decomposing the declining volatility of long term inflation expectations abstract the level and volatility of survey based measures of long term inflation expectations have come down dramatically over the past several decades to capture these changes in inflation dynamics we embed both short and long term expectations into a medium scale var model with stochastic volatility the model estimates attribute most of the marked decline in the volatility of expectations to smaller shocks to long run inflation expectations according to our estimates the volatility of shocks plummeted in the early to mid 1980s moved to a somewhat higher level that prevailed for much of the 1990s and then declined to and remained at very low levels

debt regimes and the effectiveness of monetary policy abstract this paper develops a medium scale non linear model of the us economy our proposed model a threshold vector autoregression with stochastic volatility assumes that changes in government debt to gdp ratios drive the transition between regimes capturing low and high debt regimes the introduction of hierarchical priors enables us to flexibly shrink the empirical model towards the moments implied by a dynamic stochastic general equilibrium model in the empirical application we analyze regime specific monetary policy shocks our findings indicate that the effect of monetary policy is less pronounced in high debt regimes pointing towards differences in the underlying monetary policy transmission mechanisms forecast error variance decompositions enable us to shed further light on the relative importance of monetary policy shocks within different debt regimes in terms of explaining the variance of forecast errors

information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

cournot oligopoly with information sharing this paper studies the incentives for information sharing among firms in a cournot oligopoly facing a linear uncertain demand and an affine conditional expectation information structure no information sharing is found to be the unique equilibrium in two cases in which the signals with equal precision are assumed indivisible and infinitely divisible however the nonpooling equilibrium converges to the situation where the pooling strategies are adopted as the amount of information increases hence the efficiency is achieved in the competitive equilibrium as the number of the firm become large

real rigidity nominal rigidity and the social value of information does welfare improve when firms are better informed about the state of the economy and can thus better coordinate their production and pricing decisions we address this question in an elementary business cycle model that highlights how the dispersion of information can impede both kinds of decisions and in this sense be the source of both real and nominal rigidity within this context we develop a taxonomy for how the social value of information depends on the two rigidities on the sources of the business cycle and on the conduct of monetary policy jel d21 d82 d83 e32 e52

macroeconomic uncertainty through the lens of professional forecasters abstractwe analyze the evolution of macroeconomic uncertainty in the united states based on the forecast errors of consensus survey forecasts of various economic indicators comprehensive information contained in the survey forecasts enables us to capture a real time measure of uncertainty surrounding subjective forecasts in a simple framework we jointly model and estimate macroeconomic common and indicator specific uncertainties of four indicators using a factor stochastic volatility model our macroeconomic uncertainty estimates have three major spikes has three major spikes aligned with the 1973 1975 1980 and 2007 2009 recessions while other recessions were characterized by increases in indicator specific uncertainties we also show that the selection of data vintages affects the estimates and relative size of jumps in estimated uncertainty series finally our macroeconomic uncertainty has a persistent negative impact on real economic activity rather than producing wait and see dynamics

sequential bayesian inference for vector autoregressions with stochastic volatility abstract we develop a sequential monte carlo smc algorithm for bayesian inference in vector autoregressions with stochastic volatility var sv the algorithm builds particle approximations to the sequence of the model s posteriors adapting the particles from one approximation to the next as the window of available data expands the parallelizability of the algorithm s computations allows the adaptations to occur rapidly our particular algorithm exploits the ability to marginalize many parameters from the posterior analytically and embeds a known markov chain monte carlo mcmc algorithm for the model as an effective mutation kernel for fighting particle degeneracy we show that relative to using mcmc alone our algorithm increases the precision of inference while reducing computing time by an order of magnitude when estimating a medium scale var sv model

communication networks knowledge and decisions that communication pervades the everyday life of organizations is a statement of the obvious how this widespread communication affects organization s performance is less clear another truism about organizations is that their members are seldom fully knowledgeable of the exact state of the world in which they operate to overcome this information uncertainty burden organizations tend to devote a substantial amount of resources to retrieve information about their environment individual experimentation is a natural way to obtain superior information when the nature and the consequences of the prevailing uncertainty is common to all organization members a natural substitute for replications of individual experiments is to have agents communicate their private information among themselves communication is then a means to save on experimentation costs when they display diminishing returns in another vein shared information fosters coordination between individual agents which is beneficial to the organization as a whole when coordinated actions lead to higher benefits for everyone altogether when each organization member individually ascertains that both uncertainty and coordination are the main driving networked interactions

transparency of information and coordination in economies with investment complementarities how do public and private information affect equilibrium allocations and social welfare in economies with investment complementarities and what is the optimal transparency in the information conveyed for example by economic statistics policy announcements or news in the media we first consider an environment where the complementarities are weak so that the equilibrium is unique no matter the structure of information an increase in the precision of public information may have the perverse effect of increasing aggregate volatility nevertheless as long as there is no value to lotteries welfare unambiguously increases with an increase in either the relative or the absolute precision of public information hence full transparency is optimal this is because more transparency facilitates more effective coordination which is valuable from a social perspective on the other hand when complementarities are strong enough that multiple equilibria are possible more transparency permits the market to coordinate more effectively on either the bad or the good equilibrium in this case constructive ambiguity becomes optimal if there is a high risk that more transparency will lead to coordination failures this abstract was borrowed from another version of this item

mixed oligopoly sequential entry and spatial price discrimination this paper is the first to examine the welfare consequences of a public firm in a traditional model of spatial price discrimination it demonstrates that when a private firm acts as a stackelberg location leader the presence of a public firm always improves welfare moreover when three firms locate sequentially the presence of a public firm improves social welfare unless it locates last thus despite examining a variety of location timings including simultaneous location privatization never improves welfare and usually harms welfare this conclusion differs from several currently in the literature in which privatization often improves welfare

zoning under spatial price discrimination i introduction the location of competing firms in a linear city has been profusely analyzed since the seminal work by hotelling 1929 who stated the minimum differentiation principle when each firm sets mill prices and consumers have linear transportation costs later d aspremont gabszewicz and thisse 1979 discussed the results obtained by hotelling and found that under quadratic transportation costs firms locate at the endpoints of the city a different scenario emerges when the sellers bear the transportation costs and are free to price discriminate among consumers throughout the market this problem was first envisaged by hoover 1937 and was formally analyzed by hurter and lederer 1985 and lederer and hurter 1986 they show that when the two firms simultaneously choose their locations in a linear city the equilibrium is that one firm locates in the first quartile and the other in the third quartile modern cities impose restrictions on the location of firms in the market in spain for example chemists and tobacconists shops cannot freely locate wherever they like they must maintain a certain distance from competitors that depends on the density of consumers in the market 1 the literature on zoning and firms locations has analyzed the effects of these legal restrictions on firms competition and market performances in this regard lai and tsai 2004 study the economic consequences of forbidding firms to locate within an area that emerges from the left hand border of the city they show that when firms compete with uniform prices the maximum differentiation principle as per d aspremont gabszewicz and thisse 1979 is still valid and that zoning improves welfare in a different setting chen and lai 2008 study optimal zoning when firms compete with discriminatory quantities under central symmetric zoning and show that zoning may improve social welfare these two papers consider linear cities 2 an alternative approach is to study a circular city as suggested by hamoudi and risueno 2012 they consider that consumers and firms locate in different areas they also introduce a regulator with different political profiles their analysis focuses on firms locations and the optimal size of commercial and residential areas under different political biases 3 unlike the abovementioned papers here we analyze zoning in a spatial duopoly with discriminatory pricing as developed by hurter and lederer 1985 and lederer and hurter 1986 to our knowledge this is the first attempt to analyze zoning within this framework we consider a linear city and linear transportation costs and we impose no restrictions on zoning design 4 in this context when firms choose their locations simultaneously they locate in the first and third quartiles these locations maximize social welfare if it is considered that the regulator gives the same weight to firms profits and the consumer surplus however when the regulator has a bias toward firms or consumers as in hamoudi and risueno 2012 we find that there is a need to impose certain restrictions on the locations of firms to get the first best our model differs from that of hamoudi and risueno 2012 in several aspects first we focus on discriminatory pricing rather than mill pricing second we study a linear city as opposed to a circular one third we allow areas where firms and consumers can coexist while they consider that firms and consumers are located on different sides finally we consider that zoning is unconstrained while they assume that zoning restricts the size of the region of the city where only firms can locate our results show that the bias of the regulator toward firms or consumers can be inferred from the regulation policy a bias toward firms is inferred when locations around the central area are forbidden and thus the zoning is close to the center of the city a bias in the direction of consumers exists when only locations around the central area are allowed which means that the zoning comprises the areas of the city close to the city boundaries

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

aggregation of information in large cournot markets consider a homogeneous product market where firms have private information about an uncertain demand parameter and compete in quantities we examine the convergence properties of bayesian cournot equilibria as the economy is replicated and conclude that large cournot or almost competitive markets do not aggregate information efficiently except possibly when the production technology exhibits constant returns to scale even in a competitive market there is a welfare loss with respect to the first best outcome due to incomplete information in general nevertheless a competitive market is efficient taking as given the decentralized private information structure of the economy endogenous and costly information acquisition is examined and seen to imply that the market outcome always falls short of the first best level with decreasing returns to scale the results are also shown to be robust to the addition of extra rounds of competition which allows firms to use the information revealed by past prices explicit closed form solutions yielding comparative static results are obtained for models characterized by quadratic payoffs and affine information structures

information use and acquisition in price setting oligopolies asymmetric price setting multi product suppliers have access to multiple sources of information about demand conditions where the publicity of each source corresponds to the cross industry correlation of signals received from it a signal s influence on suppliers prices is increasing in its publicity as well as in its precision the emphasis on relatively public information is stronger for smaller suppliers who control narrower product portfolios when information is endogenously acquired suppliers listen to only a subset of information sources this subset is smaller when products are less differentiated and when the industry is less concentrated smaller suppliers focus attention on fewer information sources the inefficiencies arising from information acquisition and use are identified the associated externalities depend upon the extent of product differentiation the concentration of the industry and the degree of decreasing returns to scale

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

learning from prices public communication and welfare we study the effect of releasing public information about productivity or monetary shocks using a micro founded macroeconomic model in which agents learn from the distribution of nominal prices while a public release has the direct beneficial effect of providing new information it also has the indirect adverse effect of reducing the informational efficiency of the price system we show that the negative indirect effect can dominate thus the public information release may increase uncertainty about the monetary shock and reduce welfare we find that the optimal communication policy is always to release either all or none of the information

learning from private and public observations of othersʼ actions we study how a continuum of agents learn about disseminated information by observing others actions every period each agent observes a public and private noisy signal centered around the aggregate action taken by the population the public signal represents an endogenous aggregate variable such as a price or a quantity the private signal represents the information gathered through private communication and local interactions we identify conditions such that the average learning curve is s shaped learning is slow initially intensifies rapidly and finally converges slowly to the truth we show that increasing public information always slows down learning in the long run and under some conditions reduces welfare lastly optimal diffusion of information requires that agents strive to be different agents need to be rewarded for choosing actions away from the population average

insisting on a non negative price oligopoly uncertainty welfare and multiple equilibria i study cournot competition under incomplete but symmetric information about the intercept of the linear demand function while assuming that market price must be non negative for all demand realizations although the non negativity assumption is very natural it has only rarely been made in the earlier literature yet it has important economic consequences 1 expected demand effectively becomes convex which means that multiple symmetric pure strategy equilibria can exist and 2 expected total surplus can be larger when the firms do not know demand than when they do the arguments of the paper are relevant also for price competition and for uncertainty about e g cost or the number of firms and these issues are discussed

knowing what others know coordination motives in information acquisition we explore how optimal information choices change the predictions of strategic models when a large number of agents play a game with strategic complementarity information choices exhibit complementarity as well if an agent wants to do what others do they want to know what others know this makes heterogeneous beliefs di cult to sustain and may generate multiple equilibria in models with substitutability agents prefer to difierentiate their information choices we use these theoretical results to examine the role of information choice in recent price setting models and to propose modeling techniques that ensure equilibrium uniqueness

gdp nowcasting application and constraints in a small open developing economy despite data limitations an attempt is made to find out if a gdp nowcasting model can provide reliable forecasts for a small open economy two competing bayesian vector autoregressive models are tested rigorously to obtain the optimal model by minimizing in sample forecasting errors the main finding of this study is that gdp nowcasting can produce reliable results for a small open economy despite the unavailability of sufficient data sets and the lack of high frequency indicators

exchange of cost information in oligopoly when do oligopolists gain by sharing their private information about their costs with one another what are the social welfare effects of such information exchange i study these questions by comparing the oligopolists expected profits under a cost sharing agreement with their expected profits in the bayesian equilibrium that would arise without cost sharing i also analyse the firms decisions to form a trade association to share their cost data under conditions of linear demand and cournot behaviour industrywide information exchange is the unique point in the core of the trade association membership game the exchange of cost data increases expected profits and welfare but reduces expected consumer surplus cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output consumer surplus is diminished however because the variance of output is reduced and consumer surplus is a convex function of output

measuring uncertainty and its impact on the economy we propose a new framework for measuring uncertainty and its effects on the economy based on a large var model with errors whose stochastic volatility is driven by two common unobservable factors representing aggregate macroeconomic and financial uncertainty the uncertainty measures can also influence the levels of the variables so that contrary to most existing measures ours reflect changes in both the conditional mean and volatility of the variables and their impact on the economy can be assessed within the same framework moreover identification of the uncertainty shocks is simplified with respect to standard var based analysis in line with the favar approach and with heteroskedasticity based identification finally the model which is also applicable in other contexts is estimated with a new bayesian algorithm which is computationally efficient and allows for jointly modeling many variables while previous var models with stochastic volatility could only handle a handful of variables empirically we apply the method to estimate uncertainty and its effects using us data finding that there is indeed substantial commonality in uncertainty sizable effects of uncertainty on key macroeconomic and financial variables with responses in line with economic theory

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

trade association disclosure rules incentives to share information and welfare in this article i propose a monopolistic competition framework to analyze the effects of different disclosure rules used by trade associations on the incentives to share information and on the welfare of consumers firms and society this framework is appropriate whenever a single firm cannot influence aggregate market magnitudes and serves as a benchmark for the analysis of information pooling agreements abstracting from strategic considerations i report two main results first a policy of nonexclusionary disclosure destroys the incentives to share information while exclusionary disclosure preserves them second information sharing increases expected total surplus with cournot competition but decreases it with bertrand competition in the context of a quadratic normal model with demand uncertainty

evolving international inflation dynamics world and country specific factors inflation in the most industrialized economies of the world has an important international common component that accounts for the historical decline in the national rates country specific conditions explain the rise in inflation volatility of the late 1970s and early 1980s and the subsequent fall during the last decade the world contribution to the variance of inflation has become increasingly more important than national contributions monetary policy was a relevant source of country specific fluctuations our conclusions are based on a time varying dynamic factor model applied to a large panel of inflation indicators

real time macroeconomic forecasting with a heteroskedastic inversion copula there is a growing interest in allowing for asymmetry in the density forecasts of macroeconomic variables in multivariate time series this can be achieved with a copula model where both serial a

acquiring information through peers we develop an endogenous network formation model in which agents form connections to acquire information our model features complementarity in actions as agents care not only about accuracy of their decision making but also about the actions of other agents in equilibrium the information structure is a hierarchical network and under weakly convex cost of forming links the equilibrium network is core periphery although agents are ex ante identical there is ex post heterogeneity in payoffs and actions

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

duopoly locations and optimal zoning in a small open city abstract this paper analyzes a duopoly location model with an asymmetric zoning that prohibits firms from locating to a specific interval in a small open linear city it is shown that the maximum differentiation principle presented in d aspremont et al econometrica 47 1979 1145 is still valid under area zoning regulation moreover a zoning regulation can be seen as a policy instrument to limit firms excess profits and a proper regulation may even reduce the distortion in total transportation costs therefore enhancing social welfare specifically the optimal zoning is about 29 5 percent of the city with no amenity effect finally all the land rents raised by zoning are eventually confiscated by the absentee landowner

policy with dispersed information information regarding economic fundamentals is widely dispersed in society is only imperfectly aggregated through prices or other indicators of aggregate activity and cannot be centralized by the government or any other institution in this paper we seek to identify policies that can improve the decentralized use of such dispersed information without requiring the government to observe this information we show that this can be achieved by appropriately designing the contingency of taxation on ex post public information regarding the realized fundamentals and aggregate activity when information is common as in the ramsey literature or when agents have private information only about idiosyncratic shocks as in the mirrlees literature the contingency on fundamentals alone suffices for efficiency when instead agents have private information about aggregate shocks the contingency on aggregate activity is crucial an appropriate combination of the two contingencies permits the government to i dampen the impact of noise and hence reduce non fundamental volatility without also dampening the impact of fundamentals ii induce agents to internalize informational externalities and hence improve the speed of social learning iii restore a certain form of constrained efficiency in the decentralized use of information and iv guarantee that welfare increases with the provision of any additional information jel c72 d62 d82

forecasting government bond yields with large bayesian vector autoregressions abstract we propose a new approach to forecasting the term structure of interest rates which allows to efficiently extract the information contained in a large panel of yields in particular we use a large bayesian vector autoregression bvar with an optimal amount of shrinkage towards univariate ar models the optimal shrinkage is chosen by maximizing the marginal likelihood of the model focusing on the us we provide an extensive study on the forecasting performance of the proposed model relative to most of the existing alternative specifications while most of the existing evidence focuses on statistical measures of forecast accuracy we also consider alternative measures based on trading schemes and portfolio allocation we extensively check the robustness of our results using different datasets and monte carlo simulations we find that the proposed bvar approach produces competitive forecasts systematically more accurate than random walk forecasts even though the gains are small

interconnections between eurozone and us booms and busts using a bayesian panel markov switching var model summary the proposed panel markov switching var model accommodates changes in low and high data frequencies and incorporates endogenous time varying transition matrices of country specific markov chains allowing for interconnections an efficient multi move sampling algorithm draws time varying markov switching chains using industrial production growth and credit spread data several important data features are obtained three regimes appear with slow growth becoming persistent in the eurozone turning point analysis indicates the usa leading the eurozone cycle amplification effects influence recession probabilities for eurozone countries a credit shock results in temporary negative industrial production growth in germany spain and the usa core and peripheral countries exist in the eurozone copyright 2016 john wiley sons ltd

macroeconomic forecasting performance under alternative specifications of time varying volatility summary this paper compares alternative models of time varying volatility on the basis of the accuracy of real time point and density forecasts of key macroeconomic time series for the usa we consider bayesian autoregressive and vector autoregressive models that incorporate some form of time varying volatility precisely random walk stochastic volatility stochastic volatility following a stationary ar process stochastic volatility coupled with fat tails garch and mixture of innovation models the results show that the ar and var specifications with conventional stochastic volatility dominate other volatility specifications in terms of point forecasting to some degree and density forecasting to a greater degree copyright 2014 john wiley sons ltd

political accountability and the room to maneuver a search for a causal chain many studies of the room to maneuver make no provision for popular evaluation of policy they assert rather than demonstrate popular satisfaction with policy choices and macroeconomic outcomes the authors present a framework that explicitly models channels for popular preferences to influence policies and outcomes results for economic policy making in britain do not support the room to maneuver thesis in the authors sample 1981 to 1997 the british government was responsive to changes in political evaluations and its policy choices effectively fed back into popular evaluations of government policy however this accountability mechanism worked outside the real economy shifts in popular evaluations induced changes in policy but had no impact on inflation and economic growth government capacity to shape macroeconomic outcomes was limited and popular influence over economic policy was ineffectual this form of accountability probably existed because british citizens had difficulty gauging the real impacts of their government s policies

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

pricing network effects the increase in the information that firms can collect or purchase about network effects across consumers motivates two important questions how does a firm s pricing strategy react to detailed information on network effects are the availability and use of such information beneficial or detrimental to consumer surplus we develop a model in which a monopoly sells a network good and price discriminates based on information about consumers influence and consumers susceptibility to influence the monopoly optimally offers consumers price discounts for their influence and charges price premia for their susceptibility the price premia and the price discounts are simple functions of the pattern of network effects we determine under which conditions relative to uniform price consumer surplus increases and we characterize the value of information on network effects for the monopoly

optimal research for cournot oligopolists we extend the classical cournot model to take account of uncertainty in either the cost function or the demand function by undertaking research firms can acquire private asymmetric information to help resolve their uncertainty and make a more informed production decision the model is a two stage game in the first stage research levels are chosen and in the second stage conditional on private research outcomes production decisions are made we find that for a linear continuous information structure there is a unique nash equilibrium to the game in the equilibrium there may be an inefficient amount of aggregate research and there may be incomplete pooling as well the model specializes to the classical case when the cost of research is zero and each firm gains essentially the same information by doing an infinite amount of research or when the cost of research is so high no firm undertakes research

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

common and country specific economic uncertainty abstract we use a factor model with stochastic volatility to decompose the time varying variance of macroeconomic and financial variables into contributions from country specific uncertainty and uncertainty common to all countries we find that the common component plays an important role in driving the time varying volatility of nominal and financial variables the cross country co movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade simulations from a two country dsge model featuring epstein zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross country correlation in volatility

sequential entry and deterrence with competitive spatial price discrimination abstract this paper analyzes sequential entry with perfect foresight in a competitive spatial price discrimination model with both an exogenous and an endogenous number of firms the spne locations do not coincide with the social cost minimizing locations

information acquisition and welfare we study information acquisition in a flexible framework with strategic complementarity or substitutability in actions and a rich set of externalities that are responsible for possible wedges between the equilibrium and the efficient acquisition of information first we relate the in efficiency in the acquisition of information to the in efficiency in the use of information and explain why efficiency in the use is no guarantee of efficiency in the acquisition next we show how the acquisition of private information affects the social value of public information i e the comparative statics of equilibrium welfare with respect to the quality of public information finally we illustrate the implications of the results in a monetary economy with price rigidities and dispersed information about productivity shocks

central bank communication design in a lucas phelps economy abstract in a lucas phelps island economy an island has access to many informative signals about demand conditions each signal incorporates both public and private information the correlation of a signal s realizations across the economy determines its publicity if information sources differ in their publicity then price formation and expectations formation processes separate causing output gaps to open an output stabilizing central bank prefers averagely public information and sometimes limits the clarity of its policy announcements to achieve this the bank s incentive to engage privately in costly information acquisition and transmission is strongest not for the most influential signals but instead for those which drive the largest wedge between prices and expectations signals that are far from averagely public

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

common drifting volatility in large bayesian vars the general pattern of estimated volatilities of macroeconomic and financial variables is often broadly similar we propose two models in which conditional volatilities feature comovement and study them using u s macroeconomic data the first model specifies the conditional volatilities as driven by a single common unobserved factor plus an idiosyncratic component we label this model bvar with general factor stochastic volatility bvar gfsv and we show that the loss in terms of marginal likelihood from assuming a common factor for volatility is moderate the second model which we label bvar with common stochastic volatility bvar csv is a special case of the bvar gfsv in which the idiosyncratic component is eliminated and the loadings to the factor are set to 1 for all the conditional volatilities such restrictions permit a convenient kronecker structure for the posterior variance of the var coefficients which in turn permits estimating the model even with large datasets while perhaps misspecifi

the changing transmission of uncertainty shocks in the u s this article investigates if the impact of uncertainty shocks on the u s economy has changed over time to this end we develop an extended factor augmented vector autoregression var model that simultaneously allows the estimation of a measure of uncertainty and its time varying impact on a range of variables we find that the impact of uncertainty shocks on real activity and financial variables has declined systematically over time in contrast the response of inflation and the short term interest rate to this shock has remained fairly stable simulations from a nonlinear dynamic stochastic general equilibrium dsge model suggest that these empirical results are consistent with an increase in the monetary authorities antiinflation stance and a flattening of the phillips curve supplementary materials for this article are available online

incentives for information production and disclosure in a duopolistic environment this paper examines the nature of the equilibrium solution to the duopoly problem under various incomplete information structures and the incentives to produce and disclose information attention is focused on the duopolists cost functions the results indicate that disclosure of such information is generally beneficial to the duopolists

uncertainty resolution private information aggregation and the cournot competitive limit a cournot model of oligopoly in which otherwise identical firms have private differential information about the common cost of production and a shared but unknown demand curve is examined a bayesian equilibrium of the corresponding game of incomplete information is solved for explicitly and analysed in the symmetric equilibrium different firms produce at different output levels because they have different information because the information individual firms have is random total output and hence market price is also random for any finite number of firms the main result of the paper relates to the asymptotic properties of the equilibrium when the number of firms becomes large under fairly general conditions on the joint distribution of demand and individual firms information about demand the random equilibrium price converges almost surely to a constant in the limit more importantly this price equals the perfectly competitive price in other words in large markets even if no firm knows the true market demand curve and firms are not price takers and do not use price as a signal to improve their information the competitive price will prevail with certainty in the limit aggregate outcomes are as if all firms shared their private information with each other

the sources of financial crises pre and post fed evidence this paper investigates the generation and the propagation mechanism of currency demand and supply shocks before and after world war i the structural determinants of the variability of stock prices and interest rates and the changes introduced by the creation of the fed on the dynamics of the system it is shown that in the pre 1914 era external monetary shocks interacted with a seasonal demand for money to produce financial crises the fed helped to prevent crises by insulating the u s economy from external shocks a structural vector autoregressive model provides evidence for these claims copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

forecasting with medium and large bayesian vars this paper is motivated by the recent interest in the use of bayesian vars for forecasting even in cases where the number of dependent variables is large in such cases factor methods have been traditionally used but recent work using a particular prior suggests that bayesian var methods can forecast better in this paper we consider a range of alternative priors which have been used with small vars discuss the issues which arise when they are used with medium and large vars and examine their forecast performance using a us macroeconomic dataset containing 168 variables we find that bayesian vars do tend to forecast better than factor methods and provide an extensive comparison of the strengths and weaknesses of various approaches typically we find that the simple minnesota prior forecasts well in medium and large vars which makes this prior attractive relative to computationally more demanding alternatives our empirical results show the importance of using forecast metrics based on the entire predictive density instead of relying solely on those based on point forecasts

cournot competition and the social value of information in a differentiated product cournot model each supplier receives informative signals about demand the cross industry correlations of the signals differ more public signals have higher correlation coefficients in equilibrium information is used inefficiently from the industry s perspective information is over used and too much emphasis is placed on relatively public signals from the consumer s perspective information is under used and too much emphasis is placed on relatively private signals welfare is enhanced by increasing the use of information as desired by consumers but re balancing that use away from public signals as desired by the industry if information is costly and endogenously acquired then suppliers acquire too much new information but they use it too little

measuring the effects of dollar appreciation on asia a favar approach abstract exchange rate shocks have mixed effects on economic activity in both theory and empirical var models in this paper we extend the empirical literature by considering the implications of a positive shock to the u s dollar in a factor augmented vector autoregression favar model for the u s and three large asian economies korea japan and china the favar framework allows us to represent a country s aggregate economic activity by a latent factor generated from a broad set of underlying observable economic indicators to control for global conditions we also include in the favar a global conditions index which is another latent factor generated from the economic indicators of major trading partners we find that a dollar appreciation shock reduces economic activity and inflation not only for the u s economy but also for all three asian economies this result which is robust to a number of alternative specifications suggests that in spite of their disparate economic structures and policy regimes the dollar appreciation shock affects the asian economies primarily through its impact on u s aggregate demand and this demand channel dominates the expenditure switching channel that affects a country s export competitiveness

information acquisition and welfare in network games abstract this paper studies information acquisition and use in network games the network structure incorporates both strategic complements positive links and substitutes negative links an information use game played on a correlation adjusted network is derived equilibrium inefficiencies in both acquisition and use of information are characterized inefficient bunching obtains in information acquisition where the spread in equilibrium signal precisions is below that prescribed by the planner the welfare analysis offers a policy intervention publicizing players information investments the more linked a player is positively or negatively the more strongly they respond to the policy to influence others information acquisition and use

information acquisition and relative efficiency of competitive oligopoly and monopoly markets this paper analyzes the relative efficiency of a competitive equilibrium against cournot oligopoly and monopoly equilibria when firms have diverse private information about the stochastic market demand when firms have information of the same precision the competitive equilibrium yields a larger expected welfare however when information is costly cournot oligopoly and monopoly firms acquire more information and hence may yield a larger expected welfare than the competitive firms under certain conditions the author also finds that competitive firms acquire less than the efficient level of information while cournot oligopoly and monopoly firms may acquire more than the efficient level copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

efficient use of information and social value of information this paper analyzes equilibrium and welfare for a tractable class of economies games that have externalities strategic complementarity or substitutability and heterogeneous information first we characterize the equilibrium use of information complementarity heightens the sensitivity of equilibrium actions to public information raising aggregate volatility whereas substitutability heightens the sensitivity to private information raising cross sectional dispersion next we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective the efficient use of information reflects the social value of aligning choices across agents finally we examine the comparative statics of equilibrium welfare with respect to the information structure the social value of information is best understood by classifying economies according to the inefficiency if any in the equilibrium use of information we conclude with a few applications including production externalities beauty contests business cycles and large cournot and bertrand games

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

bayesian methods for dynamic multivariate models if dynamic multivariate models are to be used to guide decisionmaking it is important that probability assessments of forecasts or policy projections be provided when identified bayesian vector autoregression var models are presented with error bands in the existing literature both conceptual and numerical problems have not been dealt with in an internally consistent way in this paper the authors develop methods to introduce prior information in both reduced form and structural var models without introducing substantial new computational burdens their approach makes it feasible to use a single large dynamic framework for example twenty variable models for tasks of policy projections copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

modeling time varying uncertainty of multiple horizon forecast errors we estimate uncertainty measures for point forecasts obtained from survey data pooling information embedded in observed forecast errors for different forecast horizons to track time varying uncer

beauty contests and iterated expectations in asset markets in a financial market where traders are risk averse and short lived and prices are noisy asset prices today depend on the average expectation today of tomorrow s price thus iterating this relationship the date 1 price equals the date 1 average expectation of the date 2 average expectation of the date 3 price this will not in general equal the date 1 average expectation of the date 3 price we show how this failure of the law of iterated expectations for average belief can help understand the role of higher order beliefs in a fully rational asset pricing model and explain over reaction to noisy public information

optimal information acquisition for heterogenous duopoly firms abstract this paper analyzes a stochastic duopoly market in which heterogenous firms acquire costly information about the stochastic market demand prior to their production decisions the equilibrium amounts of information acquired by each firm are compared the comparative statics analyses show the differential effects of a change in information cost the degree of uncertainty in the market demand and the demand and cost function parameters journal of economic literature classification numbers d82 l13 l15

constructing optimal density forecasts from point forecast combinations summary decision makers often observe point forecasts of the same variable computed for instance by commercial banks imf and the world bank but the econometric models used by such institutions are frequently unknown this paper shows how to use the information available on point forecasts to compute optimal density forecasts our idea builds upon the combination of point forecasts under general loss functions and unknown forecast error distributions we use real time data to forecast the density of us inflation the results indicate that the proposed method materially improves the real time accuracy of density forecasts vis a vis those from the unknown individual econometric models copyright 2013 john wiley sons ltd

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

endogenous information acquisition in coordination games in the context of a beauty contest coordination game in which payoffs 1 depend on the quadratic distance of actions from an unobserved state variable and 2 from the average action players choose how much costly attention to pay to vari 3 ous informative signals each signal has an underlying accuracy how precisely it 4 identifies the state and a clarity how easy it is to understand the unique linear 5 equilibrium has interesting properties the signals which receive attention are the 6 clearest available even if they have poor underlying accuracy the number of sig 7 nals observed falls as the complementarity of players actions rises and if actions 8 are more complementary the information endogenously acquired in equilibrium 9 is more public in nature the consequences of rational inattention constraints on 10

assessing international commonality in macroeconomic uncertainty and its effects this paper uses a large vector autoregression var to measure international macroeconomic uncertainty and its effects on major economies using two datasets one with gdp growth rates for 19 industrialized countries and the other with a larger set of macroeconomic indicators for the u s euro area and u k using basic factor model diagnostics we first provide evidence of significant commonality in international macroeconomic volatility with one common factor accounting for strong comovement across economies and variables we then turn to measuring uncertainty and its effects with a large var in which the error volatilities evolve over time according to a factor structure the volatility of each variable in the system reflects time varying common global components and idiosyncratic components in this model global uncertainty is allowed to contemporaneously affect the macroeconomies of the included nations both the levels and volatilities of the included variables in this setup uncertainty and its effects are estimated in a single step within the same model our estimates yield new measures of international macroeconomic uncertainty and indicate that uncertainty shocks surprise increases lower gdp and many of its components adversely affect labor market conditions lower stock prices and in some economies lead to an easing of monetary policy

fragility and the effect of international uncertainty shocks abstract when economic systems are fragile even modest shocks for example a shock to international capital movements can have strong negative effects on key macroeconomic fundamentals this paper proposes a large scale bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in g7 countries and shows that uncertainty increases fragility the factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance covariance matrix of the common factors to allow for first and second moment shocks we moreover assume that the uncertainty factor enters the var equation as an additional regressor our findings suggest that an international uncertainty shock has negative effects across all economies and variables under consideration leading to strong declines in output prices exports interest rates and equity prices the precise degree of fragility varies across countries a simple correlation exercise suggests that structural differences may be partially responsible for the observed differences

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

time varying impact of uncertainty shocks on the us housing market abstract this paper investigates the impact of uncertainty shocks on the housing market of the united states using the time varying parameter factor augmented vector autoregression tvp favar we use a comprehensive quarterly time series dataset on real economic activity price and financial variables besides housing market variables covering the period 1963 q1 to 2014 q3 in addition to housing prices we also consider variables related to home sales permits and starts in general the results of the cumulative response of housing variables to a one standard deviation positive uncertainty shock at the one four eight and twelve quarter horizon tends to change over time both in terms of sign and magnitude with the uncertainty shock primarily negatively affecting the housing variables in particular prices permits and starts in longer runs i e two and three years ahead horizons