Download or read book Essays on Imperfect Information and Monetary Economics written by Anne Patricia Villamil and published by . This book was released on 1988 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in the Economics of Uncertainty written by Jean-Jacques Laffont and published by Harvard University Press. This book was released on 1980 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: These three elegant essays develop principles central to the understanding of the diverse ways in which imperfect information affects the distribution of resources, incentives, and the evaluation of economic policy. The first concerns the special role that information plays in the allocation process when it is possible to improve accuracy through private investment. The common practice of hiring "experts" whose information is presumably much better than their clients' is analyzed. Issues of cooperative behavior when potential group members possess diverse pieces of information are addressed. Emphasis is placed on the adaptation of the "core" concept from game theory to the resource allocation model with differential information. The second essay deals with the extent to which agents can influence the random events they face. This is known as moral hazard, and in its presence there is a potential inefficiency in the economic system. Two special models are studied: the role of moral hazard in a monetary economy, and the role of an outside adjudicatory agency that has the power to enforce fines and compensation. The final essay discusses the problem of certainty equivalence in economic policy. Conditions under which a full stochastic optimization can be calculated by solving a related, much simpler "certainty equivalence" problem are developed. The reduction in the complexity of calculation involved is very great compared with the potential loss of efficiency.

Download or read book Economics for an Imperfect World written by Joseph E. Stiglitz and published by MIT Press. This book was released on 2003 with total page 722 pages. Available in PDF, EPUB and Kindle. Book excerpt: The focus of Joseph Stiglitz's work in economics throughout his long and distinguished career has been on the real world, with all of its imperfections.

Download or read book Essays in International Macroeconomics and Monetary Economics written by Peter Nicholas Kriz and published by . This book was released on 2003 with total page 482 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Imperfect Information Macroeconomic Fluctuations and Nominal Rigidities written by Jean-Paul L'Huillier and published by . This book was released on 2010 with total page 83 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first essay empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations. The second essay experimentally examines whether looking at other people's pricing decisions is a type of heuristic, a decision rule that people over-apply even when it is not applicable. such as in the case of clearly private value goods. We find evidence that this is indeed the case. individual valuation of a purely subjective experience under full information, elicited using incentive compatible mechanism, is highly influenced by values of others. As the third essay shows, this result can shed light on price rigidities. Inspired by the experimental results of the second essay, the third essay develops a model of slow macroeconomic adjustment to monetary shocks. The model exploits the idea that buyers are imperfectly informed about their nominal valuation. I proceed in three steps. First, I develop a mechanism for price rigidities. My mechanism captures the notion that firms are reluctant to increase prices after an increase in demand or costs because it creates a disproportionate adverse reaction among consumers. These reactions arise endogenously for purely informational reasons. The key assumption is that some consumers are better informed than others about monetary shocks. If few consumers are informed, equilibria with nominal rigidity exist. In these equilibria firms do not change prices even though they are arbitrarily well informed, and have no menu costs. Moreover, if the proportion of informed consumers is low enough, these equilibria dominate equilibria with flexible prices. Second, I show that when firms do not change prices they inflict an informational externality on other firms. Consumers buy goods sequentially, one after the other, and change their beliefs about shocks when they see prices change. Therefore, when firms do not change prices, consumers do not learn. This hurts both firms and consumers. Third, I study the dynamic responses of output and inflation to shocks. Because of the informational externality learning is initially slow, the responses are delayed and hump-shaped. The responses are also asymmetric - prices increase faster than they decrease, and therefore negative shocks trigger larger output responses than positive shocks.

Download or read book Essays on Imperfect Information and Economic Growth written by Niloy Bose and published by . This book was released on 1995 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Imperfect Knowledge Economics written by Roman Frydman and published by Princeton University Press. This book was released on 2023-09-26 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt: Posing a major challenge to economic orthodoxy, Imperfect Knowledge Economics asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem from their futile efforts to make exact predictions about the consequences of rational, self-interested behavior. Such predictions, based on mechanistic models of human behavior, disregard the importance of individual creativity and unforeseeable sociopolitical change. Scientific though these explanations may appear, they usually fail to predict how markets behave. And, the authors contend, recent behavioral models of the market are no less mechanistic than their conventional counterparts: they aim to generate exact predictions of "irrational" human behavior. Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades. Offering a fresh way to think about markets and representing a potential turning point in economics, Imperfect Knowledge Economics will be essential reading for economists, policymakers, and professional investors.

Download or read book Essays on Incomplete Information in Financial Markets written by Frederik Lundtofte and published by . This book was released on 2004 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Markets Information and Uncertainty written by Kenneth Joseph Arrow and published by Cambridge University Press. This book was released on 1999-01-28 with total page 412 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leading theorists offer insights on the role of uncertainty and information in the market.

Download or read book Financial Markets and Incomplete Information written by Sudipto Bhattacharya and published by Rowman & Littlefield Publishers. This book was released on 1989 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt: Major themes in theoretical financial economics since 1973 are presented through reprinted articles, each followed by a substantial essay by a leading scholar in the field. These original papers were written expressly for these volumes and provide a critical discussion and overview of the topic. The books thus present a broad spectrum of viewpoints with an emphasis on the work on valuation, economics of uncertainty, and taxation which pertains to the problems of financial markets and corporations.

Download or read book Essays in Applied Macroeconomic Theory written by Hugo Vega and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contains three essays that employ macroeconomic theory to study the implications of volatility, financial frictions and reserve requirements. The first essay uses an imperfect information model where agents solve a signal extraction problem to study the effect of volatility on the economy. A real business cycle model where the agent faces imperfect information regarding productivity is used to address the question. The main finding is that the variance of the productivity process components has a small negative short run impact on the economy's real variables. However, imperfect information dampens the effects of volatility associated to permanent components of productivity and amplifies the effects of volatility associated to transitory components. The second essay presents a partial equilibrium characterization of the credit market in an economy with partial financial dollarization. Financial frictions (costly state verification and banking regulation restrictions), are introduced and their impact on lending and deposit interest rates denominated in domestic and foreign currency studied. The analysis shows that reserve requirements act as a tax that leads banks to decrease deposit rates, while the wedge between foreign and domestic currency lending rates is decreasing in exchange rate volatility and increasing in the degree of correlation between entrepreneurs' returns and the exchange rate. The third essay introduces an interbank market with two types of private banks and a central bank into a New-Keynesian DSGE model. The model is used to analyse the general equilibrium effects of changes to reserve requirements, while the central bank follows a Taylor rule to set the policy interest rate. The paper shows that changes to reserve requirements have similar effects to interest rate hikes and that both monetary policy tools can be used jointly in order to avoid big swings in the policy rate or a zero bound.

Download or read book Essays on Public Finance and Information Economics written by André Medeiros Sztutman and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis comprises three chapters on public finance and information economics. The first focuses on the interaction of imperfect information in labor markets and the tradeoffs the government faces when setting on-linear taxes. The second focuses on the role of heterogeneity in elasticities in affecting those tradeoffs. The third focuses on the imperfect information in financial markets and on how to design disclosure rules to increase the size of gains from trade in lending markets when these markets are adversely selected. The first chapter asks how optimal taxes are affected by reputation building and imperfect information in labor markets. To answer that question, I build a model of labor markets with incomplete and asymmetric information where job histories play a crucial role in transmitting information about workers' productivity, which allows us to better understand the efficiency and distributive consequences of imperfect monitoring and screening in labor markets, and the tradeoffs the government faces when setting taxes. Optimal taxes are described by generalized versions of standard redistributive and corrective taxation formulas, which depend crucially on labor wedges: the marginal contribution to output relative to the increases in lifetime earnings that result from supplying one extra unit of labor at each period. Using data from the Health and Retirement Study, I find that the corrective component of taxes is likely to be large, especially at the top of the income distribution. The second chapter (joint with John Sturm) asks how income taxes should account for heterogeneity in elasticities of taxable income. We address this question with a test that passes if and only if there exists a weighted utilitarian planner for whom taxes are locally optimal. Our test incorporates standard sufficient statistics and a novel ingredient: the variance of elasticities conditional on income. Theoretically, we show that the test fails when these variances are sufficiently high. Empirically, we find they are indeed large in a panel of US tax returns. We thereby conclude, without taking a stance on redistributive preferences, that there are welfare-improving tax reforms. The increasing availability of data in credit markets may appear to make adverse selection concerns less relevant. However, when there is adverse selection, more information does not necessarily increase welfare. The third chapter (joint with Robert M. Townsend and Nicole Immorlica) provides tools for making better use of the data that is collected from potential borrowers, formulating and solving the optimal disclosure problem of an intermediary with commitment that seeks to maximize the probability of successful transactions, weighted by the size of the gains of these transactions. We show that any optimal disclosure policy needs to satisfy some simple conditions in terms of local sufficient statistics. These conditions relate prices to the price elasticities of the expected value of the loans for the investors. Empirically, we apply our method to data from the Townsend Thai Project -- a long panel dataset with rich information on credit histories, balance sheets, and income statements -- to evaluate whether it can help develop rural credit markets in Thailand, finding economically meaningful gains from adopting limited information disclosure policies. JELClassification: H2,D8,J2,I3,G2.

Download or read book Towards a General Theory of Data Or a Social Theory of Money Reconciling Information Science and Economics written by Frederik The and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this essay it is argued that every monetary failure is essentially a problem of imperfect information. A thought experiment is conducted in which a future “information grid,” an all-knowing supercomputer and powerful algorithms (it may also be called the Walrasian auctioneer or deus ex machina), takes on the function fiat money and the price system had during the last centuries. It is explained that prices are only an approximation for “fundamental value” and that the “normative function” of fiat money is entirely subsumed by its informational character. This suggests an equivalence between aggregate fiat money, collective information, and collective historical information, that is, “memory” of the respective social group. This can be called a “social theory of money” in the sense of a higher-order logic with respect to status quo monetary economics. If information becomes a public (or even anti-rival) good and the world becomes deeply “networked,” tremendous welfare increases could be realized through positive feedbacks. Even if a qualitative rich information ecology is far from being a reality, Big Data applications and technological progress are radically transforming the economy by decreasing uncertainty. A rethinking of our understanding of fiat money will eventually become imperative as a more complex view of economics is emerging - not because the economic model of perfect information is moving closer to reality, but because reality is (to some extent) moving closer to the model. A healthier information ecology could improve the efficient allocation of scarce resources and help to avoid the drifting off of complex - into chaotic systems. The social theory of money plays an important role in providing the ontological context to unmask camouflaged financial crisis as true informational crisis.

Download or read book Essays on Monetary Economics and Central Banking written by Devrim Ikizler and published by . This book was released on 2011 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, I analyze the US banking industry in order to explain two facts. First, larger banks have lower but less volatile returns on loans compared to smaller banks over the years. Second, larger borrowers have better financial records, i.e. verifiable "hard" information, and they are more likely to match with larger banks, as documented by Berger et al.(2005). I show that these two facts can be explained using a segmented loan markets model with loan contracts between banks and borrowers. Moreover, I show that the difference between the banks returns is not due to diversification advantage of larger banks. Instead, it is because of the fact that larger banks can operate in both large and small loan markets, whereas small banks can only operate in small loans market. Therefore large banks are able to match with larger and less risky borrowers more frequently, which are less likely to default. Moreover, I take the model to infinite horizon allowing bank size to be endogenous to answer multiple policy questions about the future of small business finance and consolidation. I use the data set from the Consolidated Reports of Condition and Income provided by FDIC for 1984-2010 to motivate our research question and to estimate the model. My second chapter revisits the welfare cost of anticipated inflation in an incomplete markets environment where agents can substitute time for money by increasing their shopping frequency. Shopping activity provides an insurance channel to individuals against changes in the return on nominal balances through inflation as documented by Aguiar and Hurst (2007) and McKenzie and Schargrodsky (2011). In my model economy, a higher level of inflation affects people through two channels. First, it distorts the portfolio decision between real and nominal balances, second it redistributes wealth from those who hold more money to those who hold less. People, on average, respond to a higher level of inflation by increasing their price search activity, as they relative return on nominal balances goes down. I find that a 5 percent increase in inflation causes the welfare level go down by 2 percent if people are allowed to substitute time for money, and by 10 percent if we take this channel away from the model. Finally, in the third chapter, I compare the indirect measure of inflation expectations derived by Ireland (1996b) to the direct measures obtained from expectations surveys in multiple countries. Our results show that the inflation bounds calculated for US and UK data are more volatile than survey results, and are too narrow to contain them due to low standard errors in consumption growth series stemming from high persistence. For Chilean and Turkish cases, however, computed bound for inflation expectations seems to fit the survey results better. Out of three different surveys on inflation expectations in Turkey compared with the bounds computed using Turkish data, expectations obtained by the Consumer Tendency Survey fall within these bounds throughout the whole sample period. The success in the Turkish and Chilean cases can be attributed to the fact that volatility in the consumption series, whereas the failure in US and UK cases are most probably stemming from the fact that the current theoretical model is missing a risk-premium component.

Download or read book Three Essays on Financial Relationships in Credit Markets with Adverse Selection written by Charl Kengchon and published by . This book was released on 1989 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Taking Money Seriously and Other Essays written by David E. W. Laidler and published by . This book was released on 1990 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Monetary and Fiscal Policy written by Choongryul Yang and published by . This book was released on 2020 with total page 392 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation investigates the transmission of monetary and fiscal policy using both empirical and theoretical frameworks. Chapter 1 examines how the number of products sold by a firm affect its decisions regarding price setting and information acquisition. Using a firm-level survey from New Zealand, I show that firms that produce more goods have both better information about aggregate inflation and more frequent but smaller price changes. To characterize the implications of these empirical findings for the ability of monetary policy to stimulate the economy, I develop a new dynamic general equilibrium model with rationally inattentive multi-product firms that pay a menu cost to reset their prices. I show that the interaction of the menu cost and rational inattention frictions leads firms to adopt a wait-and-see policy and gives rise to a new selection effect: firms have time-varying inaction bands widened by their subjective uncertainty about the economy such that price adjusters choose to be better informed than non-adjusters. This selection effect endogenously generates a distribution of desired price changes with a majority near zero and some very far from zero, which acts as a strong force to amplify monetary non-neutrality. I calibrate the model to be consistent with the micro-evidence on both prices and inattention and find two main quantitative results. First, the new selection effect, coupled with imperfect information of price setters, leads to real effects of monetary policy shocks in the one-good version of the model that are nearly as large as those in the Calvo model. Second, in the two-good version of the model, as firms optimally choose to have better information about monetary shocks, the real effects of monetary policy shocks decline by 20%. In Chapter 2, joint with Hassan Afrouzi, we develop a general equilibrium flexible price model with dynamic rational inattention in which the slope of the Phillips curve is endogenous to systematic aspects of monetary policy. This Phillips curve is flatter when the monetary policy is more hawkish: rationally inattentive firms find it optimal to ignore monetary policy shocks when the monetary authority commits to stabilize nominal variables. Moreover, an unexpectedly more dovish monetary policy leads to a completely flat Phillips curve in the short-run and a steeper Phillips curve in the long-run. We also develop a tractable method for solving general dynamic rational inattention models in linear quadratic Gaussian setups. Chapter 3 asks whether the effectiveness of fiscal stimulus policy depends on the degree of economic income inequality. Many previous works about state-dependence of fiscal multiplier have focused on the degree of slack in the economy. In a surge of concerns about rising inequality of the U.S., I use rich historical state-level data on military procurement and inequality to find the relationship between the degree of income inequality and the local government spending multipliers. I show that the effects of government spending shocks on output are larger in low-inequality states than in high-inequality states. In contrast, I find no evidence that employment multipliers differ by the extent of income inequality. These results are robust to various specifications and other sources of inequality data. I also estimate aggregate output multipliers using historical military spending and income inequality data. I find the evidence that aggregate output multipliers are high when the income inequality is low. Thus, both local and aggregate multipliers are significantly affected by the degree of income inequality of an economy. I consider a variety of potential theoretical explanations for the results, including heterogeneous within-sector inequality and distributional effects of government spending shock, but find that none can adequately explain this finding