texts: Effects of a decrease of the policy rate on net exports

texts:
We've recently worked in class with the IS-LM-UIP model (where UIP stands for the uncovered interest rate parity). The central bank chooses the policy rate. Hence, the LM curve is horizontal. The IS curve is extended to the case of an open economy with imports and exports, which in turn depend on the real exchange rate, and hence, the domestic and foreign interest rates as well as the future expected exchange rate:
$Y^{IS} = C(\underset{+}Y, \underset{-}T) + I(\underset{-}i,\underset{+}Y) $ $  +    $ $
\underset{+}G + NX(\underset{+}Y^*, \underset{-}Y, \underset{-}\epsilon)$
where the real exchange rate $\epsilon = \frac{P(1+i)}{P^*(1+i^*)} \bar{E^e} $
The derivative with respect to the $\epsilon$ is negative as we assume that the Marshall-Lerner condition holds.
$Y^*, P^*$ and $i^* $ denote foreign output, the foreign price level, and the foreign interest rate, respectively.
the LM curve is given by:
$i^{LM} = \bar{i}$
My question is the following.
Let's assume the central bank reduces the policy rate (ceteris paribus), and the LM curve shifts down. Output increases. Investment increases. But how do I analyse the effects on net exports?
There are two points to consider here:
(i) If we had a functional form of the IS-curve, where we isolate $i$, output $Y$ would not affect the intercept of the IS curve, as it is the variable on the x-Axis. Hence, anything that shifts solely the LM-curve only causes a move along the IS curve. This would indicate that we should only consider the decrease in the interest rate in the net exports term  $NX(Y, Y^*, \frac{P(1+i)}{P^*(1+i^*)} \bar{E^e}) $, which would mean that net exports increase. Mathematically this makes sense, as even though $Y$ increases, this is only a move along the IS curve.
(ii) On the other hand, it is kind of counterintuitive to me not to consider the increase in $Y$ for net exports. While it does not shift the IS curve, $Y$ still appears in $NX(\underset{+}Y^*, \underset{-}Y, \underset{-}\epsilon)$. If we'd consider the increase in $Y$ as well, the overall effect on net exports would be ambiguous, because while exports increase due to the decrease in $i$, imports increase as well because people now have a higher income and spend a larger share of it on imports.
I have thought about this a lot and somehow cannot come to a final conclusion which one of those two points is the correct one.


texts: Can the money multiplier happen within a single bank / a single loan?

texts:
Many tutorials explain the money multiplier effect by involving a chain of banks (e.g. khan academy)
So if reserve requirements are 10% and bank A owns 1000€ reserves, bank A can lend 900€ to bank B; now bank B has 900€ reserves so it can lend 810€ to bank C, and so on to infinity. Making it $M1 = \frac {1} {10\%} \times M0 = $ 1000€ reserves + 9000€ loans.
Is this chain really necessary, or can simply bank A with 1000€ reserves issue a single loan of 9000€?


texts: Can consumer surplus be negative if a consumer is forced to make a purchase?

texts:
Assume there is a good that a producer sells for $100$. A consumer's willingness to pay for that good is $50$. However a government program forces consumers to purchase the good irrespective of their willingness to pay (assume budget constraints are not an issue right now). Would this imply their consumer surplus would be $-50$?

Or do we reflect the negative consumer surplus as producer surplus (this doesn't make sense to me)?


texts: What is the difference between 'actual' and 'potential' interaction between buyers and sellers?

texts:
In the book "Microeconomics" by Pyndyck and others, the author(s) define a 'market' as a collection of buyers and sellers, who by the actual or potential interaction with each other determine the price of a product or a set of products.

What is the difference between these two terms that the author(s) have taken effort to differentiate?


texts: Is there any theorem or a set of criteria that can prove whether in a given market there will be any sort of competition?


texts: Are the EU funds coming from EU citizen's taxes as well?

texts:
I was trying to understand how the EU is funded using their official website, but my limited understanding of economy makes it very hard to understand the money pathways from a single unit (the citizen) to the big organization (the EU). I know that each country contributes with some percentage from GDP, but I'm missing links.

So my questions is, is the EU funded (also) from citizen's taxes? Can anyone please help me to understand how one person's taxes are reaching or converted into EU funds? I would appreciate very much if someone can describe this path step by step.


texts:
Let an agent with utility function $U(x_1,x_2,x_3)=min\{ x_1, x_2 \} +x_3$. We want to maximize $U$ subject to $p_1 x_1+p_2 x_2 +p_3 x_3= I$

First intuitively $x_1^*=x_2^*$ substituting en the budget constraint I have $$x_1^*=x_2^*=\frac{I-p_3 x_3}{p_1+p_2}$$ I don't know how to solve for $x_3$. Then i thought in Kuhn-Tucker but I can't see how to solve it.


texts: How to prove that a point is a maximum point

texts:
I have the following function:

$$
\Pi =\int_{0}^{z}[x_{1} + \alpha y + \alpha \frac{N-2}{2}y - \beta(z) - \gamma ( \beta(z) - \beta(y))](N-1)y^{N-2} dy $$

The first derivative with respect to $z$ is:

$$
\frac{\partial \Pi}{\partial z}=[ x_{1} + \alpha z + \alpha \frac{N-2}{2}z - \beta(z)] (N-1) z^{N-2} - (1 + \gamma) \beta'(z)z^{N-1}
$$

at $z = x_{1}$ it must be zero so that:

$$
[ x_{1} + \alpha x_{1} + \alpha \frac{N-2}{2} x_{1} - \beta(x_{1})] (N-1)  - (1 + \gamma) \beta'(x_{1})x_{1} = 0
$$

The solution is:

$$
\beta(z) = \frac{(N \alpha + 2)(N-1)}{2(N + \gamma)}
$$

What I want to prove is that the function $\Pi$ have a global maximum in $x_{1}$. Until now I think I've only obtained a necessary condition. Can you suggest me a way to prove it?

EDIT: $\beta(\cdot)$ is an increasing function.


texts: Uniform bounds on rate of merging for Bayesian learners

texts:
Update. Cross posted at Cross Validated.

In a well-known paper, Blackwell & Dubins (1962) show that the posterior probabilities of two Bayesian agents, whose priors agree on events of measure $0$, will become arbitrarily close to each other under an increasing stream of information.

Mathematically, the result is as follows. Let $(\Omega, \mathcal{F}, \{\mathcal{F}_n\}, Q)$ be a filtered probability space with $\mathcal{F}_n \uparrow \mathcal{F}$. Let $P$ be a probability on $(\Omega, \mathcal{F})$ with $Q \ll P$. Then,
$$d(P^n, Q^n): = \sup_{A \in \mathcal{F}}|P(A \mid \mathcal{F}_n) - Q(A \mid \mathcal{F}_n)| \to 0 \text{ a.s. $Q$ as } n \to \infty.$$
We say that $P$ and $Q$ strongly merge.

In a more recent and also very influential paper, Kalai & Lehrer (1994) introduce the notion of weak merging. The definition is as above, except the $\sup$ is taken over finite horizon events; tail events are ignored:
$$w(P^n, Q^n) : = \sup_{A \in \mathcal{F}_{n+1}}|P(A \mid \mathcal{F}_n) - Q(A \mid \mathcal{F}_n)| \to 0 \text{ a.s. $Q$ as } n \to \infty.$$

For weak merging it is possible to find uniform bounds on the rate of convergence (Fudenberg & Levine, 1992; Sorin, 1999). I am wondering if there are any results in this direction for strong merging.


texts: Ranking products according to Price Elasticity Of Demand

texts:
Assuming ceteris paribus conditions, rank the following products in order from the most price elastic to the least price elastic. Explain why.

Ice Cream
Peter’s Chocolate Ice Cream
Chocolate Ice Cream
Frozen Desserts
Desserts

For some reason I find this question very subjective.


texts:
I am reading some book about strategic management.

First, I must tell you that my native language is not English.

My question is:

In the book, they divided Key Performance Indicators into three groups:

1) indicators of competence (or indicators of competency)

2) indicators of profitability

3) indicators of effectiveness (or indicators of efficiency)

Did someone heard about this distribution (division) of KPIs and what is the exactly translation of indicators?

I gave my best to translate correctly on English. If somebody heard of this division could you write the name of the books or articles on English where can I further read about it.


texts:
given someone's past investing history, is there a way to calculate his risk aversion?
Say, we know this client's investment history for example his past return, is there a way to calculate his risk aversion and use this parameter to portfolio optimization?


texts: Is this supply and demand reasoning in Picketty's book circular?

texts:
In his hugely successful book, Thomas Piketty writes:

  To be sure, there exists in principle a quite simple economic mechanism that should restore equilibrium to the process: the mechanism of supply and demand. If the supply of any good is insufficient, and its price is too high, then demand for that good should decrease, which should lead to a decline in its price.

This is circular, because a decline in price $p$ would again lead to an increase in quantity demanded $q$ which would again contribute to a situation of excess demand, right?

$\text{Excess  demand} \implies p\uparrow \implies q\downarrow \implies p\downarrow \implies d\uparrow \implies \text{Excess demand}$

Is Mr. Piketty forgetting to consider a possible supply-side reaction to the described excess-demand situation situation? What could be the reasons not to include this? Does it serve his argument? Is it economically as untenable as it appears?


texts: Pay What You Want Pricing; Micro Foundations

texts:
One of those things that makes intuitive sense to me, but not economic sense is the "pay what you want" (PWYW) scheme of pricing. When thinking of traditional micro theory, the effective price of a good under classical PWYW is zero, which creates infinite demand for the good and no equilibria. Yet in real life, consumers willingly pay a positive amount of money for these goods. I understand PYWY can eliminate some of the problems with adverse selection and it is used for market penetration, but I don't have any foundational idea for why this is the case or how you would model consumers in this pay scheme.

(I am aware of the existence of this question, but I feel like mine is different enough to warrant a separate one.)


texts: What is the market value of an object over time?

texts:
Recently many news articles mentioned the new luxury car Maybach Exelero. Only 2 cars have been manufactured. Moreover, one of the cars has been sold for 8 million dollars, which makes this car one of the most expensive cars ever sold.

Now, once you buy a car, the market value of the car depreciates once you drove it outside of the factory. For example, price of a new  6000 dollars car, will be  5800 dollars. Although, the market value of the car should be the same, no one will buy the car for the same price you bought it from the dealer.

There are two scenarios that I'm proposing. The first one is: the owner buys the car and never drives it (i.e., keeps it in a garage/show room). The second one is: he drives it every day like any other car.

My question is: what is the value of an object over time? how does it vary? The context of this question has been described above. Which are the properties of the object described above? and how do these compare with other properties of similar objects? (i.e., luxury products).


texts: Deflation and positive real interest rate

texts:
Economists say that deflation leads people to postpone their consumption because it increases the value of their money and gives them the ability to consume more in the future. But if a consumer saves his money in a bank with a positive interest rate, the value of the money also increases.
Let's assume we have two situations:

We have 5 % deflation. The consumer has 1000 dollars. If he postpones his consumption for a year, the real value of 1000 dollars will be $\frac{1000}{0,99}\doteq1010$.
Now we have a 5 % nominal interest rate. If I put 1000 dollars into a bank, I will have 1050 after one year. Let's assume that we have 3,9 % inflation. Then the future value of my money in today prices is again $\frac{1050}{1,039}\doteq1010$

So why is the deflation considered to be such a big danger for an economy?


texts: Easy to understand explanation of deflation and what causes it

texts:
This pretty much went over my head:http://en.wikipedia.org/wiki/Deflation

Is there something a bit easier to digest than this? For a non econ student?


texts: What might happen if the Fed stopped paying interest on excess reserves?

texts:
I am curious to hear what economists think might happen if the Fed stopped paying interest on reserves held in excess of the penalty free upper bound. I am also curious to know how economists think this practice might be fazed out gradually in such a way that the Fed could mitigate the negative effects that might accompany a sudden and complete cessation of the practice.

For example - If banks stop earning risk-free profit on these reserves (current at .25 percent, I think) would they feel compelled to channel these excess funds into profitable loans? Perhaps this is a way the Fed could keep interest rates low after ending QE practices? Would ending the interest payments overnight cause banks to start lending such that we would experience significant inflation?

Any feedback, papers, etc. much appreciated!


texts:
I am trying to estimate the impact of a grant on firm survival using the first propensity score matching to create a matched sample of similar organisations along a wide range of observables. Then I am using a cox proportional hazards model to estimate the hazard ratio between those that received and did not receive the grant while controlling for other characteristics which may affect firm survival. The issue is that I have two cohorts: one receiving the grant in the financial year 2012 and the other in 2013. So would it make sense to append these matched samples together and run a cox proportional hazards model to estimate the hazard ratio of interest? Or should I run to models separately?

Many thanks


texts: Duality of cost minimization and profit maximization

texts:
The firm tries to maximize profits $\Pi$
\begin{align}
\max_{K,L}\{\Pi(K,L) = F(K,L) - RK - wL\}
\end{align}
where $F$ is the linear homogeneous production function, $R$ the rental rate of capital $K$ and $w$ the rental rate (wage) of labor $L$. FOCs are given by
\begin{align}
\Pi_K &= 0 \Leftrightarrow R = F_k\\
\Pi_L &= 0 \Leftrightarrow w = F_L.
\end{align}
Footnote 1 of page 33 in Acemoglu (2009) tells us that the FOCs can also derived by cost minimization.

With (2.6) and (2.7) being $w=F_L$ and $R=F_K$ respectively.
The firm tries to minize costs
\begin{align}
&\min_{K,L}\{RK + wL\}\\
\text{s.t.}~~& F(k,L) = Y
\end{align}
where $Y$ is some output level. Set up Lagrangian
\begin{align}
\mathcal{L} = RK + wL + \lambda(F(K,L) - Y)
\end{align}

FOCs are given by
\begin{align}
\mathcal{L}_K = 0& \Leftrightarrow R + \lambda F_K = 0\\
\mathcal{L}_L = 0& \Leftrightarrow w + \lambda F_L = 0\\
\mathcal{L}_\lambda = 0& \Leftrightarrow F(K,L) - Y = 0
\end{align}

I don't see, how we can conjecture $R = F_K$ and $w = F_L$ from those conditions?


texts: Open offer made by companies to take over

texts: What is open offer in simple terms? What is its meaning in cases of taking over the major stakes in other company?


texts:
This list suggests that tram systems are massively unpopular in most of the countries outside the Western sphere.

Why is not tram popular in most countries?


texts: Finding Pareto efficiency with negative externalities

texts:
Student S has one hobby of listening to music. The noise of the speaker can produce noise up to 100 decibels (measured by D). Her money is measured by Ms . Her utility function is Us = 10D1/2 + Ms
Student F has a utility function of UF = 10(100-D)1/2 + MF . MF is Student F’s money and D is the decibels of Student S’s speaker.
What is a Pareto-Efficient Level? (We also learnt in the previous part that Student S has no money, we do not know about Student F)
I am aware that Pareto-Efficiency means we can’t make one student better off without making another student worse off, but since one likes loud music and one does not like any music. Isn’t any level of noise Pareto-Efficient?


texts: Is there any confliction in dataset and sample period description here?

texts:
Dasgupta,2019, p.2598 documented that they

consider all nonfinancial firms in Worldscope, Compustat Global, and
Compustat North America data sets from 1990 to 2012

However, they used the [-2;+5] event window (page 2600) around the law implementation day to examine the impact of laws on dependent variables. In their country list on Table 2 page 2599, the last countries that passed the law are Ukraine, Taiwan in 2012. Therefore, based on their identification, their data sample should be from 1991 to 2017 rather than 1990-2012.
Apart from that, the first country applied this law is US in 1993, therefore, the data source should start from 1991 (two years before the implementation day).


texts: Has the loan of securities from a retail investor to a well-established US broker ever resulted in a financial loss to the retail investor?

texts:
Retail investors may opt to loan some of the shares to their brokers:

In theory, one of the risks is that the broker and the collateral may have some issue, leaving the retail investor with a financial loss.
In practice, has the loan of securities from a retail investor to a well-established US broker ever resulted in a financial loss to the retail investor?


texts: Who was the first economist to write about central banking?

texts:
I am interested in the origin of a central banking theory. I've heard that Karl Marx was the first author who wrote about central banking system. Was he really the first one? Or was there any other author who had written about this topic before Karl Marx?

By central banking I mean system where all currency in some country is provided by one institution. This institution has a legal monopoly and no other institution can create its own currency. Every subject in the country can use only the currency created by the central bank.


texts: Is it possible to imagine humanity without a modern understanding of money?

texts:
Of course we can't just take money from current world order and give nothing back.

In theory, can an advanced civilization exist without money at all?
May be this is an utopic idea because of... what? Intraspecific aggression? Our education system? Our history or heritage?
What stops us to do so or to go in that direction?
Is it good or bad in long term?

You need stuff – you take it. You don't need "golden toilet" because of marketing don't try to sell it to you, because "business minds" will be busy to solve problems (or to coordinate other minds to do so), not to make more businesses and make more markets.

The main purpose of this question is to understand what fundamental economics and/or cultural (historical) problems tasks do we need to solve to use more science and less marketing in our lifes.

I have an opinion that we need so much things to buy, sell and choose because of culture, lack of education and a lots of marketing around us.

Marketing needed for business, but not for humanity. We, as a species, spend so much resources of our brains and planet to solve small things (not all of us, of course). And this stops us from doing really BIG things.


texts: The Oil hike of the 2000's: Did it go unnoticed, and why?

texts:
I'm reading a macro text book, the authors stated that in the 2000's we witnessed the greatest increase in oil prices ever, even when compared to the 70's oil shocks. To most of us, this fact went a bit unnoticed, at least when compared to the 70's. Usually in this shocks, we have a trade and supply shock. If the CB only considers the trade shock component, then the economy will face the usual stagflation. Some of the reasons the authors give for the lack of stagflation are increased lending from financial institutions, which prevented a marked decrease in consumption and eventually in output, and that workers were 'less inclined or able to get compensation through their wages' making the Equilibrium rate of Unemployment(ERU) curves to shift less than expected.

I would like to assess the truth of such claim. I've been trying to get some data, but I'm really bad at it. So, my question is: Are the authors right? From, the two pictures below (the last is US GDP growth rate if I'm not mistaken), I would say that it might have gone unnoticed, but I wasn't able to check if real wages decreased, and by how much...

Any help would be appreciated.

P.S.: In your answers, could you please name your data sources, and give some indication as to how we could replicate the graphs? I'm interested in learning how to do it. Many thanks.


texts: What are alternatives to lottery that would create same economic impact?

texts: Lotteries can be detrimental to a subset of society since people who often play dont understand stats and that for most part lottery is negative expected value. However, taxes (and portion of ticket sales) are used for funding local projects which can be beneficial to community. Are there any alternative ways to raise this funding besides taxes or taking advantage of people who play the lottery?


texts: Is any aspect of the cryptocurrency adoption violating a widely held economic tenet?

texts:
This is not a homework question.  I am merely interested.

As an academic discipline, Economics refers to various laws and widely held beliefs including, but not exclusive to;

Production precedes consumption
Value is subjective
Production has cost
Money is not wealth
Supply and demand

Etc etc.

Is the rise of cryptocurrency refuting or violating any typically held economic beliefs?  Or, inversely, are cryptocurrencies/society acting exactly as Economics would logically predict?


texts:
The following is my R code. I do not understand why for the same variable I have two estimated coefficient. How do I interpret Wife_age variable especially after exponentiate them? I believe it requires some transformation.

mlogit.mod <- mlogit(Contraceptive_method_used ~ 1|Wife_age  + Wife_education， data=mydata)

Those are the stats, estimate, standard error, t- stats, p-value in that order

Variable
2:Wife_age                     -0.045815,   0.012060, -3.7988, 0.0001454

3:Wife_age                     -0.105979,   0.011256 -9.4150 < 2.2e-16

2:Wife_education                0.881807,   0.114534,  7.6991, 1.377e-14

3:Wife_education                0.366726,   0.087486,  4.1918 2.767e-05

Confusion! This command will give me the odd ratio

exp(coef(mlogit.mod))

> 2:Wife_age   **0.95521852**


texts:
How could I construct a 3x3 simultaneous game with 2 players with no equilibrium in pure strategies but 1 is mixed strategies .
I am able to write down one with no pure strategy Nash equilibrium but how would I then know if only one mixed strategy would show not more?

I was thinking if I could eliminate one row and one column ,I.e they are strictly dominated in mixed strategies then I would only get 1 MSNE otherwise I get a continuum of mixed strategy Nash  equilibria’s is that right?


texts: Why is investment not a cost in firms profit functions?

texts:
In all textbooks I've seen profits is written as: $$\pi=py-wL-rK$$ It is evident here that w and r are operational costs.

But unless there is no depreciation and the level of capital is to remain fixed, there is a cost of investment! Why is this not taken into account for calculating profits? Is it some sort of assumption of "steady state" involved?


texts: Academic paper which justifies why companies are run better privately

texts: A few years ago I was reading The Economist and I remember it stated a particular academic paper that underpinned the rationale for the existence of private equity firms. I have tried to find this article but have had no success. I believe this paper justified why companies are run better privately. Does anyone know what this paper is/might of been?


texts:
While thinking about Lorenz curves and economic inequality I wondered if you can extend Lorenz curves to Lorenz surfaces by revolving a Lorenz curve about the line of perfect equality.

Would such a Lorenz surface have any economical interpretation?

sub question:

Can Lorenz curves be analytic functions, such as $y=x^2?$

Here is a picture of the Lorenz surface I'm imagining inside a cube.

The line of perfect equality would now be the longest diagonal of the cube.


texts: GMM Estimation of a parameter from Intratemporal Euler of capital constraints

texts:
I'm trying to estimate $\lambda$ from this intratemporal Euler equation:

$\left[ \dfrac{C_t^{-\sigma}}{C_t^{*-\sigma}} \dfrac{P_t}{S_t P_t^*} \right]^{\lambda} \left[ \dfrac{\bar{P_t} Y_t - \Delta (FR_t)}{P_t C_t} \right]^{1-\lambda}  = 1 $

Log-linearizing this gives: (done in paper)

$\Rightarrow \lambda \left[ \sigma (c_t - c_t^*) - \ln (RER) \right] = (1-\lambda) \left[ y_t - c_t - \ln (P_t / \bar{P_t}) - (fr_t - fr_{t-1}) \right] $

Now, there are a bunch of assumptions and approximations taken into account, but at the end of the day, I will have data on all the macro variables, and my project is to estimate the values of $\lambda$ for different countries (FYI: $\lambda$ represents the presence of risk sharing).

I've heard that there exists GMM methods for such estimations, but Hayashi only has a small section of intertemporal Euler equation GMM work. I was wondering if you guys could advise me on how I can estimate for this $\lambda$ parameter, or perhaps some guideline as to where I can look. Just to note again, I will have all the variables' data. :)

Thanks!


texts: List of countries moved to developed economies in the last 50 years

texts:
I read in Bloomberg that five countries moved to advanced economies  in the last 50 years from developing economies and one of them was Singapore. Wondering what are the other four countries?

The link to the article is as follows.
https://bloom.bg/31s13gm


texts: Best instruments for "years of schooling"/"education"

texts:
As an answer to question “Seminal papers that later were proven to contain errors”, @snoram mentioned Angrist and Krueger (1991), and there use of quarter of birth as an (exogenous) instrument for education.

@snoram illustrates using (Buckles and Hungerman, 2013) how quarter of birth is in fact correlated with important characteristics of the mother.

In a comment, @snoram write:

  “For the record I think Angrist and Krueger's work is amazing, but
  today we know better than to use quarter of birth (in the us at least
  and for this purpose) as an instrument. Science advances.”

My question : which variables are know to be better than quarter of birth as instruments for, say, “years of schooling” (or more generally “education”)?


texts: Can indifference curves slope up and to the right when both goods are inferior goods?

texts: Just a general question related to Micro. I always thought they sloped down to the right. Thanks!


texts: More complex than simple and multiple regressions?

texts:
I am currently in an Econometrics class that requires us to write a research paper that showcases our skills in regression/ modeling.  What is slightly more complex than simple and multiple regressions that I may be able to learn and utilize in my research project?  I realize that the model depends on the research question, but I'd like to learn different types of modeling anyhow.

Thanks.


texts: What is a what is meant by a "workhorse" macroeconomic model

texts: A number of times ive seen the Neoclassical Growth Model and Overlapping Generation Model setups referred to as a "workhorse of modern macroeconomics". What does this mean exactly?


texts: Name for the intentional reduction in quality in a non-software, price discrimination setting

texts: Is there a general term in economics for the intentional reduction in quality to reduce deviation to the worst alternative in price discrimination? Like "crippleware," but applicable in non-software settings?


texts: Why are readily available productivity data relative, not absolute?

texts: I've been trying to do some cursory research on labor productivity. In the process, I've noticed that the readily available data in the US, as accessed through either BLS or FRED (yes, I know it's the same underlying data), is all in terms of year-to-year change, or level relative to a fixed year. Is there any theoretical or technical reason for this? It seems like an absolute level of labor productivity should be well defined: GDP divided by total hours worked. Am I neglecting something that would prevent reliable calculation of an actual dollars-per-hour number? If not, where can I find this figure?


texts: Fixed-income investment in a low interest-rate environment

texts:
From an investment perspective, it seems to me that a low interest-rate environment can yield to some relatively "un-risky" profits.

As the interest-rate can barely go lower, we now it should rise again at some point (take for instance the recent interest-rate hike in the US).

In this case, what would be the corresponding investment vehicle/product to invest in? My guess would be to just short-sell positions in bonds, as an interest-rate rise corresponds to a decrease of bond prices, but this seems too obvious.

Am I missing something, for instance that short-selling of bonds is not permitted?


texts: What are the consequences of price-capping non-perishables undergoing temporary demand-spikes?

texts:
Due to the recent coronavirus outbreak (2020 for future readers), many consumers worldwide are overstocking on non-perishable products like toilet papers and hand sanitizers, in order to avoid shortages producers and retailers respond by increasing their prices, the Argentinian government has responded to these price surges by establishing maximum prices for these products, official statements describe the objective of these measures is to prevent businesses from "taking advantage and making a profit out of the necessity and anguish of the people."

Is this an effective measure against speculation? Does price-capping have a negative effective on production output by reducing incentives and funding? Does price-capping reduce product availability? Does it improve the equality of its distribution?

Thank you.


texts: Is the price-quantity diagram fundamentally wrong?

texts:
I have wondered about the following diagram:

which shows a relationship between Price (Preis) and quantity (Menge). The supply (Angebot) curve is rising with the amount; the demand (Nachfrage) is decreasing.
As a guy with some mathematical intuition, I am wondering about many things here:

My teacher told me I could only read from price to quantity. Since we are speaking of bijectives functions; this is wrong.
If someone is willing to buy 1 billion "Goods", and my production cost is lower than what he offers - I will produce 1 billion "Goods" for them (assuming that I can) after I tried to get a better price - since I will make a profit after all. Therefore this diagram makes no sense; the amount the producer offers is only determined by the production cost, the production ability and the demand of the goods. The producer will always try to satisfy all demands as long as they make a profit. Naturally, they will try to bargain about the price and sell to the highest bidder in the first place.

So how do you explain this?


texts:
Recently, I have become interested in numerical analysis withinin macroeconomics. In particular, I have been trying to learn algorithms such as "backwards iteration", the "shooting method" etc, in order to numerically solve an optimal control model, more specifically a growth model.

Could you give me some references for introductory and intermediate numerical analysis textbooks ?


texts: What happens if an expensive thing goes into high supply for a limited time?

texts:
Let's say we have this Product A and it costs $1000, it's incredibly useful so it's in high demand, and we got it from a very-short limited-time "event"

But then it goes available again in high supply for another same "event" but a bit more longer so now prices drop to let's say $400 and we have high supply of it now

What is the most probable way that it will rise in price again, if it just takes time how long do you think would it increase price. Let's just say the product is incredibly useful and alot of people really want it.


texts: Some questions about Kyle's model in Continuous Auctions and Insider Trading (1985)

texts:
I was trying to understand Kyle'e Theorem 1 in page $1319$ in Continuous Auctions and Insider Trading
in 1985. As we can see by the proof, this factor $\beta=\frac{1}{2\lambda}$ refers to the coefficient of $v$ of the quantity demanded $X(v)$, which in essence is the strategy of the insider trader. I have some questions that are the following.

Could we assume that this is the slope of the linear strategy?
Is this $\beta$ the inverse function of the insider's price impact and thus the slope and the price impact have an inverse relation to the slope of the insider's linear strategy?
In the sequel of the paper this $\beta$ becomes $\beta_n$, for instance see in page $1322$, in Theorem 2 (relation $3.11$). Does this $\beta_n$ have the same interpretation with $\beta$, but instead we observe it in sequential auction model?
In papers that use the dynamic (sequential auction model) or the continuous model of Kyle, the interpretation of the factors is the same as in Kyle? For instance in the paper of Holden and Subrahmanyam (1992).


texts: What effect does changing the retirement age have on employment?

texts:
I had an interesting casual discussion with a colleague the other day.

A lot of western economies at least, such as New Zealand, have some form of retirement pension. It New Zealand it's called Superannuation. For a single pensioner, the amount received is 40% of the average wage.

I mentioned that as we get an aging population, the cost to the tax payer of paying this pension will increase. Currently about 12% of the budget is used to pay Superannuation.

One of the common solutions put forward is to raise the age that people are eligible to receive the pension.

However, my colleague pointed out that raising the retirement age will likely keep older people in the workforce longer, and pointed out that India in fact lowered the retirement age, as to generate jobs for young people.

So this poses an interesting problem - on one hand, increasing the retirement age saves the government and taxpayer money. On the other hand, it possibly takes jobs from young people and stiffles their career.

Is there any research on the effect of retirement ages and their effect on employment?


texts: Would anyone know how to find out the value of the Russian ruble in the year 1825, in today's (2016) US dollars?


texts: Is there a general name for the setup in which payoffs are not known exactly but players try to influence each other's perception of the payoffs?

texts:
A recent question elsewhere made me look at the "madman strategy" which actually consists of trying to make the opposite player think that he is playing a game of chicken instead of prisoner's dilemma. This can only work, of course, because in reality the payoffs are not known apriori, so an inversion of the non-cooperation payoff with the "tentation" payoff does this game switch.

Is there a general name for a "meta-game" (my term) situation in which the payoffs are not known exactly and players are trying to influence each others' perception of the payoffs?


texts: Arbitrage Pricing Theory (APT), orthogonal factors

texts: Why in the Arbitrage Pricing Theory (APT), one of the assumptions is that the factors has to be orthonogal? what if not?


texts: How does expected utility theory treat losses?

texts:
I've been reading about prospect theory lately and have read often that prospect theory predicts people will be risk averse in gains and risk seeking in losses. This statement is typically supplemented with the phrase ", contrary to the standard expected utility theory model".

However, I'm not sure how expected utility theory deals with losses. Is it that EU theory assumes people who are risk averse in gains will be risk averse in losses as well? If so, how do you model this mathematically?

If our risk-averse EU maximizer has $u(x)=\sqrt{x}$ for $x>=0$, would the equivalent function in losses be $u(x) = -x^2$ for $x<0$? If so, wouldn't that mean that they are overweighting the loss component relative to the gain component - which is not an element of expected utility theory.

Graphically, a prospect theory value function is typically drawn as
.

How would you draw the equivalent graph for an expected utility theory value function?


texts: Why we introduce the intermediate good producers into RBC model?

texts: I am learning the RBC model and find some papers that use the intermediate good producers under the monopolistic competitive market. Could you tell me the benefit of this method? Thanks.


texts: Why are "transfer payments" not part of GDP?

texts:
It is well-known that transfer payments are not counted in GDP (e.g. wikipedia 1 and wikipedia 2).

For instance, exercise 2.c in Chapter 2 of Jones book's Macroeconomics ask to calculate how much GDP changes if:

  During a recession, the government raises unemployment benefits by $100 million.

The official solution says:

  No impact. This is a government transfer payment, not a government purchase of a good or service.

But, what if that transfer is spend in goods? Would that not increase C? What if just a portion of the transfer is used to buy goods?

In fact, an article from Business Insider states the following:

  While transfer payments are not included in GDP, they are largely put in the hands of those who spend most of the money immediately. Therefore, transfer payments show up in GDP as increased personal consumption.

I am puzzled. Why transfer payments do not increase GDP? I would have thought that it depends on whether that money is spent. Also, is this completely independent on where that money comes from? What if it comes from borrowing abroad, or nationally, or from taxes?


texts: Monopoly - Where is the Markup formula derived from?

texts:
Problem:

My lecturer wrote the marginal revenue formula before writing the markup formula, indicating some sort of similarity between the two.

How it was written on the board:

  Market Power being $\text{P>MC}$

  $\text{MR} = \text{P  (1+1/η) = MC}$ (This being profit maximising condition for a monopoly)

  Can be written as:

  $\text{MC/P = 1+1/η}$

  Markup: $\text{(P-MC/P)= -1/η}$

Question:

As much as I can see the similarity, I can't understand how he got to $\text{(P-MC/P)= -1/η}$ from $\text{MC/P = 1+1/η}$?

Index:

P = Price,
MR = Marginal Revenue,
MC = Marginal Cost,
η = Elasticity


texts: Comparing rates of return for different assets using $V=Pe^{rT}$

texts:
I have been playing with $V=Pe^{rT}$ and have been thinking about how to apply it to situations involving different assets growing at different rates.
Suppose I had data for the historic sale prices of a row of houses in a street, with two data points per house. My assumption here is going to be that each house's price grows according to $V=Pe^{rT}$, with $r$ constant.

House no.
Year A
Sold for
Year B
Sold for

1
2000
\$100,000
2015
\$500,000

2
2005
\$60,000
2019
\$111,000

3
1999
\$30,000
2018
$80,000

4
2002
\$125,000
2005
\$126,000

Using $V=Pe^{rT}$, I could calculate each house's instantaneous rate of interest $r=\frac{\ln{V}-\ln{P}}{T}$, and its APR $\hat{r}=e^{r}-1$, where $T=B-A$ is the number of years elapsed.

House no.
Year A
Sold for
Year B
Sold for
$r$
$\hat{r}$

1
2000
\$100,000
2015
\$500,000
10.73%
11.33%

2
2005
\$60,000
2019
\$111,000
4.39%
4.49%

3
1999
\$30,000
2018
$80,000
5.16%
5.30%

4
2002
\$125,000
2005
\$126,000
0.27%
0.27%

My question is, how should I meaningfully combine the growth rates of the different houses? Say I want a figure for the street's overall growth rate in order to evaluate whether a particular house has been growing more quickly or more slowly than this rate. I have various ideas:

Take the average of the $r_{i}$, which is 5.138%
Use $-1+e^{5.138\%}=5.272\%$
Take the average of the $\hat{r}_{i}$, which is 5.346%
Work out the houses' prices in two base years (say, 2000 and 2021), using $P=Ve^{-rT}$, and work out what my $r$ or $\hat{r}$ would have been if I'd bought the entire street in 2000 and kept the houses until 2021.

House no.
$r$
2000
2021

1
10.73%
\$100,000
\$951,827

2
4.39%
\$48,165
\$121,197

3
5.16%
\$31,589
\$93,400

4
0.27%
\$124,338
\$131,470

Total
-
\$304,092
\$1,297,894

Using the totals above as my new $P$ and $V$, I get that $r=6.91\%$ and $\hat{r}=7.15\%$.
Is this a legitimate method? If so, what is it called? I am concerned that it might not be legitimate, because changing the two base years gives different results:

House no.
$r$
2005
2008

1
10.73%
\$170,998
\$235,930

2
4.39%
\$60,000
\$68,455

3
5.16%
\$40,892
\$47,741

4
0.27%
\$126,000
\$127,008

Total
-
\$397,890
\$479,134

Here, $r=6.19\%$ and $\hat{r}=6.39\%$, which seems strange, since each individual house's growth rate was constant. Does this mean that the "What if I'd bought the whole street in year $X$ and waited until year $Y$" method is wrong, or does it still have an interpretation?
What is the best way of defining the "overall" rate of growth for the whole street of houses?
Thanks


texts: First order conditions in a Moral Hazard problem

texts:
Consider a principal-agent problem where effort is observable. Let $\pi$ denote profit, let $w$ denote the wage to be paid to the agent, and let $f(\pi|e)$ denote the pdf of the profit, conditional on effort $e$. Further, $e \in \{e_L,e_H\}$. The problem for the principal is then as follows: For each level of effort, $e$: $$ \min_w\int w(\pi) f(\pi|e)\, d\pi$$ subject to $$\int v(w(\pi)) f(\pi|e)\,d\pi - g(e) \ge \overline u$$
(Here, $v$ is the utility function for the agent, $g$ is the cost function of effort and $\overline u$ is the outside option for the agent). Then, choose $e$ that gives maximum profit given the wage $w$, which has now been solved for at each effort level.

I'm not sure how to take the first order conditions in the minimisation problem above. If $w$ were the argument for the integral, it'd be manageable.


texts:
What happens to Fed's balance sheet when its asset shrink in value? I noticed that Fed's balance sheet is special because I do not see any O.E. category (correct me if I am wrong). Suppsoe Fed's subprime MBS shrink in vlaue, its asset is decreased, but its liability doesn't (correct me if I am wrong), so it has an inbalance between A and L. If no O.E. is there, how can this be?

Also, Prof. Robert Shiller's "The Subprime Solution" says "if losses on collateral [during the crisis] mean that there are not enough funds to cover the defaulted loans, this will be reflected by the Fed paying less to the federal government, hence ultimately higher taxes for individuals." What does Prof. Shiller mean when he says not enough funds to cover the the defaulted loans and what does he mean by funds? What funds exactly? I mean, Fed has the ability to create reserve so how can there be not enough funds? One last question is why is the Fed paying the federal governemnt? I have never heard of Fed needing to pay the governemnt, shouldn't it be the governemnt pay the Fed due to the marturing of the T-bills and etc?


texts: Why would option chains' IV differ, for the same stock and expiration?

texts:
I believe that the right-hand side refers to options sold before CHK split its stock on Apr 15 2020 1 for 200. 1. But why do the IV differ so much, e.g. at the strike price of 3?

Why hasn't this difference in IV been arbitraged?


texts: Perfect complement preferences in an exchange economy

texts:
So I have an exam in a bit, I understand that to find the optimal choice you have to equate tangent of the two indifference curves. However, if the other indifference curve is a perfect complement, what is MRS? I calculated the MRS as infinity/infinity.

Take a look at the question below:

Suppose Jane has an endowment of 2 units of x and 2 units of y, and has preferences given by utility function $u_J(x_J , y_J) = x_J^{2/3} \cdot y_J^{1/3}$ . Suppose Derek has an endowment of 4 units of x and 1 unit of y, and has preferences given by the utility function $u_D(x_D, y_D) = \min(x_D, 2 y_D)$.

On an Edgeworth box diagram, indicate the set of Pareto efficient allocations. Explain how it is determined.
Compute the competitive equilibrium (prices and quantities) for the exchange economy

Was I right about the MRS being infinity over infinity? If yes, then how would I compute the Pareto Efficient outcome when I cannot equate the MRSs? I was thinking that the solution will be on one of the vertexes of Derek's indifference curve but I'm not sure (because kinks are not diff).

Any ideas?


texts: In a closed system, what is the relationship, if any, between currency supply and market capitalization?

texts:
Assuming:

A world in which the market value of publicly traded companies is known
Any transaction to buy or sell stock of said companies can only be consummated with a new currency X, which is freely tradable into and out of other, existing currencies (that is, currency X is required only as long as the transaction is in flight; the buyer trades value into X, makes the purchase, after which the seller trades out of X back into some other form of value.)
The total supply of currency X is fixed and known

Then:

What correlation is there, if any, between the total market cap of currency X and the total market cap of the publicly traded companies (both market caps being calculated in the same external form of value)? Put another way, what would determine the value of currency X in terms of other forms of value? The total market cap of the companies? The total of market transactions in flight at any given moment? Something else? Nothing?


texts:
I am working on a data set from kaggle (https://www.kaggle.com/spscientist/students-performance-in-exams) about how student performance relates to some explanatory variables, such as if the school provides lunch, gender etc.

r/dataanalysis - Which values to assign to a quantified dummy variable
I have changed all the variables to quantative dummy variables and the variable I am concerned about in this post is educ_par (education parents). It can take on 6 different values, which refer to:

if both parents have a bachelors degree

if some went college

three if both of them have a masters degree

if both have an associates degree

highschool

if some have a highschool diploma

Now since, I only have dummy variables my teacher suggested me to at least include one quantitative variable. So that I can interpret it better. Here I want to change educ_par into years of education by parents. However, I run into one main problem here.
Since this is a fake dataset and the variables are not that clear I do not know what values to assign. For example, given the value 5, meaning both parents have a highschool degree, and 6, meaning only some have a highschool degree. In case with 6 I do not know what education the other parent has.Also, imagine both went to highschool, which may mean a total of 12+12= 24years of educatin by both parents, whereas if some went to college, this may mean a 15+0 years of education by both parents, since we do not know what the other parent did. In turn this could mean that assigning values like this having a highschool diploma from both parents affects the grade of their children more than if only one parent has a masters degree.
So my question is how should I quantify this variable? To not run into the problem I am facing above. May I just leave out the cases in which only some parents have a specific degree just to simplify it?
Also how does including a quantitative instead of the dummy variable effect any of my regressions? Or may they just be the same?


texts:
I can think of two possible explanations:

People there inherited the wealth of their ancestors (and of the companies of their generation).

Advances in technology allows you to earn money more easily.

Despite other factors at play: Approximately how big percent of the rich countries' wealth is caused by the first one and how big by the second one?


texts: Martingale, random walk and rational expectations

texts:
What is the link between these concepts?

For example let's take a process $Z_n$ which follows a random walk, I would say that:

This is a martingale, because my expectations of tomorrow, i.e. n+1 depends only on today
If we assume an individual with rational expectation, he will assume that the forecast of tomorrow is today

So in other words, the forecast of a rational individual follows a martingale?

I am not sure of the difference since one concept is used in finance while the other in economics, but they seem basically the same to me.

Last, I have seen in the example that a random walk implies a martingale, is this always true? Does a martingale implies a random walk?


texts: Does utility in economics also refer to producer's surplus ? How to balance the consumer surplus and producer surplus?

texts:
I am confused about the use of utility in economics and how it relates to allocative efficiency.

At 4:35 and 5:07 in this video (https://www.youtube.com/watch?v=9a3wXj1o91k) he talks about how at the left and right of the equilibrium, total utility is not maximised.

I am unsure of what is meant by "total utility". Is it the consumer surplus added to the producers surplus?


texts:
I'm working on a paper on the sharing economy, and in particular on its economic implications.

I am aware of the surge pricing model that Uber adopts, and of how it works. But I'm wondering on what criteria and how Uber estimates the base fares of each city.

I would like, ultimately, to understand whether and why this artificial pricing model is better than the "natural" pricing models of other peer-to-peer services (e.g. AirBnB), that allow the users to set their own rates.


texts: Does vNM rationality depend on the good chosen?

texts:
The von Neumann-Morgenstern theorem states that, assuming a person's preferences under risk satisfy certain rationality axioms, then there exists a utility function u, the von Neumann utility function, such that the person will tend to maximize the expected value of u. For this reason, the hypothesis that people satisfy the von Neumann-Morgenstern rationality axioms is known as expected utility theory. Now in my question here, I asked about a confusion I had concerning the Ellsberg paradox, one of the major challenges to expected utility theory.  But as I thought more about it, it seems to me that the fundamental issue was more general than the Ellsberg paradox.

Consider some good X. Let $L_1$ be the lottery that gives you a guaranteed 2 units of X, and let $L_2$ be the lottery that gives you a 50% chance of 1 unit of X, and a 50% chance of 3 units of X.  Then my question is, is it always consistent with the von Neumann-Morgenstern axioms to prefer lottery $L_1$ to lottery $L_2$?  Or are there some goods X such that it's inconsistent with the vNM axioms to prefer $L_1$ to $L_2$?

Well, suppose that good X is dollars.  Then if u is the vNM utility function, then the expected utility of $L_1$ is equal to $u(2)$, and the expected utility of $L_2$ is equal to $.5u(1) + .5u(3)$.  And it's certainly not inconsistent with the vNM axioms for $u(2)$ to be greater than $.5u(1) + .5u(3)$; that just means the person has diminishing marginal utility/risk aversion.

But now let's choose a different good X.  Consider a raffle where four raffle tickets are placed in a hat, a single ticket is pulled out, and whoever the ticket belongs to wins a 100 dollars.  Let good X be raffle tickets in this raffle.  Then the probability of winning a 100 dollars is equal to .25 times the number of tickets you own.  So under this scenario, the expected value of $L_1$ is $.5u(100)$, and the expected value of $L_2$ is $(.5)(.25)u(100)+(.5)(.75)u(100) = .5u(100)$.  Thus the expected value of the two lotteries are equal, so it is irrational to prefer $L_1$ to $L_2$.

So what is going on here?  How is preferring 2 units of X to a 50% chance of 1 unit of X and a 50% chance of 3 units of X vNM-rational for one good X but not vNM-rational for another?  Just to add to the absurdity, what if someone were making a decision between lottery $L_1$ and $L_2$ where good X  is dollars, and then was planning to use the money he made to buy raffle tickets?  Then wouldn't the choice between $L_1$ and $L_2$ where X is dollars reduce to the choice between $L_1$ and $L_2$ where X is raffle tickets?

Any help would be greatly appreciated.

Thank You in Advance.


texts: Foreign money supply and its effect on home in case of perfect capital immobility

texts:
I am looking of the effects of an increased money supply abroad on home's economy.
Capital is supposed to be immobile, i.e. NFI = 0.
Within an IS-LM-BP-modell (Mundell-Fleming) a vertical line denotes the balance of payments.
Regarding both fixed and flexible exchange rates, which effects on home's economy should be expected?
In the case of flexible exchange rates I expect a revaluation of home's currency, which results in a
shift of the BP curve to the left. A decrease in net exports and income would correspond with an inward shift of the IS curve.
The increased money supply abroad would lead to a lower foreign interest rate, stimulating foreign's economy and increasing income and demand for imports. This would shift home's IS curve to the right again. How would the central bank in home react?
Which reactions can we expect in the case of fixed exchange rates?


texts: Books friendly to self-studying Industrial Organization

texts:
I'm currently an undergraduate freshman looking for resources to self-read Industrial Organization. I've read Varian's undergraduate book cover-to-cover and have a decent understanding of basic game theory, and I own the book
Industrial Organization: Theory and Applications by Pepall-Richards-Norman

Is there another book that would be better for someone who wants a rigorous treatment of IO that is mathematically advanced but theoretically digestable, or is this one optimal? (By the time I begin to self-read, I'll have finished most of baby Rudin).


texts: CES production function with non constant returns to scale

texts:
In the equation
\begin{equation}
Y=\left[ aK^{\frac{\sigma -1}{\sigma }}+\left( 1-a\right) L^{\frac{\sigma -1%
}{\sigma }}\right] ^{\frac{\mu \sigma }{\sigma -1}}  \label{ces_pf}
\end{equation}
if $\mu \ne 1$ we have non constant returns to scale (RTS).
This is the only way I can see to get non constant RTS into a CES production function. One cannot have factors which are raised to exponents which sum to above or below one since that violates the form of the CES function.
Is there some other way to get non unitary RTS into the CES function?


texts:
I am currently working on a calculation to see whether it is economically feasible for a household to invest in an energy retrofit. I obtain a total profit of around $13\%$ over the lifetime of the investement ($25$ years), which translates to an average annual rate of return of $0.52\%$. This investment is mostly risk-free, to the extent that heating fuel prices remain stable.

What are example of benchmarks that I could use to evaluate this return rate? That is, to make a case for/against the household investing in the energy retrofit?


texts: Interaction term significant, joint hypothesis not

texts:
I am trying to find out if some channel is important in the transmission of shock x1 to outcome variable y.
For this, I am running a regression in which y is on the LHS and x1 on the RHS, once alone and once interacted with a variable x2 that differentiates between observations where the channel can exist and where it cannot.
I am getting that the interaction term is significantly different from zero, but when I test whether beta_x1+beta_interaction*[mean of x2]=0, I get that the H0 is not rejected, and when I test whether beta_x1=0, that is also not rejected.
What would you suggest, should I conclude that the channel is important on the basis of this?


texts: Why do firm output decreases when fixed cost decreases in Long Run?

texts: So in long run if fixed cost is lowered, more firms enter the industry and increase the supply, bringing up industrial output. According to the firm diagram, Average Cost lowered so that the firm output is lower. But why is that? Shouldn't the firm produce more when the fixed cost lowers?


texts: Stationarity, ADF/KPSS, Autocorrelation and Heteroscedastiy

texts: i have a time series which is not stationary due to ADF/KPSS test, but is is in its first difference. So ADF and KPSS tell me it is starionary so it has a constant mean/variance/autocorrelation. But i still need to check for autocorrelation and homoscedastie and i dont get why, since ADF/KPSS told me for example the variance is constant, so why would i check with other tests for homoscedastie?


texts: Trembling hand perfection and weakly dominated strategies

texts:
It is well known that players cannot use weakly dominated strategies in a trembling hand perfect equilibrium. My question, however, is a little different: does iterated deletion of weakly dominated strategies preserve trembling hand perfect equilibria? In other words, if $\sigma$ is a trembling hand perfect equilibrium of a finite game $G$, is $\sigma$ also a trembling hand perfect equilibrium of the game $G'$ obtained by iteratively deleting weakly dominated strategies from $G$?

Apologies in advance if the answer is obvious!


texts: Is this use of a Law of Large Numbers correct?

texts:
The usual LLN I've seen, the theorem states that $1/n \sum u_t \rightarrow^p E(u_t)=\mu$,where the expected value is independent of t. However, I cannot apply it to the exercise below.

In the picture, the author seems to be using $ \displaystyle \frac{1}{n} \sum u_t \rightarrow^p \lim_{n \rightarrow \infty}\frac{1}{n} \sum E(u_t)$

Result (3.44) is $Var(\hat u_t^2)=E(\hat u_t^2)=(1-h_t)\sigma^2$, and it's also the result they refer to as 'in the previous exercise', and (3.46) is just the first equation, without the plims.

So, what LLN can I apply?

Any help would be appreciated.


texts: Arrow’s impossibility theorem and voting schemes

texts:
Arrow’s impossibility theorem states that there is no procedure for aggregating individual preference orderings into a collective preference ordering that satisfies certain apparently desirable axioms. This has often been taken to mean that there is no such thing as a good voting system. Actual voting systems, however, do not typically attempt to generate a (complete) social ordering. The goal, rather, is to simply select one candidate who will govern — and the task of the ranking the others, while perhaps interesting, is not of immediate practical importance. This raises a simple question: does Arrow’s result extend to preference aggregation procedures that choose a single candidate based on a profile of individual preferences?

To make this more precise, let me (informally) restate Arrow’s axioms as adapted to the problem at hand:

Unrestricted domain. The procedure chooses a best candidate for every possible list of individual orderings.

Weak Pareto. If all voters prefer candidate A to candidate B, then candidate B is not elected.

Non-dictatorship. There is no voter who alone determines which candidate is elected (regardless of the other voters’ preference orderings).

Independence of Irrelevant Alternatives. If candidate A is elected when opposed to a set of rival candidates, then A will still be elected when opposed by some subset of this set of rival candidates.

(Notice that the transitivity axiom cannot, it would seem, be adapted to this context.)

Question: does there exist a voting scheme that satisfies all of the axioms listed above?


texts:
I am studying for my candidacy exams and I came across this question on a previous exam. The question is in the TFD (True, False, Debatable) section of the exam. The claim is:

  There are no Giffen inputs in production.

I think this question is a very fascinating one, and should spark some interesting discussion. My intuition tells me that this is false because if there are Giffen goods on the consumer side then surely there are Giffen goods on the producer side. However, I cannot think of a concrete counterexample to the claim. In consumer theory, they claim that Giffen goods occur when the good is so important to the consumer that when the price increases, they decide to just buy that good and not buy any other goods. For example, economists believe that one of the only real life Giffen good situations is potatoes in the Irish potato famine. They claimed that potatoes were such a staple in the Irish diet that when the prices rose, the Irish people decided not to buy other foods (such as meat) and dedicated all of their food budget to potatoes.

Are there any situations where we might see a firm/industry act in a similar way? What do you guys think? Are there any Giffen inputs in production?


texts: Portfolio choice problem of a CARA investor with n risky assets

texts:
Ok, I am working on a problem that consists of the following:

I am looking to solve the portfolio choice optimization problem (maximizing utility with a known utility function) in the case where all of the underlying random variables are multivariate normal.

Problem:

define $\phi$ as the amount invested in each of $n$ risky assets, such that the budget constraint is:

$\Sigma_{i=1}^{n}\phi_i=w_0$ for some initial wealth, $w_0$

Show that the optimal portfolio is:

$\phi=\frac{1}{\alpha}\Sigma^{-1}\mu+[\frac{\alpha w_0-1'\Sigma^{-1}\mu}{\alpha 1'\Sigma^{-1}1}]\Sigma^{-1}1$

where each of the 1's is an $n$-dimensional column vector of 1's.

Work/Attempt

Ok, these are the things I know:

I am dealing with CARA utility, which gives me a utility function of the form:

$u(w)=-e^{-\alpha w}$ where $w$ is my random end-of-period wealth which I believe to be distributed as

$w$~$N(\mu,\sigma^2)$ with $\mu=\phi'\mu$ (a vector of expected returns scaled by the amount invested in each), and $\sigma^2=\phi'\Sigma\phi$ where $\Sigma$ is the covariance matrix of the $n$ risky assets.

So, to find the expected utility of this function, I use the fact that the expectation of an exponential of normals is the exponential of the mean plus half the variance, to arrive at:

$E(u(w))=-e^{-\alpha\phi'\mu+\frac{\alpha^2\phi'\Sigma\phi}{2}}$

Factoring out a negative alpha, and equating the remaining part of the exponential as the certainty equivalent of a random wealth (I might not be explaining that well, but I am almost certain this is the correct path), I can maximize utility by maximizing the utility of the certainty equivalent, which is done by maximizing the certainty equivalent itself.

All that to say, I need:

$\frac{\partial}{\partial\phi}\phi'\mu+\frac{\alpha\phi'\Sigma\phi}{2}=0$

From there I can't seem to get anything even remotely close to the result I am supposed to show. I have

$1'\mu+\alpha\Sigma\phi=0$

which seems to mirror the first term in the result, but I am lost as to where the rest comes from.

Any help would be appreciated. I'm not sure if my mistake is in the multi-dimensional partial derivative, or if it is in obtaining the function that needs to be maximized. The book I am using has a similar problem for a single risky asset which I can work through just fine, but the exclusion of a risk-free asset (which would seem to simplify the wealth constraint) makes it more confusing to me.


texts: What are the known refutations of Mises' Axiom of Human Action?

texts:
From Mises' Human Action

  Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life.

Are there any criticisms of this axiom as not being a complete description? By complete, I mean not that it describes all aspects of human behavior or fully explores it, rather I am asking whether or not it fully expounds some first cause of human action from which we can deduce answers to other questions about human economic behavior?

This question is not about whether or not the corollaries deduced from this axiom are true, simply: Is this description sufficient to allow us to, from it, describe corollaries of human behavior?


texts: Exact definition of one-player Bayesian Correlated Equilibrium

texts:
Consider a game where a decision maker (DM) has to choose action $y\in \mathcal{Y}$ possibly without being fully aware of the state of the world $V$. The state of the world has support $\mathcal{V}$. The DM receives the payoff $u(y,v)$ depending on the chosen action $y$ the realisation $v$ of $V$. Let $P_V\in \Delta(\mathcal{V})$ be the DM's prior.

Is the following the correct definition of 1 player Bayesian Correlated Equilibrium provided in Bergemann and Morris (2013,2016,etc.)?

$P_{Y,V}\in  \Delta(\mathcal{Y}\times \mathcal{V})$ is a 1 player Bayesian Correlated Equilibrium if

1) $\sum_{y\in \mathcal{Y}}P_{Y,V}(y,v)=P_V(v)$ for each $v\in \mathcal{V}$

2) $\sum_{v\in \mathcal{V}}u(y,v)P_{Y,V}(y,v)\geq \sum_{v\in \mathcal{V}}u(\tilde{y},v)P_{Y,V}(y,v)$ for each $y$ and $\tilde{y}\neq y$.

In particular, I have doubts about $2)$: what if there is a $y$ such that $P_{Y,V}(y,v)=0$ for each $v\in \mathcal{V}$? Am I missing something?


texts: I'm looking for a good meta analysis which answers the question if patents are generally beneficial to economy or not. Some papers I've read claim they are indispensable, other say it depends on the field. I'm looking for a current state of the art meta analysis / review.


texts: Why should prices come down (in theory) in an educated society with a well-run government?

texts:
In Chapter 1 of Robert Kiyosaki's "Rich Dad, Poor Dad", the rich dad says: "In an educated society with a well-run government, prices should actually come down".
Is there any economic theory that would support that claim?
Would that require a government/society of a particular ideology?
Sorry for the lack of research, but I was never big on studying economics. I'm mostly a software guy and an insect geek. I'm mostly looking for pointers - e.g. which economist I should read in order to understand where that quote is coming from.


texts:
My professor said, in practice, Marshallian demand follows the law of demand (ie that increase in price decreases demand). But he said in theory, the Marshallian case is ambiguous and it does not follow the law of demand.

MY QUESTION:

Why isn't the Law of Demand true for Marshallian demand?


texts: noise traders in neo-classical economics vs behavioural economics

texts: Does neoclassical economics/finance exclude the existence of noise traders (as a contrast to rational traders)? Or do neoclassical models also sometimes accept the existence of noise traders?


texts: Using an interaction term as the instrument (as in Barro QJE (2011))

texts:
I recently came across Barro and Redlick QJE (2011) paper, "Macroeconomic Effects from Government Purchases and Taxes", in which the authors instrument for defense spending with an interaction term between defense spending and war year. The outcome of interest is total GDP. They use an instrument to avoid simultaneity bias between GDP and defense spending.

I'm familiar with the main idea of instrumental variable, i.e. the instrument should be correlated with the endogenous variable but uncorrelated with the error term. However, I've never seen someone use an interaction of the endogenous variable as the instrument before.

Why is this valid?


texts: How to prove monotonic transformation of the function and equivalence?

texts:
At the microeconomics course I have to prove monotonic transformation of the function

U(x,y) = A(x^a)(y^b)

into

U(x,y) = (x^0.5)(y^0.5)

Since the MRS are ay/bx and x/y resp. I can obviously only prove that the transformaton isn't monotonic.

But the ordinal equivalence seems to be impossible to prove without having certain x & y values at which I would compute the utility levels for each function. Is it possible to derive a general proof that I don't know?


texts: Burden of debt; Internal or external financing?

texts:
Q1) How does the burden of an external public debt differ from that of an internal public debt?
Q2) Are there sny conditions under which neither external  nor internal debt is a burden to a nation?


texts: What exactly is the argument for Free Trade?

texts:
There's been a lot of talk about Free Trade. People seem to either know nothing about it, or they seem to either support or oppose it with such passion that if you didn't know any better, you would think they were actually at war.

Now, I often don't like so called "Free Trade Agreements" like NAFTA, TPP, RCEP, CETA, etc. but more often than not my aversion to them tends to be based on toxic copyright provisions and a lack of Fair Use protections, not necessarily the actual macroeconomic effects of the trade deal as a whole.

Thus, I have to ask: what exactly is the argument in favor of Free Trade? What exactly is it trying to achieve? And are there ways a nation can address the negative effects of such deals? And what is Free Trade NOT?


texts: What does Leverage ratio mean in context of Banking sector and how is it different from CRAR?

texts: There are several definitions of Leverage Ratio in context of Banking Sector but it seems like it is no different from CRAR (Capital Adequacy Ratio), could someone explain what's the real difference between both concepts.


texts: For linear quadratic approximation of RBC model, why does matrix $P$ of value function $V = F^TPF$ has to be negative semi-definite matrix?

texts: In http://www.compmacro.com/makoto/note/note_rbc_lq.pdf page 5, it is said that for value function $V = F^TPF$ (Bellman equation) $P$ has to be negative semi-definite matrix. Why does it have to be negative semi-definite?


texts: Is there a simple way to write a model with firms/sectors with different demand elasticities?

texts: I would like to write down a model where there are firms with different demand elasticities: For some firm's total profits increase and decrease a lot with increases and decreases in demand for their product. Others can change supply or costs in a way that changes in demand don't change profits as much. Is there a simple way to write a model with those features?


texts: In a perfectly competitive industry, why is apple considered best example of commodity?

texts:
Out of these options,

shampoo
apples
ice cream
hotels

Why is apple considered to be the best example of commodity in a perfectly competitive industry? And Why not others?


texts: Has any person ever actually planned his or her consumption according to Modigliani’s LCH?

texts:
https://en.wikipedia.org/wiki/Life-cycle_hypothesis?wprov=sfti1

It seems self-evident to me that nobody on Earth actually does this. Real people are short-sighted, undisciplined, and lack the computational ability to account for all the variables.

Some may attempt to, but will invariably fail, and most people don’t even try and instead live for the short-term. Richard Thaler covers this in his book “Misbehaving: The Making of Behavioral Economics”.

Has even one instance of LCH behavior ever been documented?


texts: Linear Expenditure System of Demands, Derivation Help

texts:
This problem I am working on comes out of--surprise--the Mas-Colell book for graduate micro (3.D.6). I think I have correctly used the FOC of the Lagrangian of the utility maximization problem to derive the consumer's Walrasian demand. My answer does not match the book. We are given that

$u(x) = (x_1-b_1)^\alpha (x_2-b_2)^\beta(x_3-b_3)^\gamma$
(and then from the first part we can say that $\alpha + \beta + \gamma = 1 $ WLOG.)

The solutions say that we take a monotonic transformation:
$\ln(u(x)) = \alpha \ln(x_1-b_1) + \beta \ln(x_2-b_2) + \gamma \ln(x_3-b_3)$
and then I set up the Lagrangian of this:
$ \mathcal{L} = \alpha \ln(x_1-b_1) + \beta \ln(x_2-b_2) + \gamma \ln(x_3-b_3) - \lambda(p_1x_1 + p_2x_2 + p_3x_3 - w)$
and the FOCs are:
$\frac{\alpha}{x_1-b_1} - \lambda p_1 = 0$
$\frac{\beta}{x_2-b_2} - \lambda p_2 = 0$
$\frac{\gamma}{x_3-b_3} - \lambda p_3 = 0$
Solve for the x's:
$x_1 = \frac{\alpha}{\lambda p_1} + b_1$
$x_2 = \frac{\beta}{\lambda p_2} + b_2$
$x_3 = \frac{\gamma}{\lambda p_3} + b_3$
Which leads us to:
$$x(p,w) = (b_1, b_2, b_3) + \left(\frac{\alpha}{\lambda p_1},\frac{\beta}{\lambda p_2},\frac{\gamma}{\lambda p_3}\right)$$
This is not what the book got, so I used Walras law to get the desired result:
$p \cdot x = w$
$\implies w - (b \cdot p) = \frac{1}{\lambda}(\alpha + \beta + \gamma)= \frac{1}{\lambda}$
$$\implies x(p,w) = (b_1, b_2, b_3) + (w - (b \cdot p))\left(\frac{\alpha}{p_1},\frac{\beta}{p_2},\frac{\gamma}{p_3}\right)$$
which is the book's solution.
So my questions are:

Did I do the derivation right? How should I know to take a log transformation of the original utility function? Is there any particular information that is supposed to tip me off?


texts: Finding demand functions for an unusual utility function

texts:
I have a utility function: $U = x + \min\{x,y\}$

I want to draw the indifference curve and find the demand functions. Will it be the case of the usual perfect complements?

Also, what preferences could such a utility function represent?

Will the optimal solution be at the kink?


texts: What utility functions are equivalent to additive functions?

texts:
Call a utility function $u(x,y)$ additive if there exist functions $v_x,v_y$ such that:
$$u(x,y)=v_x(x)+v_y(y)$$

Consider the function $u(x,y)=xy$. It is not additive, but, it can transformed using a positive-monotonic-transformation (PMT) to the function: $u'(x,y)=\log u(x,y) = \log{x}+\log{y}$, and the function $u'$ is additive.

My question is: what conditions on a function $u(x,y)$ guarantee that it can be transformed using a PMT to an additive function?

I.e, if I see a function $u(x,y)$, how can I know whether it represents a preference relation which can also be represented by an additive utility function?


texts: Effects of long run stability in U.S price level comparing to other countries on net export

texts:
Suppose the United States experiences a long period of relatively stable prices while other countries experience long periods of inflation. How will this affect U.S. net exports?

I think that if U.S have long period of stable prices ,when U.S export some products abroad ,  it will be cheaper than the others.Therefor Export will increase  How can we predict  net export?


texts: Finding pure-strategy subgame-perfect Nash equilibria

texts:
I'm interested in finding the pure-strategy subgame-perfect Nash equilibria of the game below. What is confusing me is that after player A chooses between reducing and not reducing his end payoffs, the game is not sequential anymore, but simultaneous. How do I go about finding the subgame-perfect Nash equilibria?
I thought of first finding the Nash equilibria in the two simultaneous-move subgames and I got 4 equilibria in total (written as the outcomes):
$(2,4)$ and $(4,2)$ for the left subgame, and
$(1,4)$ and $(3,2)$ for the right subgame.
From this, I deduced what player A would choose in the first stage (don't reduce or reduce), based on possible payoffs, so I got the following two subgame-perfect Nash equilibria:
$ \{Don't\space reduce, a_2, b_2\}$, and
$\{Reduce,a_2,b_2\}$.
I'm not sure if this is correct. After determining the Nash equilibria in the subgames, I get confused trying to determine what player A will do in the first stage. Am I doing this right and can someone explain how to approach solving this?


texts:
I'm trying to construct a gravity model for EU trade flows using a panel dataset, but am suffering from what appears to be a persistent omitted variable problem. My residuals display a queer log-like, almost polynomial type pattern when plotted against the log of trade volumes.

I have searched the literature and included every variable in the model that has appeared in previous studies, including the logs of;
- gdp per capita
- real and nominal gdp
- distance - multiple different measures.
- Real and nominal exchange rates.
- Price levels - various measures.
- Proxies for product differentiation.
- Exporter / importer fixed effects.
- Dummies for things like Schengen / Euro membership, home trade, etc.
Still, the curvilinear / log pattern remains.

Can anyone conjecture as to what the omitted variable may be? I have exhausted my knowledge of the theory.

Any help would be very gratefully appreciated.

Many thanks,

Robert.


texts:
It is common to talk about utility functions. For example in a universe with only two goods, we might assume each person (or group of people) carries a function $u(x,y)$ in their heads. When offered some baskets $B_j$ containing $x_j$ amount of good 1 and $y_j$ amount of good 2 the person will select the basket $B_k$ that maximises $u(x_k,y_k)$.
I wonder has anyone ever tried to find what there utility functions look like experimentally? Of course they might vary from person to person, and depend on the type of goods. But if the functions are a realistic model it should be possible in principle to see what they look like. Has there been any attempts to do so?
The closest I can find are regression attempts, where data is gathered and then fit to some class of functions. For example linear regression tries to draw the straight line (hyperplane) that best fits the data. This is not what I am looking for however, since regression assumes the type of function in advance. I'm looking for something as simple as offering a bunch of baskets, plotting the data, and comparing to a bunch of different types of functions.


texts: How much more can the US Federal Reserve spend on COVID-19?

texts:
On Mar. 26 2020, the Federal Reserve’s Balance Sheet Tops $5 Trillion for First Time. Is the Fed's spending capped at some maximum?

I studied in Canada and am ignorant of U.S. I'm asking about just Fed, not US govt. I quote MarketWatch

  In an NBC News interview aired Thursday [Mar. 26 2020] on “The Today Show,” Fed Chairman Jerome Powell said there was essentially no limit to the Fed’s emergency lending ability.

  Advertisement

  “We can continue to make loans, and the point of all that is to support the flow of credit in the economy to households and businesses,” he said.

  The Fed is only limited by how much backstop it gets from the Treasury Department.


texts: How to know when survivorship bias is a problem

texts:
I have panel data where firms disappear from failure and mergers. Conditional on existing as a stand alone firm, I observe all firms. However, I am differencing two periods (Late - Early), and the probability of being in the second period partly depends on X. I am interested in:
$$ y_{late, i} - y_{early, i} = \beta_0 + \beta_1 * (x_{late, i} - x_{early, i}) + \epsilon_i $$

I am concerned about the selection bias biasing my results. My intuition is that this is a special case of sample selection, and therefore that if the disappearance is randomly done or determined solely by the value of $x$ that the resulting estimates are unbiased. Alternatively, if the sample is determined by the value of $y$ then the resulting estimates are biased.

I believe I am safe here because in my setting, censoring is driven by $x$ and little based on $y$.

Are there special concerns due to the panel setting or the use of differencing? Are there key references in this area for dealing with this issue? I couldn't find anything specific to the panel setting in Cameron and Trivedi (2005).


texts: Is unobserved heterogenity in mixed logit models variable specific?

texts:
I have a mixed logit model with travel cost, travel time, and mode constants. If I only randomize travel cost and keep fixed coefficients for travel time and mode constants, will the model capture overall unobserved heterogeneity or just the randomness observed in travel cost?
So if I want to capture unobserved heterogeneity due to age, gender, etc., do I have to randomize the mode constant, or that is captured in the distribution I assumed for the travel cost.


texts: Intuition: Can someone explain me this contradiction please?

texts: (This is about price elasticity of demand) Both figures are demand curves. In figure 1, the curve includes both high elasticity (|E|>1) and low elasticity (|E|<1) but in figure 2, the curve is either high elasticity or low elasticity. How should I explain this contradiction?


texts: How exactly could you protect your debt, by enclosing it in larger debts with better security?

texts:
I don't understand the notion below of "enclosing"  or "including" the 2nd bad debt into the 1st more secure debt. If you already owe the larger debt with larger security, then haven't you spawned a new separate bad debt that you're now trying to protect?

How exactly did debtors enclose their second bad debt into their first debt?

I, not the source, boldened everything below. Google Answers: Origin of use of verb 'to hedge' as in 'hedge a bet'

Hedging a bet comes from the same linguistic roots as hedging a field. The idea of a hedge as a defence or enclosure making something secure is the starting point for the image of hedging bets. "Hedge" as a metaphor for making one's bet safer, by enclosing it within another [I boldened.], less risky bet dates back to the seventeenth century. "To secure oneself against loss (on a bet etc.) by betting etc. on the other side." This sense of "hedge" dates from 1672 according to the Oxford English Dictionary (OED).

hedge (v.) | Origin and meaning of hedge by Online Etymology Dictionary

late 14c., "make a hedge," also "surround with a barricade or palisade;" from hedge (n.). The intransitive sense of "dodge, evade, avoid committing oneself" is first recorded 1590s, on the notion of hiding as if in a hedge. That of "insure oneself against loss," as in a bet, by playing something on the other side is from 1670s, originally with in; probably from an earlier use of hedge in meaning "secure (a debt) by including it in a larger one which has better security" (1610s). Related: Hedged; hedging. The noun in the wagering sense is from 1736.

'Hedge your bets' - meaning and origin.

It began to be used in relation to financial transactions, in which a loan was secured by including it in a larger loan, in the early 17th century. Initially, the phrase associated with this form of hedging was 'hedging one's debts', for example, John Donne's Letters to Sir Henry Goodyere, circa 1620:

"You think that you have Hedged in that Debt by a greater, by your Letter in Verse."

Inky Fool: How John Donne Invented the Hedge Fund

That's the first recorded usage of the phrase hedge in meaning to secure a bad debt by making it part of a larger one for which better security has been obtained. Although this was the first common financial use of hedging.
From that sense of making your debts safe, came the idea of hedging in your bets by betting on more than one horse which pops up in 1672. From there you get the idea of finding two near-identical things at different prices, buying the cheaper and shorting the dearer. And thus the hedge fund.


texts: Are marginal utilities or utilities compared?

texts:
Consider decision making in an economic model. Suppose that there is some utility and it is a function of consumption and leisure where leisure is full-time work, part-time work, or full-time retirement. In such a model, the agent decides on part-time work if both of the following hold:

$U^{PW} \color{gray}{− U^{FW}} > U^{FR} − \color{gray}{U^{FW}}$
$U^{PW} \color{gray}{− U^{FR}} > U^{FW} \color{gray}{− U^{FR}}$

The left hand side in the first inequality is the marginal utility from working part-time instead of full-time work, and the right hand side is the marginal utility from full-time retirement instead if full-time work. The second inequality is interpreted similarly.
Now consider decision making in an econometric model, say, in the multinomial probit model (https://en.wikipedia.org/wiki/Multinomial_probit). In such a model, the agent decides on part-time work if both of the following hold:

$U^{PW} > U^{FR}$,
$U^{PW} > U^{FW}$.

In the economic model the comparisons are relative (to full-time work in the first inequality, to full-time retirement in the second inequality), while in the econometric model the comparisons are not relative. The question is how one should think of the two different types of comparisons made in the economic and in the econometric modelling. Why are they different? What is the mechanism that brings us from the comparison made in the economic model to the one made in the econometric model? What is the link between the two? The book from Winkelman and Boes (2006) mentions that "This raises the question of whether and how statistical models for binary dependent variables can be related to microeconomic models of choice, based on utility maximization subject to constraints. It turns out that such a link can in fact be made, and the class of discrete choice models has been developed to derive discrete probability models based on utility maximization (McFadden, 1974a, 1981)." I cannot find the answer to my question in the McFadden articles.


texts:
People are concerned about the economic impacts of the virus. How severe will the economic downturn be? Will the coronavirus cause a global recession worse than the 2008 crisis?
I'm not looking here for speculative answers, but references with a solid economic background. For example, I found these:

Flattening the Pandemic and Recession Curves, March 13 2020, by Pierre-Olivier Gourinchas, Berkeley.
Economics in the Time of Covid-19, by Vox CEPR.

Any other (academic) references?

Economics podcasts are also welcome. I found those:

Russ Roberts and Tyler Cowen on COVID-19
The Side Effects of Social Distancing by Freakeconomics
And a bunch of recent episodes by Planet Money.

Update.

Some nice references on Following the economic impact of COVID-19 by Stanford (SIEPR) experts.

Last update: On the weekly NBER Working papers released by April 13, 2020, there is already a lot of material on covid-19!

The Geographic Spread of COVID-19 Correlates with Structure of Social Networks as Measured by Facebook,  T. Kuchler, D. Russel, and J. Stroebel.
How Are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey, A.W. Bartik, M. Bertrand, Z.B. Cullen, E.L. Glaeser, M. Luca, and C.T. Stanton.
Covid19 and the Macroeconomic Effects of Costly Disasters, S.C. Ludvigson, S. Ma, and S. Ng.
Optimal Mitigation Policies in a Pandemic: Social Distancing and Working from Home C.J. Jones, T. Philippon, and V.Venkateswaran #26984
COVID-Induced Economic Uncertainty, S.R. Baker, N. Bloom,
S.J. Davis, and S.J. Terry.
Social Distancing, Internet Access and Inequality, L. Chiou and
C. Tucker.
A Simple Planning Problem for COVID-19 Lockdown, F.E. Alvarez, D. Argente, and F. Lippi.
Firm-level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1,    T.A. Hassan, S. Hollander, L. van Lent, and A. Tahoun.
U.S. Economic Activity During the Early Weeks of the SARS-Cov-2
Outbreak, D. Lewis, K. Mertens, and J.H. Stock.
Demographic Determinants of Testing Incidence and COVID-19 Infections
in New York City Neighborhoods, G.J. Borjas.
Triage Protocol Design for Ventilator Rationing in a Pandemic:    Integrating Multiple Ethical Values through Reserves, P.A. Pathak, T. Sönmez, M. Utku Unver, and M. B. Yenmez.
Polarization and Public Health: Partisan Differences in Social
Distancing during the Coronavirus Pandemic, H. Allcott, L. Boxell, J.C. Conway, M. Gentzkow, M. Thaler, and D.Y. Yang.


texts:
I was wondering. Suppose that in the whole realm of economic activities, all those activities were fully automized. From the finding of raw resources to the making of products that leave the factories, so the owners of the companies that perform the many tasks from resources to end-product don´t need employees anymore; the maintenance of infrastructures; social- and health-care; in short, every kind of work were we need in this time people for (I´m aware it´s rather far fetched, but often when you push things to the limit some things can become clear).

Would the world be a place of milk and honey, or will conflicts arise?


texts: What is the definition of a "Stackelberg leader-leader equilibrium"?

texts:
I have encountered the equilibrium concept of "Stackelberg leader-leader equilibrium" while reading Product Line Rivalry (AER, Brander and Eaton (1984). They say "we define a Stackelberg strategy as one which involves taking into account the contemporaneous reaction of one's rival in setting one's own strategy". That definition does not really help me.

They also mention that this equilibrium concept is another way of interpreting the original Stackelberg model (which I know).

Does anyone have a reference or an explanation ? Of course, Google only returns results on the leader-follower game.


texts: Are no arbitrage models and equilibrium models equivalent?

texts:
This YouTube video from WHU (starting from 3:50) claims that no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM).
He uses the Euler equation and the stochastic discount factor (SDF) as arguments which apparently link the two types of models.
I understand that an equilibrium requires the absence of arbitrage (to clear the market) but I don't see why any market without arbitrage is automatically in equilibrium.
Put differently, I thought that, for example, the Black-Scholes model can be derived by merely assuming that the market is free of arbitrage. I understand that the BS model can also be derived from the CAPM but that these additional assumptions ($\mu$-$\sigma$ based agents $\Leftrightarrow$ quadratic utility function $\Leftrightarrow$ linear SDF) are not necessary and the poor empirical performance of the CAPM does not directly impact the validity of the Black-Scholes model (which is flawed for other reasons).
Of course, Black and Scholes assume that (log-)returns are normally distributed and this may be in line with a quadratic utility function but we can derive similar option pricing formulae using completely different distributions with more parameters (CEV and such).


texts: Interest Rate and Foreign / Domestic Investment

texts:
I read that increased interest rate attracts foreign investment but discourages domestic investment.

Why does interest rate have different effects on foreign and domestic investments?


texts: Liquidity trap and consumers' reaction to an increase in money supply

texts:
I've understood that when the nominal interest rate reaches the zero lower bound there is nothing that the monetary policy can do to increase the output level of a certain economy. Because $i=0$, no one is interested in bonds anymore, and people decide to hold more money in correspondence to the same interest rate. But if they hold more money, why they decide to keep them, instead of increasing their level of consumption and thus increase also the level of production?

It may be a stupid question, but I really cannot figure out the answer. Hope you can help me. Thank you in advance.


texts: Lecture note recommendations for the endogenous growth model (EGM)

texts:
I'm curious if anyone has a recommended lecture notes, slides, or book, anything really, that goes through evolutions of basic models like $y=AK$, to $y=AK^aL^{1-a}$, to $y_t=A_tK_t$, to $y_t=A_tK^{a}_tL_t^{1-a}$, etc. such that the models get more complex. I'm following along with the lectures in class but all the asides, comments on real-world examples, aren't helping me solidify the intuition for the big-ideas that are underlying some of the evolutions. Basically, why some models are too simple, and what adding more variables does to the model.

Previous threads focus on discrete models in econometrics (hit markets for ideas I'm concerned with lead me here), so not that relevant.


texts: Why has gold dropped during the same week as Deutches Bank faces great difficulties

texts:
I chose the phrasing "great difficulties" to be polite. The "capital release unit" seems to be a bit of a desperate action from the bank, coupled with further complications involving bad press made things even worse for DB.

Wouldn't all of that be a fairly unmistakable signal to buy gold as a hedging instrument?

Question

Is there anything in economic theory that can explain why gold would drop when a bank looks to be in big trouble? Have I missed something? Or is this a case of "market irrationality?" I wonder if there are studies on how long markets can remain "irrational."


texts: I am trying to find historical data at the district, or ideally at the city-level on labour productivity (by sector, with a special focus on agriculture) or perhaps data on a similar measure?


texts: What are some results in Economics that are both a consensus and far from common sense?

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What are some results in Economics that are both a consensus between most economists and far from common sense?

I would also welcome suggestions of clear definitions for what we should mean as consensus , specially considering that economics is an area with a lot of methodological divergence. Let me try first, a suggested definition for consensus in this setting would be:

  the existence of a group of experts that would claim that the result
  is certainly true.


texts: Do I make correct conclusions about international trade (and ways to increase GDP) from the expedenture approach formula for GDP?

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(Please correct me if my reasoning is wrong somewhere)

Net Exports is a part of GDP and consequently its increase or a decrease also causes GDP to increase or decrease, assuming everything else stays equal. Higher import means lower Net Exports, while higher export means higher Net Exports.

Let's take two countries, country A and country C. Let's also assume that all internatinal trade happens between these two countries. If country C will increase its exports to country A, then GDP of country C, assuming everything else holds equal, will increase due to increased Net Exports part of its GDP equation. While for country A its GDP will decrease due to its decreased Net Exports.

From this it seems logical to conclude two things:

1.International trade is a zero-sum game from point of view of increasing/decreasing GDP.

2.If we want to increase our GDP, then among other things we must consider decreasing our import and increasing our export. For an example, we could outright ban some of foreign goods or raise tariffs, thus forcing our population to decrease consumption of foreign goods, this way increasing our GDP.

The only problem I see so far is that in the real world such policies can lead to trade wars, with other nations banning goods from our country and rasing tariffs on our goods, thus hurting our exports.


texts: Adjusting categorical household income variable for interaction effects

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For a research project (RCT) I am working on, I'm trying to identifying how different demographic groups differed in their performance on certain indices over time (like finance, health etc - measured via monthly surveys) and how that may have interacted with treatment groups these participants (randomized into 6 different treatment groups). Therefore, the main DV are four indices and the main IV are certain demographic characteristics from our participant pool.
I had no issues calculating the income effects for all the variables EXCEPT household income (HHInc2019) - which is the total self-reported household income of the participants in the year 2019.

              HHINC |      Freq.     Percent        Cum.
--------------------+-----------------------------------
  Less than 10,000$ |      3,826       27.26       27.26
10,000$-20,000$ |      3,251       23.16       50.42
  20,000$ - 30,000$ |      2,774       19.76       70.18
   30,000 - 40,000$ |      1,685       12.00       82.19
  40,000$ - 50,000$ |        941        6.70       88.89
  50,000$ - 60,000$ |        527        3.75       92.65
  60,000$ - 70,000$ |        325        2.32       94.96
  70,000$ - 80,000$ |        212        1.51       96.47
  80,000$ - 90,000$ |        151        1.08       97.55
 90,000$ - 100,000$ |        101        0.72       98.27
100,000$ - 110,000$ |         88        0.63       98.90
110,000$ - 120,000$ |         35        0.25       99.15
  120,000$ or above |        120        0.85      100.00
--------------------+-----------------------------------
              Total |     14,036      100.00

What I'm stuck on: I want to adjust this variable based on the zip code of the participants but I'm not sure how to do this! I merged my dataset with the ACS survey with median household income by zip code, but how can I now adjust this categorical variable based on what I have?
Alternatively - would it work if I just use the ACS income variable as a control in my interaction effects model?


texts: Looking for an article in Behavioral Economics about Inequality

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I have been searching for an article that I know exists, but somehow am unable to find.

The article is about an economic game where participants are assigned to a group, and can observe how much others have contributed to the common 'money pool.' According to the article, if people see the actual monetary amounts given by others, they will tend to like/not punish the person who has given the most. However, when they see the percentage of the incomes given to the money pool, and find out that the person who has given the most has actually given the least (percentagewise) from his income, they tend to severely punish him.

So, the authors conclude that people care about ratios given by others.

I do not know exactly which economic game this is, but I am certain of having read this.


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In Gali (2015)'s textbook Monetary Policy, Inflation, and the Business Cycle, variables in levels are denoted with capital letters, logged variables with lowercase letters.

However, when a log-linearisation is performed, say of the household optimality condition, why is the result in logs and not in percentage deviations, (lower case letters with a hat, for instance)?

Is there an intermediate step/reason for why we can go from percentage deviations to logs? Thanks!