Advances in Economics and Econometrics: Theory and Applications, Eighth World Congress, Volume III (Econometric Society Monographs)

Cover......Page 1
Half-title......Page 3
Series-title......Page 5
Title......Page 7
Copyright......Page 8
Contents......Page 9
Contributors......Page 11
Preface......Page 13
1. INTRODUCTION......Page 15
3. THE CREDIT MARKET......Page 16
3.1. Taking Stock: The Facts About Credit Markets......Page 21
3.2.1. The Basic Moral Hazard Problem......Page 25
3.2.2. The Interest Rate......Page 26
3.2.3. The Level of Investment......Page 27
3.2.4. Introducing Monitoring......Page 29
3.2.5. The Cost of Capital With Monitoring......Page 30
3.2.6. The Optimal Credit Contract With Monitoring......Page 32
3.3. Taking Stock: How o Think About Credit Markets......Page 34
4. THE DYNAMICS OF WEALTH ACCUMULATION......Page 36
4.1. Endogenous Savings and Poverty Traps......Page 41
4.2. Endogenous Prices and Collective Poverty Traps......Page 42
4.3. Taking Stock: How Plausible Are Poverty Traps?......Page 45
4.4. Beyond Poverty Traps......Page 49
5. OTHER CONTRACTING PROBLEMS......Page 50
6. THE VIEW OF POLICY......Page 52
7. CONCLUSION......Page 54
References......Page 55
1. MOTIVATION......Page 61
2. PLAN OF THE PAPER......Page 62
3. INDEX MODELS FOR A GIVEN CROSS SECTION......Page 63
4. LARGE ECONOMIES: AN INFINITE DIMENSIONAL CROSS SECTION......Page 64
4.1. Identification of the Components......Page 66
4.2. Representation......Page 68
4.3. Estimation and Convergence Rates......Page 70
4.4. An Illustrative Example......Page 74
4.5. One-Sided Estimation and Forecasting......Page 77
4.6. Identification of the Factors and Coefficients: Factor Models and Structural VARs......Page 80
5. ECONOMETRIC PROBLEMS......Page 83
6.1. The U.S. Manufacturing Sector......Page 85
6.2. Europe Versus the United States: Regions (Counties), Nations (States), and Aggregate Behavior......Page 87
6.3. EuroCOIN: A Real-Time Coincident Indicator for the Euroarea Business Cycle......Page 91
APPENDIX A: THE SPECTRAL REPRESENTATION......Page 95
APPENDIX B: ESTIMATION OF THE SPECTRAL DENSITY......Page 96
APPENDIX C: DYNAMIC PRINCIPAL COMPONENTS AND THE FILTER OF FORNI ET AL. (2000)......Page 97
References......Page 98
1. INTRODUCTION......Page 101
2.1. General Framework......Page 103
2.2. Small-Model Approach......Page 104
2.3.1. Factor Models......Page 105
2.3.2. Nonfactor Models......Page 106
3.1. Data......Page 107
3.3. Empirical Distribution of t Statistics......Page 108
3.4. Prediction Rs Using Different Numbers of Predictors......Page 111
4. SIMULATED OUT-OF-SAMPLE EMPIRICAL EVIDENCE......Page 112
4.1. Experimental Design......Page 113
4.2. Forecasting Performance of the Models......Page 115
4.3. Additional Discussion of the Factor Model......Page 117
5. DISCUSSION......Page 119
APPENDIX A......Page 121
References......Page 127
1. BIG DATA......Page 129
2. FACTOR STRUCTURE AND REGIME SWITCHING......Page 130
3. THE EVIDENCE......Page 131
4. CONCLUSIONS AND DIRECTIONS FOR FUTURE RESEARCH......Page 132
References......Page 135
1. INTRODUCTION......Page 137
2.1. Households......Page 139
2.2. Firms......Page 140
2.4. Equilibrium......Page 141
3. MARKOV EQUILIBRIUM IN A CASH–CREDIT GOOD MODEL......Page 145
3.2. Markov Equilibrium......Page 147
3.3. Analysis of the Markov Equilibrium......Page 148
4. MARKOV EQUILIBRIUM IN A LIMITED-PARTICIPATION MODEL......Page 151
APPENDIX A: NECESSARY AND SUFFICIENT CONDITIONS FOR HOUSEHOLD OPTIMIZATION IN THE CASH–CREDIT GOOD MODEL......Page 154
APPENDIX B: PROPERTIES OF MARKOV EQUILIBRIUM......Page 157
B.1. Right Derivative......Page 159
B.2. Left Derivative......Page 160
C.1. Feasibility of a Downward Deviation in…......Page 161
C.2. Desirability of a Downward Deviation in…......Page 162
References......Page 163
1. INTRODUCTION......Page 165
2. MONEY AND STICKY PRICES: A BASELINE MODEL......Page 168
2.1. Households......Page 169
2.2. Firms......Page 170
2.3. Flexible Price Equilibrium......Page 171
2.4. Staggered Price Setting......Page 172
3. THE NATURE OF INFLATION DYNAMICS......Page 173
3.1. The Forward-Looking Nature of Inflation......Page 174
3.2. The Nature of the Output Gap......Page 176
4. THE EFFECTS AND TRANSMISSION OF SHOCKS......Page 178
4.1. Monetary Policy Shocks......Page 180
4.1.1. The Effects of Money on Output: Strength and Persistence......Page 181
4.1.2. The Presence (or Lack Thereof) of a Liquidity Effect......Page 182
4.2. Technology Shocks......Page 184
5. THE DESIGN OF MONETARY POLICY......Page 187
5.1. The Goals of Monetary Policy......Page 188
5.2. Optimal Monetary Policy......Page 190
5.2.1. Implementation......Page 191
5.2.2. Discussion......Page 192
5.3.1. A Simple Taylor Rule......Page 193
5.3.3. Interest Rate Peg......Page 196
5.3.4. Discussion......Page 197
5.4. Optimal Monetary Policy in the Presence of an Output Gap–Inflation Trade-off......Page 198
6.1. A Simple Model of Staggered Wage and Price Setting......Page 204
6.2. Optimal Monetary Policy When Both Wages and Prices Are Sticky......Page 207
References......Page 208
1. OPTIMAL MONETARY AND FISCAL POLICY......Page 212
2. EXISTENCE, UNIQUENESS,  AND FISCAL POLICY......Page 216
3. THE NEW PHILLIPS CURVE......Page 219
References......Page 221
1. INTRODUCTION......Page 223
2. THE PERFECT INSURANCE CASE: THEORETICAL AND EMPIRICAL IMPLICATIONS......Page 225
2.1. The Basic Model......Page 226
2.2. Empirical Implications and Evidence......Page 227
3. THE FAILURE OF PERFECT INSURANCE......Page 230
3.2. Imperfect Enforceability......Page 231
3.2.1. A Recursive Formulation......Page 232
3.2.2. Alternative Solution Methods......Page 235
3.2.3. Extensions and Complications......Page 236
3.3.1. Transfers and Crowding Out......Page 237
3.3.2. Evidence From Models With Imperfect Enforceability......Page 239
3.3.3. Extensions......Page 240
4. IMPERFECT ENFORCEABILITY: CHARACTERIZING EQUILIBRIA......Page 242
5.1. Crowding Out Results......Page 246
5.2. On the Optimal Design of Aggregate Insurance......Page 247
5.2.1. A Simple Scheme......Page 249
5.2.2. A Scheme That Rewards the Naysayers......Page 251
6. CONCLUSIONS......Page 252
References......Page 253
1. INTRODUCTION......Page 257
2. PERFECT FORESIGHT MODELS......Page 259
2.1. General Considerations......Page 261
2.3. Newton-Style Methods......Page 262
2.4. Parametric Path Method......Page 264
3. TIME-HOMOGENEOUS DYNAMIC ECONOMIC PROBLEMS......Page 265
4. GENERAL PROJECTION ALGORITHM......Page 267
5.1. Approximating Equilibrium Functions......Page 271
5.2. Solving for the Unknown Coefficients......Page 273
6. INCOMPLETE ASSET MARKETS WITH INFINITELY LIVED AGENTS......Page 275
6.1. A Model of Incomplete Asset Markets......Page 276
6.2. Recursive Equilibria......Page 277
6.3. Kuhn–Tucker Conditions as a System of Equations......Page 278
6.5. Computational Errors......Page 279
7.1. Representing the Equilibrium Functions......Page 281
7.2. A Time-Iteration Algorithm......Page 282
8.1. Short-Sale Constraints......Page 283
8.1.2. Penalties on Portfolios......Page 285
8.2.2. Solving the Euler Equations With Homotopy Methods......Page 288
9.1. Discrete State Space......Page 289
9.1.1. A Single Security: No Equity......Page 290
9.1.2. Two Assets and the Curse of Dimensionality......Page 291
9.2. A Parameterized Expectations Algorithm Approach......Page 292
10. DYNAMIC MODELS WITH STRATEGIC POWER......Page 293
11. ASYMPTOTIC METHODS......Page 294
11.1. Regular Perturbations and Rational Expectations Models......Page 295
11.2. Bifurcation Methods for Small Noise Portfolio Problems......Page 297
12. CONCLUSION......Page 300
References......Page 301
Index......Page 305