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7
votes
3answers
190 views

Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision? Why an investor ...
6
votes
2answers
3k views

Local Non-Satiation Proof

I have been having trouble with how to go forward with a proof for about three days now. I know the basic structure of the proof, but can't seem to construct it. Basically, I am trying to do a proof ...
5
votes
3answers
1k views

Question about the Ellsberg Paradox in Expected Utility Theory

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,...
3
votes
2answers
864 views

Why are trade deficits considered unfair?

President Trump has accused Germany and China of unfair trading practices over trade deficits. What is unfair about trade deficits? This may be economics 101, but in my naive eyes every time a ...
3
votes
1answer
151 views

What is the appeal of DSGE models?

As far as I understand people like them, because they fit the data quite well when compared to VAR's for example while also having an economic interpretation. They appear to explain observations in a ...
2
votes
2answers
726 views

Books to self-study applied econometrics

I'm a student and I'm interested in focusing on the application of econometric theory to "practical" situations. It would be great if you can suggest freely available books along with those that are ...
2
votes
1answer
346 views

How is monetary policy fair in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
23
votes
4answers
2k views

What are Giffen Goods?

What exactly are Giffen goods and are they of purely theoretical interest or has there been empirical evidence of their existence?
18
votes
4answers
811 views

I lost $100 in the laundry, who won?

I lost a 100 dollars bill in the laundry (it was destroyed). I clearly lost 100 dollars. Where are they now? Who won 100 dollars?
16
votes
5answers
737 views

Has an increase in housing supply in popular cities including Amsterdam led to an increase in house prices?

Common economic thinking dictates that an increase in price should lead to an increase in supply, and that an increase in supply should then lead to a decrease in price. According to Maarten van ...
9
votes
2answers
994 views

When can one safely talk about decreasing marginal utility?

One thing I hear a lot is talk of decreasing marginal utility—the idea being that additional units of a good become progressively less attractive the more units of that good one has already. However, ...
9
votes
3answers
11k views

How to show that a homothetic utility function has demand functions which are linear in income

A homothetic utility function is one which is a monotonic transformation of a homogeneous utility function. I am asked to show that if a utility function is homothetic then the associated demand ...
7
votes
6answers
961 views

What is the relevance of economic growth?

Economic policies often mention high economic growth as a desirable path. For example, "We started to lay a new foundation for stronger, more durable economic growth." -- President Obama, ...
7
votes
3answers
2k views

Are there any examples of tariffs working?

Nations have imposed tariffs on goods for many reasons throughout the ages. Are there any examples of a tariff actually succeeding at its intended goals? When I research tariffs, I find countless ...
7
votes
3answers
699 views

What is the impact of fracking on oil prices?

I read an article about the recent fall of gas prices in the US claiming that the fall in gas prices was due to the expansion of fracking within the US. The article said that, over the past few ...
7
votes
2answers
3k views

Which utility function yields a constant price elasticity of demand function?

How do I know which utility function I can use to find an isoelastic demand function, e.g., $x(p)=Ap^a$? And similarly, which cost function can I use to find an isoelastic supply function? Does it ...
6
votes
1answer
73 views

Is over-valuation of a start up genuinely detrimental to the start up's future?

I recently watched S02E01 of Silicon Valley. In it, having demonstrated a breakthrough algorithm, the guys are pursued by investors with increasing funding offers. However, the founder is warned ...
6
votes
1answer
1k views

Homothetic preferences and utility functions

I know that if you have homothetic preferences and a utility function that represents it, then this utility function must present constant Marginal Rate of Substitution (MRS). My question is whether ...
6
votes
4answers
164 views

What does economics say about “price gouging” during an emergency?

Many states have laws against "price gouging" during an emergency. Are these laws counterproductive? Take the current situation with toilet paper and water. When someone sees rolls of toilet paper ...
6
votes
1answer
313 views

What did the Swiss National Bank use to purchase EUR while pegging the Franc to the Euro?

To peg its currency (CHF) to the Euro (EUR), the Swiss National Bank (SNB) made purchases of EUR to the tune of several hundred billion. By reducing the supply of EUR, the SNB made the EUR relatively ...
5
votes
2answers
444 views

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

When I read news about the action of Swiss National bank of not keeping fix ration to Euro any more, I read in all articles, that it was too expensive for Swiss National Bank to keep the fixed ...
5
votes
3answers
1k views

Do unsold goods still make it into the GDP?

Assuming Car Motors in Tiny Country has 1m USD and it spends it on workers and suppliers to produce 1m USD worth of cars (cost) for export at 2m USD (1m USD profit). A tsunami hits and drags all the ...
5
votes
1answer
5k views

What is a homothetic function?

Suppose we have the following equations for the MRS of a utility function. $$U(x, y)$$ Which of the following corresponds to a homothetic utility function? $$MRS (x, y) = \frac{x^2+y^2}{xy}$$...
5
votes
2answers
7k views

How do I change the base year of real GDP using the GDP deflator and nominal GDP?

I'll use the US as an example. I have three data series nominal GDP $(Y)$ real GDP in 2005 USD $(\bar{Y})$ the GDP deflator $(d)$, with 2005 as the base year, so $d_{2005} = 100$ I want to change ...
5
votes
1answer
324 views

What were the factors that caused the Philips curve to stop working during the 1970s?

Philips curve says that inflation and unemployment were inversely correlated. In the 1970s, stagflation happened. If Philips curve hold true, stagflation is impossible. What were the factors that ...
4
votes
2answers
99 views

How does a refinance allow a mortgage to be repaid?

A textbook I'm reading states (talking about the years leading up to the financial crisis): As long as housing prices increased, these mortgages were secure: the borrower rapidly ...
3
votes
2answers
2k views

Intuition behind the positive slope of LM curve : 'Income must increase'?

Source: by John Floyd PhD (in Economics; U Chicago) The intuition behind the positive slope of LM is as follows: An increase in the interest rate reduces the demand for money and an increase ...
3
votes
1answer
1k views

Oddness of equilibrium points

I have seen that generically any finite games have odd number of equilibria. So for $2\times 2$ games can we say that generically they must have $3$ equilibria? If not can you give an example of games ...
3
votes
2answers
504 views

Subgame Perfect Nash equilibrium: two stage game

Charitable organizations are ranked according to the proportion of their total budget that is spend on programs(what directly goes to the recipients of their services) relative to money spent on ...
3
votes
1answer
117 views

what was the world's wealth in 2015?

I was reading an article from 2015 stating that 1% of the world has half of the world wealth. They have several figures such as the world's billionaries have around 7 trillions dollars or the global ...
2
votes
3answers
147 views

How important are capital requirements for controlling broad money supply?

Interestingly, the Bank of England (BoE) is one of the few central banks that does not have reserve requirements. Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve ...
2
votes
3answers
1k views

Wouldn't an unconditional basic income lead to an inflation that negates its effect? [duplicate]

There are several version and denomination for a basic income. In this question, I will call unconditional basic income the situation were all citizens of a country receive regularly a lump-sum of ...
2
votes
1answer
209 views

Kuhn-Tucker and optimization (continue)

This is a question related to the question: Kuhn-Tucker optimization problem and game theory .The question is: Some cultures emphasize more social interaction more than others. Is there a role for ...
1
vote
0answers
61 views

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

In this question, I'm continuing to explore the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies" (2012). I'm trying to compute an ...
10
votes
2answers
670 views

Can the Machina Paradox be solved by expanding the choice set?

In another question, the Machina paradox is mentioned as a possible counterexample to the expected utility model: Adding to the list of paradoxes, consider Machina's paradox. It is described in Mas-...
9
votes
3answers
3k views

Why absolute value in elasticities and marginal rate of substitution?

This is a point I find very confusing and very hard to justify to students. Depending on the books, one finds many different conventions regarding the sign of elasticities and marginal rate of ...
9
votes
2answers
686 views

Examples of Factors in the ICAPM

The intertemporal capital asset pricing model (ICAPM) is different from the CAPM in that in the ICAPM, utility is conditioned on some set of state variables. The ICAPM results in a multifactor pricing ...
8
votes
3answers
162 views

Departure point for research in economics

I hope this is the place to ask this question. I am in the first year of PhD in economics. As most of PhD students in economics, I try to show some economic mechanisms by theoretical modelling in ...
8
votes
2answers
484 views

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

According to an article at Yahoo Finance, the Swedish central bank dropped its zero interest rate to -0.1 percent a couple of days ago (the article is dated to Thursday, February 12th, 2015). Now, ...
8
votes
3answers
2k views

Why can't countries print another country's currency?

Counterfeiting money is clearly a difficult thing for individuals, but surely a country should have no problems counterfeiting another country's currency. Why don't countries do it? For example, for ...
6
votes
2answers
135 views

Predicted recessions that never happened

It seems generally accepted that recessions are hard to forecast, in both onset and intensity, but the bias seems to be toward rosy outlooks: The main finding is that, while forecasters are ...
6
votes
2answers
157 views

If the price of oil and energy goes down, why does CPI go up?

Today, StatsCan revealed that Canada's CPI rose by 1.3%. They are attributing it to lower energy prices, led by the fall in the gasoline index (down 12.6% since one year ago). From my understanding, ...
6
votes
3answers
197 views

What is Islamic Banking?

What is "Islamic banking," and how is it similar to and different from banking as it occurs in the U.S.? I have heard Shariah Law prohibits usury, the taking of interest on loans. How do Muslim ...
6
votes
3answers
630 views

How does lowering a corporate tax rate benefit a nation?

When governments talk about about lowering corporate tax rates they claim there is benefit in one form or another. The problem is the mechanism of how the benefit can work is never explained. The ...
6
votes
3answers
10k views

What is a rational consumer?

There is a lot of debate on whether or not consumers and investors are rational. Unfortunately, I haven't seen much qualification for what is called a rational consumer. What are the requirements ...
6
votes
3answers
1k views

Intuition behind Comparative Advantange

I already read and ask NOT about pp 52-54, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw. I understand such numerical examples that corroborate Comparative Advantage, but how can I ...
5
votes
3answers
456 views

Preferences where wealth effect dominates

King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level. Greenwood-...
5
votes
1answer
3k views

Linear Expenditure System of Demands, Derivation Help

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 ...
5
votes
1answer
180 views

Why is JPY considered a “safe currency”?

When the economic prospect around the world feels getting worse and/or getting higher uncertainty, usually the value of JPY is getting higher, because investors are said to start to buy JPY to shelter ...
5
votes
1answer
100 views

Does the political claim “will create X jobs” have an economic definition?

I often see claims that new (generally government) projects will "create n jobs". For example, this 2013 claim from the Economic Development Blog about the 2020 Olympic Games: The Olympic Games ...

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