New answers tagged

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You might be interested in triangular arbitrage. In efficient markets this should not be possible, I don’t think...


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This looks good assuming that your country is a small country (i.e., the change in the domestic demand of foreign assets does not change the interest rate in the foreign country). To be clear on the full story, at point A, we have that the foreigners want domestic assets, and so that's why foreigners demand more domestic currency, and that's why (as you said)...


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I disagree with the above answer. In the classic formula for GDP, i.e., GDP=C+I+G+X-M, Remittances get accounted by mostly from the C factor. Remittances are used by the families back home for additional expenditure - like mobiles, household appliances, eating out, vacation etc. Even savings eventually are used to build a new house, or fund education or the ...


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Let $x_i(p, w_i)$ be consumer $i$'s (Marshallian) demand and $y_j(p)$ be firm $j$'s profit-maximizing supply at price $p$. A competitive equilibrium is a price $p$ such that $$ \sum_{i=1}^I x_i(p, w_i(p, e_i)) = \sum_{j=1}^J y_j(p). $$ By strict concavity of $u_i$'s, consumer demands are functions, rather than correspondences. Assume also that $y_j(p)$ are ...


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In either case it could work or not work depending on where the money actually ends up. For instance, a lower income individual will have a higher MPC, but they also have incentive to spend their money on the most inexpensive item, which oftentimes is an import - thereby not trickling any money up to American corporations. On the other hand, the main ...


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You are right. Ordering a variable first reflects the identifying assumption that this variable will not respond contemporeneously to the other shocks in the system. You could obtain the exact same shock series via an OLS regression that includes as explanatory variables only the lags of all the variables in the VAR. Since you were happy to "assume away&...


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No, the central bank can target interest rate and the supply of money can still be vertical. This is because, under the exogenous supply of money model, when the central bank targets some interest rate, let us say $5\%$, central bank has to adjust money supply in a way that there is equilibrium in the market (Blanchard et al Macroeconomics has more detailed ...


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This is because for small values $x$, $$\ln x_{t+1} - \ln x_{t} \approx \frac{x_{t+1}-x_{t}}{x_{t}}.$$ This holds since the growth rate $g$ can be expressed as follows: $$g= \frac{x_{t+1}-x_{t}}{x_{t}} \implies x_{t+1} = (1+g)x_{t}$$ taking logs we get that: $$ \ln x_{t+1} = \ln (1+g)+ \ln x_{t} \implies \\ \ln x_{t+1} -\ln x_{t} = \ln (1+g) $$ Finally, for ...


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Is there evidence for time varying second moments in annual economic data? Yes, although not that much in finance in particular but in economics in general resounding yes. For example, the highly cited Engle (2001), GARCH 101: The use of ARCH/GARCH models in applied econometrics, besides examples with daily data refers also to some examples with quarterly ...


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First, this is not change in mandate, Fed cannot just change its mandate unilaterally, as the mandate is given to Fed by US congress (see this Fed Richmond essay on that) this is just change in its goals in pursuit of their current mandate. Does "maximum employment" mean potential rate of employment? According to Fed 'maximum employment' means: ...


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Stock market prices depend on investors view on what the value of company is which in turn depends on what is its expected future profitability. For example, under a simple Gordon growth model the stocks would be valued using (See Miskin & Eakins Financial Markets and Instiutions pp 347): $$ P_0 = \frac{D_1}{k-g}$$ where $D$ is the dividend, $k$ required ...


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The terms "ordered last" or "ordered first" do not necessarily relate to the place of the variable in the $y_t$ vector. Rather they describe the column (row) vector of the contemporaneous impact matrix pertaining to the variable. Once the restrictions have been set and the model is identified, where you exactly place the variables is an ...


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Personal consumption expenditure (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy. It accounts for about two-thirds of domestic final spending, and thus it is the primary engine that drives future economic growth. PCE shows how much of the income earned by households is being spent on current consumption as ...


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You have to be very careful with your definitions here. Following the basic definitions (e.g. see use of terms in Mankiw Principles of Economics): Value: Value depends on your marginal utility and typically it is the amount of money you are willing to give up for something. Wealth: Is by the value of net assets. Income: Is the net return to some activity. ...


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I think you may substitute it directly as mentioned? $$v(A,k) = \max log(c) + \beta E[v(A',k')|A]$$ Applying the value function expression (note period change): $v(A',k') = \frac{log(k')}{1-\beta} + v(A',1)$ Substituting: $$v(A,k) = \max log(c) + \beta E\left[\frac{log(k')}{1-\beta} + v(A',1)|A\right]$$ By linearity: $$v(A,k) = \max log(c) + \beta E\left[\...


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Your final line This figure is only for representation. pretty much answers your question. When explaining these concepts you want to draw something that is easy to understand, i.e. does not have too many irregularities but is also not too regular. Linearity is a special attribute of functions. General curves show that there is usually no need for this ...


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One I can introduce is " ABC of RBC " It was so helpful to me.


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K is just a stock of capital. This Fed data show that the stock of US capital is almost 70m at constant prices for the most recent year (2019). But there are other ways of measuring it. You can google papers that estimate multifactor productivity to see what measures for K and N people are using (not everyone uses labor hours too). A is multifactor ...


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Given no arbitrage, the price of the machine of vintage $\tau$ should be $q_{k t}(\tau)=p_{k t}(\tau)-\frac{p_{k t+1}(\tau)}{1+r_{t+1}}$... "No arbitrage" is a bit of a misnomer here. In this sentence, it really means "zero profit". The rental price must be equal to the price of owning a machine for one period. For example, if $$ q_{k t}(...


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You are referring to recent market events where the yield of US Treasury bonds has risen and some tech stocks have been falling? My interpretation of this situation is that the rise in yields reflects growing optimism in the broader economy , as we overcome Covid and head back to work. In the stock market, this leads to a preference for traditional stocks ...


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The answer is in inflation expectation. Bond yields and inflation are intertwined. As we know, inflation eats the future returns of investments, so when people expect more inflation, bond yields tend to rise alongside them. Inflation also reduced the future stream of payments. For example, 1 dollar of profit today, would be valued at 0,5 dollar tomorrow with ...


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