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2
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26 views

Showing that a market model has arbitrage and describing martingales

This is an exercise which I came upon while studying an introduction to financial mathematics. Exercise : Consider the finite sample space $\Omega = \{\omega_1,\omega_2,\omega_3\}$ and let $\...
2
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0answers
79 views

Helping in understaing new Pesaran and Timmermann test (and R code validation)

I am currently working with Pesaran & Timmermann test version from year 2009. Since I could not find any R package that contains function to calculate it (...
2
votes
1answer
116 views

Can $u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$ be solved by Kuhn–Tucker conditions?

Consider $\max_{x_1, x_2, x_3, x_4} u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$ s.t. $\; p_1x_1 + p_2x_2 + p_3x_3 + p_4x_4 \le w$ I know we can solve the max problem through separately considering ...
2
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0answers
68 views

Convexity of profit function

The profit function is convex in prices. Are there any conditions under which it is linear in prices? (The property as written in most books doesn't mention strict convexity, so it seems to suggest ...
2
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0answers
30 views

Effect of Modified Utility Function on Initial and End Values of Capital, Labor and Production

I am trying to model a transition path of an economy exposed to a permanent shock to government spending on dynare via matlab. We start with these model equations (standard dynare code format). <...
2
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0answers
149 views

How to prove if production set Y satisfies free-disposal and CR of scale, then Y is convex, when there are only 2 commodities

Free-disposal and CR of scale can not imply convex production set. But it is true for single-input and single-output model. Therefore, I am wondering how to prove if production set Y satisfies free-...
2
votes
1answer
752 views

Supply curve when the marginal cost is zero

The supply curve is built as the average marginal cost (MC), when the MC is equal or higher than the average cost (AC) The marginal cost increases, as a result of the opposite effect of marginal ...
2
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0answers
21 views

How did old international loans work?

On June 11, 1782, John Adams secured a much needed loan for the new Republic from Holland. How exactly did this work in the days of strictly paper currency? What did it mean to loan internationally ...
2
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0answers
44 views

How can the number of hairdressers in the UK be up 50% since 2010?

In this recent article, The Economist argues that one of the reasons behind the anaemic recent wage growth in Britain is that the recent job growth has been concentrated in lower-productivity jobs and ...
2
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0answers
297 views

Solow Model - criticism of Harrod model

I have started out reading seminal paper of Solow - Solow Growth model. It starts out with discussing weaknesses in Harrod Domar Model, a simple model of economic growth which featured prior to solow'...
2
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0answers
64 views

Afriat's number

I discovered the Afriat's theorem on the possible rationalization of a given data set of demand observations and would like to ask for your help in understanding how to compute Afriat numbers in ...
2
votes
1answer
113 views

Wages, capital: Substitution and Output Effects

Consider a CES production function $Y=f(K,L)$ with elasticity of factor substitution $\sigma>0$. The substitution effect of higher real wages naturally implies a shift along the isoquant to more $...
2
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0answers
40 views

Mean Field/Differential Game and Measurability

Consider the following scenario. There is a continuum of players in a population, with population measure normalized to $1$. Each player has a type $\theta \in [0,1]$ and we suppose that $\theta$ is ...
2
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0answers
37 views

Any examples of non-parallelism making Diff-in-Diff estimation biased?

The key assumption in a Differences in Differences design is that both the control and the treatment group have parallel tendencies, that is, they'd follow similar paths over time if there was no ...
2
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0answers
19 views

Understanding Boserup's theories on food and overpopulation

From what I understand about Boserup's theories, she claims that when populations grow and near the carrying capacity of whatever habitat they live in, businesses will have incentive to invest in new ...
2
votes
1answer
80 views

Consumer Utility Maximization equivalent of economies of scope

Economies of scope captures the idea of having efficiency in variety. I've come across this idea only in producer theory to capture the idea that companies may benefit from their ability to reduce ...
2
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0answers
28 views

How does the dollar value of all bitcoin compare with the total cost of the electricity required to generate it?

The world's Bitcoin mining in the aggregate uses surprisingly large amounts of electricity. Princeton computer scientist Arvind Narayanan estimates that Bitcoin mining now uses about five gigawatts ...
2
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0answers
21 views

Are there any experiments about financial games with just one player?

I was wondering if there are any experiments of financial games (laboratory games under controlled circumstances like Plott and Sunder's Rational Expectations and the Aggregation of Diverse ...
2
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0answers
39 views

How can protectionist policies keep wages low?

A German economist who also worked at the ECB notes that: Germany’s bilateral trade surplus with the US has barely changed, despite substantial swings in the euro-dollar exchange rate – which was ...
2
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0answers
23 views

Is there an income inequality metric which also considers the total income?

I'm trying to compare some data I have about two companies, and in order to do so I need to compare their income inequality, but also to take in consideration the total income of each. For example if ...
2
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0answers
43 views

Has any research found that automation will decrease inequality?

A paper by IMF researchers (but not an official position of the IMF) has found that automation will lead to higher inequality under all scenarios they considered. Even in the scenario where robots ...
2
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0answers
64 views

Research community around logistics micro-economic topics?

Is there the equivalent of a Rand Journal of Economics for the topic of logistics, focusing on the micro-economics of productivity gains via automation or disruptive technologies. There is the ...
2
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0answers
39 views

Finding savings in an Overlapping Generations model

I have not seen this question asked anywhere, so I'm posing it here in case anybody else (hopefully) can help me get to the answer. In a nutshell, my question is: how do we arrive at the saving ...
2
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0answers
82 views

Marginal propensity to consume and multiplier effect

Recently I had a conversation with a certain person (call her X) about the marginal propensity to consume (and about the multiplier effect). With marginal propensity to consume I mean $c_1$ as a part ...
2
votes
1answer
69 views

How to derive the measurement equation for the state-space representation of a DSGE model?

DSGE models, after log-linearisation, have a state-space representation. In this representation, in most papers, the measurement/observation equation is simply stated. I'm wondering how one deduces ...
2
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1answer
45 views

what does historical volatility explain?

Let's assume we have close prices of one stock of period one year. As far as I understand historical volatility is standard deviation of log return, however I do not understand what this actually mean....
2
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0answers
65 views

Simultaneous Equation Models for Estimating Demand for a Good

Suppose in an economy there are $G$ available goods $X_1,...,X_G$. We can formulate a system of $3G+1$ equations as below: $$Q^d_g = A_{g1}+A_{g2}P_g+\mathbf{A}_g\mathbf{Z}^d_g+u_g\quad(g = 1,...,G)\...
2
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0answers
53 views

Roosevelt’s Price Fixing in The Great Depression

Why didn’t Roosevelt’s method of fixing prices on labour and produce help the depression? If everyone was receiving a wage that allowed them to afford produce, wouldn’t that create a new equilibrium ...
2
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0answers
59 views

Comparing relative change for different base value

I need to compare change in employment size for a sample of companies. I could use percentage change, however, the problem with it is that when the base is small, a small absolute change result in a ...
2
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0answers
53 views

Cleaning data for DSGE model estimation: An and Schorfheide (2007)

In Herbst and Schorfheide "Bayesian Estimation of DSGE Models", in the appendix named "Data Sources", they show several formulas relating the empirical data which should be used for the model. Here's ...
2
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0answers
45 views

What are the linearised equations for the flexible economy in Smets and Wouters (2007)?

To solve the Smets and Wouters (2007) model, we need the linearised equation for the economy when wages and prices are flexible (monetary policy rule depends on the potential output). However, in ...
2
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0answers
25 views

How to deal with potential output in the Sims (2002) framework?

In Sims(2002), the author explains how one solves a linear rational expectations model. $$\Gamma_0S_t=\Gamma_1S_{t-1}+C+\Psi z_t + \Pi \mu_t$$ The only thing exogenously defined in the $z_t$ ...
2
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0answers
21 views

Government efforts in tacking the food crisis

I am a student taking H2 economics at the 'A' levels. Recently, in one of our case study questions in one of the tutorials on the price mechanism and its applications, we covered the food crisis. As I ...
2
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0answers
28 views

Dornbush model - relationship between i and S

In the Dornbush model, when we separate short and long run equilibrium. This is what I apparently have understood: SR1: an increase in Money Supply ($M_s$) leads to a fall in domestic interest rates (...
2
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0answers
493 views

Meaning of Transversality Conditions in Ramsey Problem

I'm working on a Ramsey problem for taxation, and am a little confused on the meaning/intuition behind the transversality conditions below: $\lim_{T \to \infty} \lambda_T b_{T+1} = 0$ $\lim_{T \to ...
2
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0answers
59 views

Size and influence of the regulatory/supervisory sector

I am interested in the size of what I call the regulatory/supervisory sector in Western economies. A regulatory/supervisory (R&S) activity involves either: Determining a set of rules economic ...
2
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0answers
49 views

Reference Request: Primer on Relationship Economic Growth and Science / Technology

I'm in the early stages of planning a research agenda in this area, which means studying the current literature with an eye for further research opportunities. The Economics of Science and ...
2
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0answers
136 views

Isn't it trivial that preferences are single-peaked over two alternatives?

I'm studying Down's Median Voter Theorem which states that if voters have single-peaked preferences over two alternatives arranged along a one-dimensional political spectrum, a majority rule voting ...
2
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0answers
91 views

Use of the Lagrangian in empirical work

In my own studies I have noticed that many of the constrained optimization type questions that are often covered in intermediate/advanced microeconomics courses are seldom seen in more empirical types ...
2
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0answers
159 views

Solution to Dynamic Programming (Bellman Equation) Problem

Could someone please provide pointers on how to solve the below? If any theoretical approximations are possible, that would be very helpful. If numerical solutions are the right approach, could you ...
2
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0answers
128 views

How can the “Share of merchandise imports at current PPPs” be negative?

I'm looking at the Penn World Table 9.0 data, and find that the "Share of merchandise imports at current PPPs" (csh_m) can be negative. For example, ...
2
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0answers
73 views

Difference between the International Dollar and PPP

This may be a very rudimentary question but I am trying to discern the difference between purchasing power parity and the international dollar. I am starting to work on a project where we are trying ...
2
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0answers
41 views

Where to find official sources for price-to-rent ratio?

Where can I find price-to-rent ratio data for housing real estate in any major nation? Any G-20 country or any top-10 country by GDP would be good for me, as long as it's official data like from a ...
2
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0answers
63 views

Econometrically estimating the Leontief cost function

in general the Leontief cost function is represented as: $$c(w,y)=y\sum_{i=1}^kw_ix_i$$ where: $$y=\min\left[{\frac{x_1}{\alpha_1},...,\frac{x_n}{\alpha_n}}\right]$$ How does one go about ...
2
votes
3answers
136 views

Sample used in calculating the sample regression function

Does the OLS (ordinary least squares) method of regression consider only one sample value in calculating the sample regression function (SRF)? If not, then how is the SRF created when there is more ...
2
votes
0answers
89 views

Linearization of VES production funtions

I know that the linearization of a CES (constant elasticity of substitution) funtion is a bit complicated. There is even an R package dedicated just for that - the econometric estimation and ...
2
votes
0answers
42 views

Eaton & Kortum - Technology, Geography, and Trade - How theta impacts geographical barrier

The paper says: Smaller $\theta$ implies more heterogeneity, and thus larger comparative advantage, and hence stronger force for trade relative to resistance $d_{ni}$. Would it be correct to ...
2
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0answers
15 views

What drives the Idiosyncratic Volatility puzzle?

I am currently analyzing the IVOL puzzle and I find in a single sort that the higher the IVOL the lower the return. Additionally I do a double sort, first sorting on skew and then on IVOL. I find that ...
2
votes
0answers
55 views

Static and Dynamic models: Testing the Quantity Theory of Money

The quantity theory of money is stated as a simple equation which states that the general price level of goods and services is directly proportional to the amount of money in circulation. This is ...
2
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0answers
99 views

Kiyotaki-Moore v.s. Bernanke-Gertler-Gilchrist - what's the difference?

What are the key differences between (i) a model which features a "Kiyotaki-Moore collateral constraint"; and (ii) a model which incorporates a "financial accelerator" (a la Bernanke-Gertler-Gilchrist)...

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