challenges of constructing a national or regional market-correction scheme to remove the distortions from negative externalities, is that such a scheme is liable to create leakage: for example, a European carbon tax could simply result in the carbon-emitters locating to outside the EU.

The antidote is a border-adjustment scheme, such as (a combination of) import tariffs and export rebates.

Is there empirical evidence on the factors that make a difference between schemes that are more successful, and those that are less successful, in correcting the distortion without exporting the externalities?


texts: What is the relationship between S&P500 and the US dollar

texts:
In the recent past, both the S&P 500 and the USD (against other currencies) have appreciated a lot.

From what I understand, if USD goes up against other companies, the major companies of the S&P 500 suffer because many of them earn foreign revenue in foreign currencies.

So, the S&P500 and the USD should have an inverse relationship with each other.
So how come both S&P 500 and the USD have risen so sharply this year?


texts: I am a very Macro guy, but I need to dive a little in the world of Microeconomics. Specifically, I need to study oligopolies. From the general theory to empirics. Since I do not know the literature, I would like to ask if anybody knows a good starting point. Preferably a paper that explains the strategic interactions between firms operating in a oligopoly.


texts: Does this cartoon about the transpacific partnership contain errors?

texts:
http://economixcomix.com/home/tpp/

Discussion of the cartoon spawned a very argumentative thread on reddit, with as far as I can tell no hint of a consensus.

I'm specifically interested in whether the cartoon has any specific factual errors or economic misconceptions, and if so whether those mistakes are serious or not.


texts:
Suppose running a VAR system featuring the central bank interest rate, inflation and GDP.

Start by estimating each equation by OLS. How should you interpret the OLS residuals to these equations?

My take:

Suppose inflation equation is estimated, then it means the OLS residuals mean that these are the shocks that only effect inflation and no other variable

Similarly for the other two equations.

Would appreciate if anyone could share their two cents?


texts:
If planned aggregate expenditure in an economy can be written as: PAE = 5000 + 0.8Y, what is the income-expenditure multiplier in this economy?

My Attempt:

Y = 5000 + 0.8Y
Y - 0.8Y = 5000
0.2Y = 5000
Y = 25000

Since the marginal propensity to consume (MPC) is equal to ΔC / ΔY, where ΔC is change in consumption, and ΔY is change in income.

25000 / 20000 = 1.25

Do I take this further using multiplier = 1 / (1 - MPC) = 1 / (1-1.25) = 4


texts:
I am watching this video about the Leontief input-output model: https://youtu.be/hlaBURtSDO8?t=12m26s

One thing I don't understand is: why not use $Ap - p$ instead of $p - Ap$? It seems to make better sense to measure net production by output - input. Maybe I am missing something?


texts: Why is the short run average cost curve not a tangent to the long run average cost curve at the lowest point on the short run average cost curve?

texts: The diagram from the Varian textbook shows that the SRAC curve is tangent to the LRAC curve at a point which is not the bottom of the SRAC curve. It would be really helpful if someone could explain this.


texts: why is the term fiat money or fiat currency and is it the same as legal tender or are there any differences?

texts: I learnt some very basic economics learning about 2, 2.5 decades back. Recently, while reading some article on the web, I came to know about 'fiat money' and 'fiat currency' but have been unable to understand if the two terms are same as what is known as legal tender in most countries or does it have different, subtle implications ? A little bit of contextual and historical context may go a long way in understanding where both these terms came from. Are they recent or rooted in 19th, 18th century or before ? I am not sure of the tags hence using ones which seem to be more appropriate. Please fix if something else is better.


texts:
Often we employ the use of the separating hyperplane theorem to prove existence of price vectors, when discussing infinite economies this proof is substituted for proving existence of linear functionals.
This all being said, I find it difficult to see a case in consumer theory, producer theory and general equilibrium where we cant have a price vector (unless the problem is a planners problem).
To clarify I'm asking in what mathematical environments do prices not exist and what would their economic interpretation be.


texts: Analyses of the paradox of voting — given that close elections are usually disputed?

texts:
In the standard analysis of the paradox of voting, votes are pivotal only in two scenarios (exact tie or win by 1).

But in reality, vote counting is difficult and messy. And in reality, close elections are often disputed and the final outcome of the election may have little to do with who won the actual vote count. (The most famous example was the 2000 US presidential election.)

In light of the fact that close elections are usually disputed and rarely settled simply by an accurate count of the vote, what do we mean by a vote being pivotal? How do we calculate this probability?

The only analysis I've come across is the one-page appendix in Gelman, Katz, and Bafumi (2004). They argue that the analysis of the paradox of voting is pretty much unchanged, even with disputed elections:

  In fact, our decisive-vote calculations are reasonable, even for real elections with disputed votes, recounts and so forth. We show this by setting up a more elaborate model that allows for a grey area in vote counting, and then demonstrating that the simpler model of decisive votes is a reasonable approximation.

Are there any other analyses of the matter?

(Given the vast literature on the paradox of voting, I'm surprised the only thing I can find on this obviously-important matter is the above one-page appendix.)


texts: Can a continuous preference be represented by a discountinuous function?

texts: I can think of some examples, but what can be an outline of the proof?


texts: What's the difference between gross fixed capital formation and gross private domestic investment?

texts:
Cited from Wikipedia, we know:

Gross private domestic investment is the measure of physical investment used in computing GDP in the measurement of nations' economic activity. This is an important component of GDP because it provides an indicator of the future productive capacity of the economy. It includes replacement purchases plus net additions to capital assets plus investments in inventories.

Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed. GFCF is not a measure of total investment, because only the value of net additions to fixed assets is measured, and all kinds of financial assets are excluded, as well as stocks of inventories and other operating costs (the latter included in intermediate consumption).

If I wanna study the relationship between Effective federal funds rate and investment, in particular, whether there is a linear relationship between the annual percent change of these two quantities, which one should I choose to estimate the investment? Thanks.

Data source: https://fred.stlouisfed.org/series/USAGFCFQDSMEI

https://fred.stlouisfed.org/series/GPDI


texts: Difference between Sequential and Weak Sequential (Weak Perfect Bayesian) Equilibria?

texts: This is in reference to the Game theoretic concepts as Nash equilibrium refinements. Sequential equilibrium are often defined as satisfying two conditions: consistency and sequential rationality. Whereas Weak Sequential Equilibria (sometimes referred to as Weak Perfect Bayesian) also necessitates sequential rationality, but has a weaker consistency requirement,which is my main source of confusion. Moreover, SE and WSE(WPBE) are often coincide as sets of solutions which really only adds to the frustration of trying to differentiate these almost identical concepts. My main question is, how would I go about checking the consistency requirement for a given extensive form game?


texts:
According to Wikipedia,

A spectrum auction is a process whereby a government uses an auction system to sell the rights to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources.

In  2000, for example, the UK government auctioned off five 3G licenses and raised a total revenue of $£22.5$ billion -- or $2.5$ percent of the UK's Gross Domestic Product at the time. In The Undercover Economist, Tim Harford argues that the auction could not have resulted in higher prices for mobile phone users, because

firms will charge the maximum they possibly can, under any circumstance [whether the licenses are cheap or not]. We also know that their ability to do this is limited by their scarcity power... In the UK there was scarcity built into the amount of radio spectrum available:
five licenses were the most the technicians could offer. It does not make any
difference to the customer how much the licenses cost, but it does matter to the
taxpayers, who would like the government to get a lot of money for this valuable
public resource.

Let's say for the sake of simplicity that each license sold for an equal price, $£4.5$ billion (the prices varied, but this doesn't affect my argument). This amount had to come from somewhere. Let's say they borrowed this money. The bills they send to their customer will be affected by three things: infrastructure costs and wages, profits, and the repayment of the loan used to pay for the license. In a free market, the companies would have roughly the same costs and profits. Harford is right that neither of these is influenced by how the licenses were distributed: scarcity is baked into the amount of spectrum available, and only scarcity power determines profit.
But consider the last of these costs. Over time, companies would recoup the licenses' cost by charging their customers. Sure, they could postpone this recoupment, but they will get it someday (and will pass on the interest to the customer). It should "make a difference to the customer how much the licenses cost". If my thinking is right, the windfall from this auction was right out of the taxpayer's purse.
In reality, telecom companies in the UK nearly went bust after the auction. But that needn't have happened. The telecom companies without 3G licenses were the most seriously afflicted. Elsewhere, too, telecom companies have paid exorbitant sums for spectrum licenses and come away just fine.
Tim Harford got his economics degree from Oxford. I, on the other hand, haven't ever read an economics textbook. I'd bet the error in reasoning is on my part rather than Harford's, but I'd like to know where.


texts: Why do lenders dislike early loan repayments?

texts:
I've frequently seen references in blogs and articles about how banks and other lending agencies like to refer to people who repay loans on an accelerated schedule as "deadbeats", because they get less interest out of that person.  Some institutions even implement early-repayment penalties in debt contracts, a practice that's been outlawed in some places.

But when I think about it, this doesn't make a lick of sense.  It seems to me that creditors should regard these "deadbeats" as their very best friends:

The lender gets their principal back ahead of schedule, improving their liquidity and making them able to loan it out again more quickly, should they wish to.
By reducing the principal outstanding, the amount at risk in the event of a default is reduced.
By demonstrating that the borrower has the ability to pay beyond the minimum, the risk of default is reduced.

What's not to like?


texts:
I was looking through my textbook on Money, Banking, and the Economy and I came to the chart of the hypothetical short-term business cycle deviating around an upward sloping long-term cycle trend. My quarrel with this is does there necessarily have to be an upward sloping long-term trend?

I'm pondering that if we were to look at economies from different times (that are isolated in our analysis) couldn't there exist a possibility that in the more grandiose long-term an economy may exhibit flat, or perhaps negative long-term trends. Perhaps nations that are on the decline may exhibit these traits. Just a random question that I wanted to throw out there.


texts: How to approach rigorous probability theory from an economics background?

texts:
I am attempting to read around the theory of probability theory from the ground up, coming from a background of economics I have little experience in set/measure theory, whilst I am not new to statistics and econometrics the rigorous treatment of the topics have been difficult to follow. For reference, I have been using 'Probability, Statistics, and Econometrics - Oliver Linton' to read on the subject. What would be the best way to approach this?
I ask this question as this has been recommended in preparation for my MSc in Economics by a lecturer.


texts: Is fisher equation a definition, identity? Or is it rather a very good estimate

texts: So let us agree that the fisher equation is $1 + i = (1 + r)(1 + \pi).$ Is it a definiton or good estimate. Intuition tells me this make so much sense and almost qualify as an equation that must hold. However, sources online tell me that it is a good approximation. If we accept that, can anyone suggest examples when the equation fails and why? Thank you!


texts: Having a hard time connecting the two picture, why is the supply of good 1 decreasing after a certain point of p1?


texts: When using consumables consider the purchase or market price?

texts:
Say I use two fuels to heat my home (space heating): oil and wood. I purchase both in bulk, at a price decided at the time of purchase.

Wood is cheaper per kWh, but I purchase both because oil has other uses (heating water for example, plus it's sometimes useful to have redundancy). So I purchase, say, three tonnes of logs for £300, and 1800 litres of oil for £1100.

When a given fuel has been used, I must purchase some more at the market price.

Now, the price of oil has collapsed and it is now may be cheaper per kWh to use it for space heating.

So, one any one night, how do I decide which fuel to use? Should I be using the market price at the time of use, or the purchase price?


texts: Impact on interest rates of massive government spending

texts:
At the last State of the Union address, the President of the United States has reaffirmed his intentions to undertake a massive 1.5 trillion dollar infrastructure spending project over the coming years. If you believe simple macroeconomic models, like the IS-LM model, this kind of government spending should lead to higher real GDP and higher interest rates. I am assuming that, in the real world, this would correspond to a steepening of the yield curve, i.e. medium and long term yields go up. However, looking at yield curve data, I cannot discern any significant uptick in long term yields DoD. Does this mean that either:

the yield curve should not actually respond the way I assumed?
this announcement carried no real information that would have
changed market participants' expectations about the future?
the IS-LM model is too simplistic to even adequately predict the directional
impact of government spending on interest rates?

I realize that I may be abusing the IS-LM model here, as it probably takes a more long term, qualitative view. However, I would think, due to market efficiency, its predictions should be priced into the yield curve immediately.


texts:
if you have a quasi linear utility function, for example $U(l,c)=c-l^{1+γ}/(1+ γ)$ the supply function of l is inelastic right? But can we extend this argument and say that any quasi linear function is going to give you an inelastic function of the non lineal good?
Forgot to mention the production function. But this is the function $y(l)=A(l)^{1-a}$. A is the productivity
So if you take the efficiency condition  you get that $l=(A(1-a))^{1/(a+γ)}$
Thank you.

Thank you.


texts: A simple question on a relationship between output growth rate and unemployment rate

texts:
I'm reading Blanchard's Macroeconomics, and on page 206 of the 5th edition, he writes:
«Let $u_t$ denote the unemployment rate in year t, and $u_{t-1}$ the unemployment rate in year t-1, and $g_{yt}$ the growth rate of output from year t-1 to year t. Then under these two conditions ($Y_t=N_t$ i.e. Output=Employment, and labour force $L_t=L$ constant), the following relation would hold: $$ u_t-u_{t-1}=-g_{yt}$$

But what I get is $\frac{Y_{t-1}-Y_t}{L}=-\frac{Y_t-Y_{t-1}}{Y_{t-1}}$ which is not true... where did I go wrong, or is there a typo?

Any help would be appreciated.


texts:
Let's say that there is a hotel owner $(H)$ and a woodworker $(W)$ working in close proximity to one another.

The woodworker produces $x$ units to sell at market at $p_{x}=6,5$. From the woodworking activities, noise pollution is created that is measured by $a = \frac{1}{2}x$, and to protect workers' hearing $W$ incurs costs of $1$ unit of money per noise pollution unit $a$. Other costs of $W$ are at $\frac{1}{8}x^{2}$.

It follows that $\pi_{W}=6,5x-\frac{1}{8}x^{2}-\frac{1}{2}x$

and $\pi_{H}=7g-\frac{1}{4}g^2-2a$, where $g$ is the number of guests.

Now, I have calculated that the social optimum at which $H,W$ produce are $x = 20$ and $g = 14$

Question: The noise pollution will only be allowed if, for every noise pollution unit $a$ an emissions certificate at price $e$ is purchased. $H$ is given permission to sell these, under the premise that he will sell them at a welfare-maximzing price. Calculate $e$ and determine $\pi_{H}^{\operatorname{new}}$.

My idea:

Looking at $\pi_{W}=6,5x-\frac{1}{8}x^{2}-\frac{1}{2}x-e a=6,5x-\frac{1}{8}x^{2}-\frac{1}{2}x-e \frac{1}{2}x$

$\frac{\partial \pi_{W}}{\partial x}=6-\frac{1}{4}x-\frac{e}{2}=0$ and since social optimum is $x = 20$.

$\Rightarrow e = 2$

But in the solution set, it states $e=1$... What have I done wrong?


texts: How to analyze small human activities from the economical standpoint?

texts:
If a company has project A and project B it can decide what is more profitable. The math in this example is straightforward.

If human has activity A and activity B, how can someone calculate what is more efficient from economical standpoint?
For example, take a taxi or use public transit to get from A and B. If human takes taxi, it will cost him 18 dollars, he or she will spend 20 minutes mostly sitting. If human takes public transit, he or she will spend $2.5, it will take 45 minutes including 10 minutes walking.

How to account "energy", "motivation", "missing time", etc?