Essays on Imperfect Information and Monetary Economics PDF Download
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Author: Anne Patricia Villamil
Publisher:
ISBN:
Category :
Languages : en
Pages : 106
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Author: Anne Patricia Villamil
Publisher:
ISBN:
Category :
Languages : en
Pages : 106
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Author: Jean-Jacques Laffont
Publisher: Harvard University Press
ISBN: 9780674265554
Category : Business & Economics
Languages : en
Pages : 160
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Book Description
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.
Author: Joseph E. Stiglitz
Publisher: MIT Press
ISBN: 9780262012058
Category : Business & Economics
Languages : en
Pages : 722
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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.
Author: Jean-Paul L'Huillier
Publisher:
ISBN:
Category :
Languages : en
Pages : 83
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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.
Author: Peter Nicholas Kriz
Publisher:
ISBN:
Category : International economic relations
Languages : en
Pages : 474
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Author: Niloy Bose
Publisher:
ISBN:
Category :
Languages : en
Pages : 208
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Author: Kenneth Joseph Arrow
Publisher: Cambridge University Press
ISBN: 9780521553551
Category : Business & Economics
Languages : en
Pages : 412
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Book Description
Leading theorists offer insights on the role of uncertainty and information in the market.
Author: Frederik Lundtofte
Publisher:
ISBN:
Category : Portfolio management
Languages : en
Pages : 128
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Author: Roman Frydman
Publisher: Princeton University Press
ISBN: 0691261156
Category : Business & Economics
Languages : en
Pages : 368
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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.
Author: Hugo Vega
Publisher:
ISBN:
Category :
Languages : en
Pages :
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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.
