longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

on the impact of heterogeneity on indeterminacy some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents heterogeneity we consider a neoclassical two sector growth model with technological externalities agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments we find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences however when the inverse of absolute risk aversion is a convex respectively concave function homogeneity heterogeneity tends to neutralize the external effects and eliminate indeterminacy

chinese resource demand and the natural resource supplier this article provides empirical evidence on the effects of chinese resource demand on the resource rich natural resource supplier using the example of australia a structural var model is used to examine the effects of chinese resource demand commodity prices and foreign output on the macroeconomy with a formally specified mining and resource export sector the key findings of the article are that shocks to chinese demand and commodity prices result in a sustained increase in commodity prices and mining investment and a positive impact on the resource sector however these shocks eventually lead to lower real domestic output with factors of production moving out of the nonresource sectors and into the resource sector resulting in a fall in nonresource sector output which is not fully offset by the rise in resource sector output the results also indicate some market power by the natural resource supplier

natural gas consumption and economic growth the role of foreign direct investment capital formation and trade openness in malaysia the objective of this paper is to reinvestigate the relationship between natural gas consumption and economic growth by including foreign direct investment capital and trade openness in malaysia for the period of 1971 2012 the structural break unit root test is employed to investigate the stationary properties of the series we have applied combined cointegration test to examine the relationship between the variables in the long run for robustness sake the ardl bounds testing method is also employed to test for a possible long run relationship in the presence of structural breaks we note the validity of cointegration between the variables natural gas consumption foreign direct investment capital formation and trade openness have positive influence on economic growth in malaysia the results support the presence of feedback hypothesis between natural gas consumption and economic growth foreign direct investment and economic growth and natural gas consumption and foreign direct investment the policy implications of these results are provided

would helicopter money be spent new evidence for the netherlands according to some economists central banks should use helicopter money to boost inflation expectations based on a survey among dutch households we examine whether respondents would spend the

how does globalisation affect regional inequality within a developing country evidence from china developing countries are increasingly concerned about effects of globalisation on regional inequality this paper develops an empirical method for decomposing the contributions of two major driving forces of globalisation foreign trade and foreign direct investment fdi on regional inequality and applies it to china even after controlling for many other factors globalisation is still found to be an important factor contributing to the widening regional inequality the paper ends by investigating the role of factor market segmentations in aggravating the distributional effect of changing regional comparative advantages in the process of globalisation

an equilibrium model of wealth distribution i present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete markets economy i flrst propose a self insurance model with an inter temporally dependent preference uzawa 1968 lucas and stokey 1984 and obstfeld 1990 i then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation finally i provide a complete characterization for the equilibrium cross sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income using this recursive formulation i show that income persistence and the degree of wealth mean reversion are the main determinants of wealth income correlation and relative dispersions of wealth to income such as skewness and kurtosis ratios between wealth and income

do demographics prevent consumption aggregates from reflecting micro level preferences abstract most simulated micro founded macro models use solely consumer demand aggregates in order to estimate preference parameters of a representative consumer for use in policy evaluation focusing on dynamic models with time separable preferences we show that aggregation holds if and only if momentary utility functions fall in the identical shape harmonic absolute risk aversion ishara utility class identifying which parameters of ishara utility functions are allowed to vary over time given this theoretical result it should be easy to empirically reject the aggregation properties that the macroeconomic representative consumer identification approach requires it suffices to show that permanent incomes guaranteeing the same living standard across households of different size violate an affine relationship in order to test the validity of this affine equation we develop a vignette survey that produces appropriate data without demand estimation restrictions imposed by models surprisingly in six countries this equation is not rejected lending support to using consumer demand aggregates

generalizing the permanent income hypothesis revisiting friedman s conjecture on consumption abstract friedman s contribution to the consumption literature goes well beyond the seminal permanent income hypothesis he conjectured that the marginal propensity to consume out of financial wealth shall be larger than out of human wealth the present discounted value of future labor income i present an explicitly solved model to deliver this widely noted consumption property by specifying that the conditional variance of changes in income increases with its level a larger realization of income not only implies a higher level of human wealth but also signals a riskier stream of future labor income inducing a higher precautionary saving and thus giving rise to friedman s conjecture appropriately adjusting human wealth for income risk i show that friedman s conjecture may be formulated as a generalized permanent income hypothesis i further show that friedman s conjecture captures the first order effect of stochastic precautionary savings finally i propose a natural decomposition of the optimal saving rule to formalize various motives for holding wealth as emphasized in friedman m 1957 a theory of the consumption function princeton university press princeton

an interdisciplinary model for macroeconomics macroeconomic modelling has been under intense scrutiny since the great financial crisis when serious shortcomings were exposed in the methodology used to understand the economy as a whole criticism has been levelled at the assumptions employed in the dominant models particularly that economic agents are homogeneous and optimizing and that the economy is equilibrating this paper seeks to explore an interdisciplinary approach to macroeconomic modelling with techniques drawn from other natural and social sciences specifically it discusses agent based modelling which is used across a wide range of disciplines as an example of such a technique agent based models are complementary to existing approaches and are suited to answering macroeconomic questions where complexity heterogeneity networks and heuristics play an important role

liquid capital and market liquidity this article considers how the supply of liquid capital affects the liquidity of asset markets the article views the former notion as a technological property of real investments and the latter as an endogenous property of financial market equilibrium and describes a channel by which the two are linked when agents hold more wealth in technologically liquid investments a marginal adjustment to portfolio holdings alters discount rates less causing a smaller price impact thus even without intermediaries or frictions the stock of transformable capital may be a crucial determinant of the resilience of financial markets

credit card debt and default over the life cycle this paper solves an empirically parameterized model of life cycle consumption which allows for uncollaterized borrowing and the possibility of default the simulation results show that i social stigma and credit limit have a very large impact on default rates ii education level also has a significant effect on the probability of default namely through differences in the shape of lifetime labor income profiles and iii the response of simulated default rates to labor income shocks is determined by the nature of labor income uncertainty temporary versus permanent additionally the model generates simultaneous consumer holdings of credit card debt and liquid assets

is foreign direct investment beneficial for mexico an empirical analysis 1960 2001 summary this paper examines the impact of foreign direct investment fdi on labor productivity growth in mexico using cointegration analysis a dynamic labor productivity function for the 1960 2001 period is estimated that includes inter alia the impact of changes in the stock of private and foreign capital per worker the error correction model ecm estimates suggest that increases in both private lagged and foreign lagged investment per worker have a positive and economically significant effect on the rate of labor productivity growth however after taking into account the growing remittances of profits and dividends there is a marked decrease in the economic effect of foreign capital per worker on the rate of labor productivity growth the paper assesses the short term interactions of the relevant variables via impulse response functions irfs and variance decompositions vdcs based on a decomposition process that does not depend on the ordering of the variables

decreasing absolute risk aversion and utility indices derived from cake eating problems abstract this paper establishes the following characterization of decreasing absolute risk aversion dara utility indices j exhibits dara if and only if it is the indirect function corresponding to an infinite horizon cake eating problem for some nondecreasing and concave utility function of consumption the characterization is applied to the analysis of resource extraction under uncertainty and to an inverse optimal problem

intergenerational risk sharing and risk taking of a pension fund abstract by using their financial reserves efficiently pension funds can smooth shocks on their asset returns and can thus facilitate intergenerational risk sharing in addition to the primary benefit of improved time diversification this form of risk allocation affords the additional benefit of allowing these funds to take better advantage of the equity premium which also favors the consumers in this paper our aim is twofold first we characterize the socially efficient policy rules of a collective pension plan in terms of portfolio management capital payments to retirees and dividend payments to shareholders we examine both the first best rules and the second best rules where in the latter case the fund is constrained by a solvency constraint and by a guaranteed minimum return to workers contributions second we measure the social surplus of the system compared to a situation in which each generation would save and invest in isolation for its own retirement we estimate that the certainty equivalent return of the pension saving scheme goes from 3 23 per year to 3 76 when intergenerational risk sharing is introduced one of the main results of the paper is that better intergenerational risk sharing does not reduce the risk born by each generation rather it increases the expected return to the workers contributions

to what extent can foreign direct investment help achieve international development goals for fdi to help alleviate absolute poverty and stimulate economic growth in developing countries two conditions have to be met first developing countries need to be attractive to foreign investors second the host country environment in which foreign investors operate must be conducive to favourable fdi effects with regard to overall investment economic spillovers and income growth this paper argues that it is more difficult to benefit from fdi than to attract fdi the widely perceived concentration of fdi in few developing countries tends to obscure that in relative terms various small and poor countries are fairly attractive to fdi yet the mobilisation of domestic resources remains by far more important than attracting fdi for financing investment and stimulating economic growth furthermore high inward fdi is no guarantee for poverty alleviation and positive growth effects in particular the empirical evidence suggests that host country conditions typically prevailing in poor countries including weak institutions and an insufficient endowment of complementary factors of production constrain the growth enhancing and poverty alleviating effects of fdi the crux is that creating an environment in which fdi may deliver social returns will take considerable time exactly where development needs are most pressing

consumption asymmetry and the stock market empirical evidence abstract this paper examines whether u s stock market value affects consumption asymmetrically using cointegration and error correction methodology the results confirm that stock market value asymmetrically affects real per capita consumption negative news affects consumption more than positive news

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

robust comparative statics in large dynamic economies we consider infinite horizon economies populated by a continuum of agents subject to idiosyncratic shocks this framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by bewley aiyagari and huggett models of entry exit and industry dynamics in the spirit of hopenhayn s work and dynamic models of occupational choice and search models as special cases robust and easy to apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the markov processes governing the law of motion of the idiosyncratic shocks

the role of exports fdi and imports in development evidence from sub saharan african countries the disappointing economic performance of sub saharan african ssa economies in the late 1980s prompted reforms in foreign trade and foreign direct investment fdi in the early 1990s using the autoregressive distributed lag ardl approach and pedroni panel estimation procedures that allow for heterogeneity this study found that exports and fdi have a significant impact on economic growth granger type causality tests show the interrelatedness of exports fdi imports and income variables the results also provide evidence of a two stage causal chain of exports imports and income this article calls for more market oriented policy reforms in ssa countries

multinational corporations economic and human rights impacts on developing countries a review and research agenda developing countries are attracting a significant portion of global foreign direct investments governments of such countries often compete fiercely for attracting multinational corporations mncs in the expectation of the advantages they will bring to their economies often prioritising economic goals over fundamental human rights for a long time economists have analysed the economic impacts of mncs while a parallel strand of work in political science business ethics and international law investigates the repercussions of mnc operations on human rights despite the significant relatedness and complementarities these two bodies of literature have so far poorly interacted this paper addresses this limitation and systematically analyses and integrates existing micro level empirical evidence on the economic and human rights impacts of mncs on developing countries it provides a critical analysis of what is known and highlights what we do not know about the factors that mediate the positive and or negative impacts of mnc operations on host developing countries based on a critical analysis of the literature it discusses avenues for future research in this field and sets the grounds for a new interdisciplinary research agenda on this subject

on the microeconomics of food and malnutrition under endogenous discounting abstract this paper explores the microeconomics and dynamics of food and nutrition it examines the linkages between malnutrition and the incentive to invest and accumulate capital the analysis focuses on a dynamic model where preferences about the future depend on nutrition and health situations of malnutrition cover both ends of the spectrum from nutrient deficiency to obesity the model involves preferences that are not time additive and exhibit endogenous discounting this provides a framework to investigate the factors affecting consumption and investment behavior the adverse investment incentives of malnutrition are examined

optimal investment and consumption when allowing terminal debt we analyze a dynamic optimization problem which involves the consumption and investment of an investor with constant relative risk aversion for consumption but with a risk aversion for final wealth which does not necessarily imply that terminal wealth must always be positive we require risk aversion for terminal wealth to be positive but not monotone there is a point of maximal risk aversion at zero wealth and the investor may continue to consume when wealth is negative using dual optimization methods we can derive explicit solutions and we find that the optimal solution differs in a fundamental way from the case where risk aversion is monotone it turns out that the optimal consumption function is convex and concave at different wealth levels and that the optimal investment strategy may no longer be monotone as a function of the remaining time to invest and consume

optimal consumption and the timing of the resolution of uncertainty abstract as is well known consumers want to accumulate precautionary savings in the face of income risks when their marginal utility is convex prudence in this paper we explore the effect of the timing of the resolution of income uncertainty on savings an agent faces uncertainty about his income at date t 2 what is the effect of being informed that the uncertainty will be resolved at date t 1 on the consumption at date t we show that the effect is positive if and only if marginal utility is convex prudence when either the risk free rate is equal to the rate of pure preference for the present or when the utility function is hara the intuition is that an early resolution of uncertainty allows for time diversifying the risk it therefore plays a role similar to a reduction of the income risk whose effect on savings is negative under prudence

saving and investing for early retirement a theoretical analysis we study optimal consumption and portfolio choice in a framework where investors adjust their labor supply through an irreversible choice of their retirement time we show that investing for early retirement tends to increase savings and reduce an agent s effective relative risk aversion thus increasing her stock market exposure contrary to common intuition an investor might find it optimal to increase the proportion of financial wealth held in stocks as she ages and accumulates assets even when her income and the investment opportunity set are constant the model predicts a decrease in risk aversion following strong market gains like those observed in the nineties

life cycle saving insights from the perspective of bounded rationality this paper provides a new life cycle model that takes into account key elements of bounded rationality the paper shows that the model can account for patterns in the data that are hard to explain by the standard life cycle model among other patterns the model predicts that typically the young either hold no equity or their equity portfolio share is rather low and then increases over working life the analytical solution of the model demonstrates its high degree of tractability

time diversification liquidity constraints and decreasing aversion to risk on wealth abstract the aim of this paper is to provide a theoretical foundation to the notions of time diversification and decreasing absolute aversion to risk on wealth we examine the attitude towards risk on initial wealth when the agent allocate this wealth to consumption over his lifetime time diversification occurs in that case because the agent will optimally split the risk on wealth into small seemingly independent risks on consumption the introduction of liquidity constraints reduces the implicit time horizon of the consumer and thereby increases his risk aversion the negative relationship between initial wealth and the implicit time horizon where the consumer will be liquidity constrained provides an argument for decreasing aversion to risk on wealth

does income inequality raise aggregate saving this paper reviews analytically and empirically the links between income distribution and aggregate saving consumption theory brings out a number of direct channels through which income inequality can affect overall household saving positively in most cases however recent political economy theory points toward indirect negative effects of inequality through firm investment and public saving on aggregate saving on theoretical grounds the sign of the saving inequality link is therefore ambiguous this paper presents new empirical evidence on the relationship between income distribution and aggregate saving based on a new and improved income distribution database for both industrial and developing countries the empirical results using alternative inequality and saving measures and various econometric specifications on both cross section and panel data provide no support for the notion that income inequality has any systematic effect on aggregate saving these findings are consistent with the theoretical ambiguity q 2000 elsevier science b v all rights reserved

the neoclassical growth model with heterogeneous quasi geometric consumers this paper investigates how the assumption of quasi geometric hyperbolic discounting affects the distributional implications of the standard one sector neoclassical growth model with infinitely lived heterogeneous agents the agents are subject to idiosyncratic shocks and face borrowing constraints we confine attention to an interior markov recursive equilibrium the consequence of quasi geometric discounting is that the effective discount factor of an agent is not a constant but an endogenous variable which depends on the agent s current state we show both analytically and by simulation that this new feature can significantly affect the distributional implications of the neoclassical growth model

risk aversion wealth and background risk we use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security we relate this measure to consumer s endowments and attributes and to measures of background risk and liquidity constraints we find that risk aversion is a decreasing function of the endowment thus rejecting cara preferences we estimate the elasticity of risk aversion to consumption at about 0 7 below the unitary value predicted by crra utility we also find that households attributes are of little help in predicting their degree of risk aversion which is characterized by massive unexplained heterogeneity we show that the consumer s environment affects risk aversion individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion consistent with recent theories of attitudes toward risk in the presence of uninsurable risks jel d1 d8

bonds versus stocks investors age and risk taking abstract it has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older however the well known decision rules such as mean variance or stochastic dominance rules are unable to explain this common practice almost stochastic dominance asd and almost mean variance amv approaches are used to examine the dominance of stock and bond portfolios asd and amv rules unambiguously support the popular practice of advising higher stock to bond ratio for long investment horizons hence we provide an explanation to the practitioners recommendation within the expected utility paradigm

time diversification definitions and some closed form solutions abstract we establish general conditions under which younger investors should invest a larger proportion of their wealth in risky assets than older ones in the finite horizon dynamic setting we show that such phenomenon known as time diversification can occur in the presence of human wealth guaranteed consumption or mean reverting stock returns we formalize two alternative notions of time diversification commonly confounded in the literature analytic solutions are provided for both time series and cross sectional forms of time diversification to our best knowledge this paper is the first to solve in closed form the hedging demand for a cara investor with inter temporal consumption and a finite horizon facing mean reverting expected returns our results indicate that horizon can have a significant effect on the portfolio demand of a cara investor due to inter temporal hedging

permanent income current income and consumption evidence from two panel data sets in this article i estimate euler equations that is the first order conditions of the consumers maximization problem using data from two data sets consumption data are taken from the consumer expenditure survey income data are taken from the panel study of income dynamics because the data for the estimation come from two samples i use a generalization of the instrumental variables estimator the two sample instrumental variables estimator i find evidence that consumption is excessively sensitive to predictable income growth the estimates of the coefficient of excess sensitivity for three consumption measures range from 2 to 5

foreign direct investment regulations and growth this paper explores the linkage between income growth rates and foreign direct investment fdi inflows so far the evidence is rather mixed as no robust relationship between fdi and income growth has been established the authors argue that countries need a sound business environment in the form of good government regulations to be able to benefit from fdi using a comprehensive data set for regulations they test this hypothesis and find evidence that excessive regulations restrict growth through fdi only in the most regulated economies this result holds true for different specifications of the econometric model including instrumental variable regressions

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

shocks and asset dynamics in ethiopia abstractthis article uses household survey panel data of 416 rural households to study asset dynamics in the northern highlands of ethiopia and the response of assets to shocks the period under examination 1996 2003 was marked by severe environmental shocks including a series of droughts the article empirically studies the nature of household asset paths over time using as the point of departure the theory on precautionary savings behavior results indicate that the response of assets to weather shocks the differential effect of these shocks on liquid and less liquid forms of wealth holdings and the nature of asset dynamics are all consistent with the implications of a precautionary motive for holding wealth

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

precautionary wealth accumulation this paper provides theoretical foundations for when individual and aggregate wealth accumulation increase as earnings risk increases stated in terms of a simple picture the problem addressed in this paper is to find sufficient conditions such that the pattern in figure 1 holds figure 1 describes a situation in which an individual s expected wealth accumulation profile is weakly greater at each age over the life cycle whenever the individual faces one earnings process that is riskier than another earnings process other things equal two important open questions can be answered by finding sufficient conditions for the pattern in figure 1 to occur first there is the question of when theory predicts that households that face more earnings risk have more expected wealth accumulation at any point in the life cycle than households that face less earnings risk the development of such a theory would be helpful as there is a sizeable empirical literature related to this question which is surveyed by browning and lusardi 1996 second there is the question of when theory predicts that aggregate wealth accumulation increases as earnings risk increases much of the interest in the precautionary savings literature is based on the possibility that an important part of aggregate wealth is due to uninsured earnings risk this question can also be answered with figure 1 the idea is to treat the expected wealth profile of one individual as the realized average wealth profile of a large number of similarly situated individuals the law of large numbers justifies this when shocks are independent across individuals and thus earnings risk is idiosyncratic since aggregate wealth holding is a weighted sum of the average wealth holdings of individuals at different ages an upward shift of the expected wealth profile of all agents then implies that aggregate wealth holding increases with increases in earnings risk other things equal this paper provides the first general answer to when the pattern in figure 1 occurs in the context of a multi period model with independent earnings shocks the answer is given at two levels in terms of properties of the decision rule for savings i e the savings function and in terms of preferences a savings function maps an individual s current state e g current wealth and earnings and age into savings or wealth carried into the next model period given a specific earnings process since economists are familiar with the merits of sufficient conditions stated in terms of preferences i will try to motivate why sufficient conditions stated in terms of the savings function are interesting first they are widely applicable they apply to theories where savings decisions maximize a utility function or are given by a rule of thumb they also apply to models where there is wage risk and there are both consumption saving and labour leisure decisions second in so far as the savings function can be estimated it is useful for an empirical

optimal pricing use and exploration of uncertain natural resource stocks abstract units of natural resources to be called mines are assumed distributed over an unexplored territory according to a poisson process in space at any moment total reserves and unexplored land are given society can determine the rate of consumption and the rate of exploration reserves are drawn down by consumption and increased by discoveries made during exploration the amount of unexplored land is decreased by exploration at any moment the payoff of society is a concave function of consumption less a linear function of exploration with future payoffs discounted optimal policies are considered and in particular it is shown for a large amount of unexplored land the shadow prices of reserves and of unexplored land move in random cycles but show only a slight upward tread thereby casting some light on the failure of mineral prices to rise at the market rate of interest

interest rate pass through mortgage rates household consumption and voluntary deleveraging abstract exploiting variation in the timing of resets of adjustable rate mortgages arms we find that a sizable decline in mortgage payments up to 50 percent induces a significant increase in c

estimation of an agent based model of investor sentiment formation in financial markets abstract we use weekly survey data on short term and medium term sentiment of german investors to estimate the parameters of a stochastic model of opinion formation governed by social interactions the bivariate nature of our data set also allows us to explore the interaction between the two hypothesized opinion formation processes while consideration of the simultaneous weekly changes of the stock index dax enables us to study the influence of sentiment on returns technically we extend the maximum likelihood framework for parameter estimation in agent based models introduced by lux 2009a by generalizing it to bivariate and tri variate settings as it turns out our results are consistent with strong social interaction in short run sentiment while one observes abrupt changes of mood in short run sentiment medium term sentiment is a more slowly moving process in which the influence of social interaction seems to be less pronounced the tri variate model entails a significant effect from short run sentiment on prices in sample but its out of sample predictive performance does not beat the random walk benchmark

do expiring budgets lead to wasteful year end spending evidence from federal procurement many organizations fund their spending out of a fixed budget that expires at year s end faced with uncertainty over future spending demands these organizations have an incentive to build a buffer stock of funds over the front end of the budget cycle when demand does not materialize they then rush to spend these funds on lower quality projects at the end of the year we test these predictions using data on procurement spending by the u s federal government using data on all federal contracts from 2004 through 2009 we document that spending spikes in all major federal agencies during the 52nd week of the year as the agencies rush to exhaust expiring budget authority spending in the last week of the year is 4 9 times higher than the rest of the year weekly average we examine the relative quality of year end spending using a newly available dataset that tracks the quality of 130 billion in information technology i t projects made by federal agencies consistent with the model average project quality falls at the end of the year quality scores in the last week of the year are 2 2 to 5 6 times more likely to be below the central value to explore the impact of allowing agencies to roll unused spending over into subsequent fiscal years we study the i t contracts of an agency with special authority to roll over unused funding we show that there is only a small end of year i t spending spike in this agency and that the one major i t contract this agency issued in the 52nd week of the year has a quality rating that is well above average

the importance of the number of different agents in a heterogeneous asset pricing model abstract models with heterogeneous agents and incomplete markets often only have two types of agents to limit the computational complexity the question arises whether equilibrium models with a realistic number of types have the same implications as models with a small number of types in the asset pricing model considered in this paper several properties depend crucially on the number of types for example in the economy with only two types interest rates respond to idiosyncratic income shocks which makes it easier to smooth consumption moreover these effects can be so strong that it is possible that a relaxation of the borrowing constraint reduces an agent s utility average interest rates on the other hand are not very sensitive to the number of types

baltic dry index and iron ore spot market dynamics and interactions baltic dry index bdi is often included in the iron ore spot price iron ore market experienced a transition in pricing mechanism from the annual negotiated price to the one based on spot market p

an econometric model of the world market for dry cargo freight and shipping 1989 an econometric model of the world market for dry cargo freight and shipping applied economics vol 21 no 3 pp 339 356

modeling regional linkage of financial markets abstract with the development of globalization and regional economic integration regional markets linked with a common currency emerge in which investors from domestic market are allowed to trade in foreign markets empirical studies have evidenced extensively the existence of co movement of asset prices or cross correlation in market returns among these markets especially in global event however there is no theoretical model in literature that can provide economically plausible justifications for these stylized facts this research intends to fill up such a gap with a simplest possible nonlinear dynamic model based on the classical market maker framework of day and huang 1990 a two market ham model is developed which does not only prove in theory the existence of price co movement but also replicate in simulation this typical characteristic along with other well known stylized facts characterizing individual financial market moreover theoretical analysis suggests meaningful implications for market opening policy in particular in terms of financial stability a relatively small market may not benefit from market linkage and market opening is essentially a double edged sword

on the first order approach in principal agent models with hidden borrowing and lending we provide sufficient conditions for the validity of the first order approach for two period dynamic moral hazard problems where the agent can save and borrow secretly the first order approach is valid if the following conditions hold i the agent has non increasing absolute risk aversion utility niara ii the output technology has monotone likelihood ratios mlr and iii the distribution function of output is log convex in effort lcdf moreover under these three conditions the optimal contract is monotone in output we also investigate a few possibilities of relaxing these requirements

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth