energy growth long term relationship under structural breaks evidence from canada 17 latin american economies and the usa abstract we study the relationship and the causal link between electric power consumption epc and gross domestic product gdp both per capita for 17 countries in latin america canada and the usa considering that many of these economies underwent important economic crises in the last three decades we therefore model the epc gdp relationship through a vec specification that allows for structural breaks along with a robust testing methodology of causal links based on the concepts of weak and super exogeneity rather than granger causality evidence favorable to the growth hypothesis epc gdp is found for eight countries while data of three countries support the conservation hypothesis gdp epc for three countries evidence is favorable to the neutrality hypothesis but should be considered with caution as for the remaining five countries the evidence is not conclusive

the sustainability of south african fiscal policy an historical perspective this article examines the issue of long run fiscal sustainability in south africa by applying a battery of recently developed unit root and cointegration tests to real revenue and spending data for the period 1895 to 2005 the results provide evidence that allowing for structural breaks south african revenue and spending during this period were i 1 series and cointegrated with the estimated long run equilibrium relation supporting the presence of a weak deficit sustainability condition the views expressed in this article are those of the authors and should not be attributed to the international monetary fund

interest rate deregulation monetary policy efficacy and rate rigidity abstract this paper examines the effects of interest rate regulation and subsequent deregulation on the efficacy of monetary policy and rigidity of retail bank deposit rates in hong kong using an error correction model we find that interest rate deregulation increases the efficacy of monetary policy by improving the correlation between retail bank deposit rates and market interest rates and increasing the degree of long term pass through for retail bank deposit rates our study also shows that the adjustments in retail bank deposit rates are asymmetric and rigid upwards during the regulated period but tend to be rigid downwards during the deregulated period the spreads between retail bank deposit rates and market rates have also tightened sharply after the removal of interest rate controls

the dynamic linkages between crude oil and natural gas markets abstract the time varying price spillovers between natural gas and crude oil markets for the period 1994 to 2014 are investigated contrary to earlier research we show that in a large part of our sample the natural gas price leads the price of crude oil with price spillover effects lasting up to two weeks this result is robust to a battery of tests including out of sample forecasting exercises however after 2006 we detect little price dependencies between these two energy commodities these findings arise due to a conjunction of both demand and supply side shocks arising from both natural and economic events including hurricane katrina the tohoku earthquake and the global financial crisis as well as infrastructure and technological improvements the increased use of new technologies such as hydraulic fracking for the extraction of gas and oil in particular affected supply in the latter part of the study we conclude that the long term relation present in the early part of the sample has decoupled such that price determination of these two energy sources is now independent

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

a small monetary system for the euro area based on german data previous euro area money demand studies have used aggregated national time series data from the countries participating in the european monetary union emu however aggregation may be problematic because macroeconomic convergence processes have taken place in the countries of interest therefore in this study quarterly german data until 1998 are combined with data from the euro area from 1999 until 2002 and these series are used for fitting a small vector error correction model for the monetary sector of the emu a stable long run money demand relation is found for the full sample period moreover impulse responses do not change much when the sample period is extended by the emu period provided the break in the extended data series is captured by a simple dummy variable copyright 2006 john wiley sons ltd

asymmetric information and price competition in small business lending abstract this paper examines the relationship between bank lending rates and their cost of funds in new zealand our results show that on average mortgage rates respond more quickly to changes in the cost of funds than base business lending rates we also find an asymmetry in the initial short run response of banks to changes in funding costs in particular our results show banks adjust mortgage rates downwards faster than upwards the speed to which lending rates revert back to their equilibrium relationship with funding costs varies across the lending markets we find the adjustment speed is faster when mortgage rates are below equilibrium whereas it is slower when business lending rates are above long run levels in relation to funding costs our analysis suggests that banks prefer the plain vanilla type of lending such as mortgages in comparison to small business lending consistent with asymmetric information associated with business loans

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

leadership by example in the weak link game we investigate the effects of leadership in a four player weak link game a weak link game is a coordination game with multiple pareto ranked nash equilibria because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria we wanted to see whether leadership by example in the form of one player acting publicly before the rest of the group could help groups do better our results suggest that leadership can increase efficiency but is far from being a guarantee of success specifically in a significant number of groups we observed successful leadership and increased efficiency but in most groups efficiency was low despite the efforts of leaders we did not find any difference between voluntary leaders and leaders that are randomly assigned

the political intergenerational welfare state abstract using a three period overlapping generations economy framework we characterize an intergenerational welfare state with endogenous education and pension under voting we show that although politically establishing pay as you go payg social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected in contrast politically implementing education pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire however for this the political influence of the old has to be small thus limiting the size of the payg social security program

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press

equilibrium selection in static and dynamic entry games abstract we experimentally assess the predictive power of two equilibrium selection principles for binary n player entry games with strategic complementarities in static entry games we test the theory of global games which posits that players play games of complete information as if they were playing a related global game of incomplete information by contrast in dynamic n period entry games the efficient subgame perfect equilibrium prediction is for all to enter whenever the payoff relevant state variable exceeds a certain threshold the subgame perfect entry threshold of the dynamic game will generally differ from the global game threshold of the static version of the same game nevertheless our experimental findings suggest that entry thresholds are similar between static and dynamic versions of the same game an implication is that the modeling of entry games with strategic complementarities as static one shot games ignoring the dynamic element of such interactions may not be unreasonable

it s what you say not what you pay an experimental study of manager employee relationships in overcoming coordination failure we study manager employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels the underlying game being played repeatedly by employees is a weak link game in the absence of managerial intervention subjects invariably slip into coordination failure to overcome a history of coordination failure managers have two instruments at their disposal increasing employees financial incentives to coordinate and communication with employees we find that communication is a more effective tool than incentive changes for leading organizations out of performance traps examining the content of managers communication the most effective messages specifically request a high effort point out the mutual benefits of high effort and imply that employees are being paid well

coordination and delay in global games abstract what is the effect of offering agents an option to delay their choices in a global coordination game we address this question by considering a canonical binary action global game and allowing players to delay their irreversible decisions those that delay have access to accurate private information at the second stage but receive lower payoffs we show that as noise vanishes as long as the benefit to taking the risky action early is greater than the benefit of taking the risky action late the introduction of the option to delay reduces the incidence of coordination failure in equilibrium relative to the standard case where all agents must choose their actions at the same time we outline the welfare implications of this finding and probe the robustness of our results from a variety of angles

an endogenous timing conflict game abstract we present an endogenous timing conflict game of incomplete information under strategic complementarity the model predicts multiple equilibria in which the outcome follows either a simultaneous move game baliga and sjostrom 2004 or a sequential game which improves social welfare we study the three families of games in the laboratory using gender balanced sessions our results suggest that i social welfare is higher in the endogenous timing and sequential games compared to the simultaneous game ii men and women make similar decisions in the simultaneous and sequential move games and iii in the endogenous timing game women are less willing to commit to the risky action

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

dynamic global games of regime change learning multiplicity and the timing of attacks global games of regime change coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attack it have been used to study crises phenomena such as currency attacks bank runs debt crises and political change we extend the static benchmark examined in the literature by allowing agents to take actions in many periods and to learn about the underlying fundamentals over time we first provide a simple recursive algorithm for the characterization of monotone equilibria we then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time or with changes in fundamentals leads to interesting equilibrium properties first multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark second fundamentals may predict the eventual fate of the regime but not the timing or the number of attacks finally equilibrium dynamics can alternate between phases of tranquility where no attack is possible and phases of distress where a large attack can occur even without changes in fundamentals

segmented trends and non stationary time series since the influential work of charles r nelson and charles plosser 1982 many empirical studies have concluded that macroeconomic time series are difference stationary this paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle and where the trend shows infrequent shifts the paper proposes tests between the difference stationary and segmented trends models and applies these to the data of nelson and plosser in general the results indicate that prices are difference stationary but quantities follow segmented trend processes copyright 1989 by royal economic society

unit roots structural breaks and cointegration in the uk public finances 1750 2004 in this article we report results from several traditional and more recently developed unit root and cointegration tests allowing for structural breaks which indicate that uk government revenue and spending during 1750 2004 were i 1 series and cointegrated and that the uk public finances have been on a consistently sustainable path over the long run

foreign direct investment exchange rate variability and demand uncertainty variable real exchange rates influence the location of production facilities chosen by a multinational with risk averse investors and fixed productive factors parent companies should not be indifferent to production location even with identical expected costs of production across countries if a nonnegative correlation exists between export demand and exchange rate shocks the multinational optimally locates some productive capacity abroad the capacity share abroad increases as exchange rate volatility rises and becomes more correlated with export demand shocks these results are confirmed using quarterly u s bilateral foreign direct investment flows with canada japan and the united kingdom copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

information manipulation coordination and regime change this article presents a model of information manipulation and political regime change there is a regime that can be overthrown but only if enough citizens participate in an uprising citizens are imperfectly informed about the regime s ability to resist an uprising and the regime can engage in propaganda that taken at face value makes the regime seem stronger than it truly is this coordination game with endogenous information manipulation has a unique equilibrium and the article gives a complete analytic characterization of the equilibrium s comparative statics holding fixed the number of signals available to citizens if the per unit signal precision is sufficiently high then the regime is harder to overthrow in contrast if the number of signals increases so that both total signal precision and the regime s costs of manipulation rise together then the regime is easier to overthrow unless there are strong economies of scale in information control

the intergenerational state education and pensions allocation is inefficient when generations overlap this failure can be mitigated by properly designed social arrangements we show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation neither the public financing of education nor the pension scheme we consider resemble standard ones in our mechanism via the public education system the young borrow from the middle aged to invest in human capital they pay back the debt via a social security tax the proceedings of which finance pension payments when the complete market allocation is achieved the rate of return implicit in this borrowinglending scheme should equal the market rate of return

asymmetric adjustment of commercial bank interest rates evidence from malaysia and singapore abstract this paper examines the rigidity of commercial bank interest rates using evidence from singapore and malaysia an asymmetric error correction technique is used to test whether mean adjustment lags are different when retail rates are above or below their equilibrium levels it is concluded in both countries that the mean adjustment lag is shorter when the deposit rate is above its equilibrium than when it is below its equilibrium using the framework of hannan and berger 1991 this finding implies that the hypothesis of collusion cannot be rejected

bank runs as coordination failures an experimental study we use experimental methods to investigate what factors contribute to breakdowns in coordination among a bank s depositors subjects in our experiment decide whether to leave their money deposited in a bank or withdraw it early a bank run occurs when there are too many early withdrawals we explore the effects of adding uncertainty about fundamental withdrawal demand and of changing the number of opportunities subjects have to withdraw our results show that i bank runs are rare when fundamental withdrawal demand is known but occur frequently when it is stochastic and ii subjects are more likely to withdraw when given multiple opportunities to do so than when presented with a single decision for the multiple opportunity case we evaluate individual withdrawal decisions according to a set of simple cutoff rules we find that the cutoff rule corresponding to the payoff dominant equilibrium of the game which involves bayesian updating of probabilities explains subject behavior better than other rules

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

measuring strategic uncertainty in coordination games this paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries we apply this method by conducting experiments on a class of one shot coordination games with strategic complementarities and choices between simple lotteries and sure payoff alternatives both framed in a similar way despite the multiplicity of equilibria in the coordination games aggregate behaviour is fairly predictable the pure or mixed nash equilibria cannot describe subjects behaviour we present two global games with private information about monetary payoffs and about risk aversion while previous literature treats the parameters of a global game as given we estimate them and show that both models describe observed behaviour well the global game selection for vanishing noise of private signals offers a good recommendation for actual players given the observed distribution of actions we also deduce subjective beliefs and compare them with objective probabilities

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

should i stay or should i go bandwagons in the lab abstract we experimentally investigate the impact of strategic uncertainty and complementarity on leader and follower behavior using the model of farrell and saloner 1985 at the core of the model are endogenous timing irreversible actions and private valuations we find that strategic complementarity strongly determines follower behavior once a subject decides to abandon the status quo the probability that other players jump on the bandwagon increases sharply however there is a reluctance to lead when leading is a conditional best response we explain this deviation from the neo classical equilibrium by injecting some noise in the equilibrium concept we also find that cheap talk improves efficiency

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

economic policies and demand for money evidence from canada this study identifies canadian fiscal and monetary policy regime changes that could influence the services of money it is argued that if these policy regime changes were not incorporated in the estimation of demand for real balances the resulting estimate would be biased and unstable using canadian monthly data for the january 1975 to june 2001 period the paper estimates a standard demand for money m1 function with and without these policy regime changes it was found the demand for money in canada is stable over the short and long run periods when these policy regime changes are incorporated and the estimated coefficients have correct signs

fertility and the personal exemption comment one of the most commonly cited studies on the effect of child subsidies on fertility whittington alm and peters 1990 claimed a large positive effect of child tax benefits on fertility using time series methods we revisit this question in light of recent increases in child tax benefits by replicating this earlier study and extending the analysis we do not find strong evidence to justify the model specification from the original paper moreover even if the original specification is appropriate we show that the results are not robust to more general measures of child tax benefits jel h24 j13

excess liquidity bank pricing rules and monetary policy abstract this paper studies the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections the demand for excess reserves is determined by precautionary factors and the opportunity cost of holding cash it is argued that excess liquidity may impart greater stickiness to the deposit rate in response to a monetary contraction and induce an easing of collateral requirements on borrowers which in turn may translate into a lower risk premium and lower lending rates as a result asymmetric bank pricing behavior under excess liquidity may hamper the ability of a contractionary monetary policy to lower inflation

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

competition transmission and bank pricing policies evidence from belgian loan and deposit markets abstract this paper addresses the pass through from market interest rates to retail bank interest rates the paper advocates a heterogeneous approach and applies it to the belgian banking market a substantial proportion of the heterogeneity in bank pricing policies can be explained by the bank lending channel and the relative market power hypothesis the results also suggest that the long term pass through is typically less than one for one rejecting the completeness hypothesis while there is no convincing evidence for asymmetry in retail rates large deviations from equilibrium mark ups are faster reduced than small deviations overall conditions for corporate loans are more competitive compared to consumer loans demand and savings deposits have by far the most rigid prices

monetary policy transparency and pass through of retail interest rates abstract this paper examines the degree of pass through and adjustment speed of retail interest rates in response to changes in benchmark market rates in new zealand during the period 1994 2004 we consider the effects of policy transparency and financial structure of the monetary transmission mechanism new zealand is the first oecd country to adopt a full fledged inflation targeting regime with specific accountability and transparency provisions policy transparency was further enhanced by a shift from quantity settlement cash to price interest rate operating targets in 1999 using phillips loretan estimates of cointegrating regressions we find complete long term pass through for some but not all retail rates our results also show that the introduction of the official cash rate ocr increased the pass through of floating and deposit rates but not fixed mortgage rates in line with previous studies we find the immediate pass through of market interest rates to bank retail rates to be incomplete although we find no statistical evidence for asymmetric response of retail rates to changes in market rates other than for business lending rates in the pre ocr period differences in the magnitude of mean adjustment lags indicate that banks appear to pass on decreases to fixed mortgage rates faster overall our results confirm that monetary policy rate has more influence on short term interest rates and that increased transparency has lowered instrument volatility and enhanced the efficacy of policy

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

consequences of unintended food policies food price dynamics subject to the israeli palestinian conflict abstract israel s imposition of military security measures in the palestinian territories as a consequence of the long lasting violent conflict between them has negative economic effects on all parties concerned one crucial outcome is the limited ability to carry out trade which brings about welfare losses conflict induced policies such as security measures can result in sizable unintended externalities that shape the markets of and the trade in food we assess the dynamics of daily wholesale prices of food produced in israel and the west bank that is traded between them and is therefore subject to restrictions on movement to do so we suggest a regime switching cointegration model which is estimated using a novel extension of the johansen estimation method we find that the two major wholesale markets of the two regions are integrated with regard to these main trading products deviations from price equilibria are quickly adjusted the model suggests that movement restrictions temporarily cut off markets from each other implications of conflict induced closures for welfare depend on the direction of trade and are harming both palestinian and israeli consumers

coordination failures and government policy a model with applications to east asia and eastern europe abstract poor countries must specialize in standardized labor intensive commodities middle income countries may have a richer menu of options if their labor force is reasonably well educated and skilled the multiplicity of equilibria is due to a coordination problem inherent in activities that require specialized inputs if no intermediate inputs are presently produced there may be little incentive for any single firm to do so on its own the economy may get stuck in a low wage low tech equilibrium an investment subsidy or a minimum wage policy can enhance welfare by moving the economy to a superior equilibrium

modeling the demand for m3 in the unified germany an error correction model for the demand for real m3 money is constructed for the period of 1976 1994 with real gnp the gnp deflator as well as a short term and a long term interest rate as explanatory variables quarterly seasonally unadjusted data are used in estimating the model it is found that there is a clear structural break due to the german unification in 1990 on the other hand once this structural break is accounted for a stable relation is found which resists a series of specification tests these include a number of recent tests of parameter constancy and linearity our specification is at variance with findings reported by some other researchers notably the deutsche bundesbank

crude oil and stock markets stability instability and bubbles abstract we analyze the long run relationship between the world price of crude oil and international stock markets over 1971 1 2008 3 using a cointegrated vector error correction model with additional regressors allowing for endogenously identified breaks in the cointegrating and error correction matrices we find evidence for breaks after 1980 5 1988 1 and 1999 9 there is a clear long run relationship between these series for six oecd countries for 1971 1 1980 5 and 1988 2 1999 9 suggesting that stock market indices respond negatively to increases in the oil price in the long run during 1980 6 1988 1 we find relationships that are not statistically significantly different from either zero or from the relationships of the previous period the expected negative long run relationship appears to disintegrate after 1999 9 this finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years which may suggest the presence of several stock market bubbles and or oil price bubbles since the turn of the century

dictators and their viziers endogenizing the loyalty competence trade off the possibility of treason by a close associate has been a nightmare of most autocrats throughout history more competent viziers are better able to discriminate among potential plotters and this makes them more risky subordinates for the ruler to avoid this rulers especially those who are weakandvulnerable sacrificethecompetenceoftheiragents hiringmediocrebutloyalsubordinates furthermore any use of incentive schemes by a personalistic dictator is limited by the fact that all punishments are conditional on the dictator s own survival we endogenize loyalty and competence in a principal agent game between a dictator and his viziers in both static and dynamic settings the dynamic model allows us to focus on the succession problem that insecure dictators face jel d72 h00 c72 c82

the effect of endogenous timing on coordination under asymmetric information an experimental study abstract this paper investigates the role of endogenous timing of decisions on coordination under asymmetric information in the equilibrium of a global coordination game where players choose the timing of their decision a player who has sufficiently high beliefs about the state of the economy undertakes an investment without delay this decision potentially triggers an investment by the other player whose beliefs would have led to inaction otherwise endogenous timing has two distinct effects on coordination a learning effect early decisions reveal information and a complementarity effect early decisions eliminate strategic uncertainty for late movers the experiments that we conduct to test these theoretical results show that the learning effect of timing has more impact on the subjects behavior than the complementarity effect we also observe that subjects welfare improves significantly under endogenous timing

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

two sided intergenerational transfer policy and economic development a politico economic approach we consider an overlapping generations model with public education and social security where the overall size of these policies is determined in a repeated voting game we investigate the interaction between the politically determined policies and economic development in a markov perfect equilibrium the following results are obtained first the level of human capital determines whether these policies are sustained in the markov perfect equilibrium second if the level of initial human capital is sufficiently high human capital grows forever in contrast if the level of initial human capital is low the economy might be caught in a poverty trap

forward and backward intergenerational goods why is social security good for the environment this paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods figs such as education and the environment when agents are selfish or exhibit paternalistic altruism we show that backward intergenerational goods bigs such as social security play a crucial role in sustaining investment in figs without them investment is inefficiently low but with them optimal investment is possible we also show that making the provision of bigs mandatory crowds out the voluntary provision of figs and that population aging can increase investment in figs

on the empirical content of quantal response equilibrium the quantal response equilibrium qre notion of mckelvey and palfrey 1995 has recently attracted considerable attention due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects we show that this ability to t the data as typically measured in this literature is uninformative without ap riori distributional assumptions a qre can match any distribution of behavior by each player in any normal form game we discuss approaches that might be taken to provide valid empirical evaluation of the qre and discuss its potential value as an approximating empirical structure

testing the expectations hypothesis when interest rates are near integrated nominal interest rates are unlikely to be generated by unit root processes using data on short and long interest rates from eight developed and six emerging economies we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated if the null hypothesis of no cointegration is rejected we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis the results show support for cointegration in 10 of the 14 countries we consider and the cointegrating vector is similar across countries however the parameters differ from those suggested by theory we relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia

monetary transmission via the administered interest rates channel abstract this paper examines the dynamics of administered interest rate changes in response to changes in the benchmark money market rate in singapore our results show that the administered rates adjustment speed differs across both financial institutions and financial products the financial institutions administered lending and deposit rates moreover are more rigid when they are below their equilibrium level than when they are above our finding hence implies that the speed of monetary transmission is not uniform across all sectors of the economy and that a tightening monetary policy takes a longer time to impact the economy than an expansionary monetary policy

information revelation and strategic delay in a model of investment we model investment as an n player game with a pure informational externality each player s payoff depends only on his own action and the state of nature however because a player s action reveals his private information players wait to see what other players will do equilibrium is inefficient because delay is costly and information is imperfectly revealed we characterize the unique symmetric perfect bayesian equilibrium and study the robustness of delay which turns out to be sensitive to the reaction speed and the number of players we establish the following results i when the period length is very short the game ends very quickly and there is a form of herding or informational cascade which results in a collapse of investment ii as the period length increases the possibility of herding disappears iii as the number of players increases the rate of investment and the information flow are eventually independent of the number of players adding more players simply increases the number who delay iv in the limit the time profile of investment is extreme a period of low investment followed either by an investment surge or a collapse

aging population and education finance abstract conventional wisdom suggests that aging of population will increase political pressure to tilt the composition of social spending in favor of the elderly while potentially sacrificing other publicly provided goods such as education this view seems to be supported by recent empirical findings that per child public education spending tends to be lower in us jurisdictions with higher fraction of elderly residents do these cross sectional findings also carry the dynamic implication that longevity will lead over time to waning political support for funding of public education this paper challenges such implication we present a model that is consistent with the aforementioned cross sectional regressions yet predicts an overall positive impact of increasing longevity on public education funding and economic growth

testing for the cointegrating rank of a var process with structural shifts tests for the cointegrating rank of a vector autoregressive process are considered that allow for possible exogenous shifts in the mean of the data generation process the break points are assumed to be known a priori it is proposed to estimate and remove the deterministic terms such as mean linear trend term and a shift in a first step then systems cointegration tests are applied to the adjusted series the resulting tests are shown to have known limiting null distributions that are free of nuisance parameters and do not depend on the break point the tests are applied for analyzing the number of cointegrating relations in two german money demand systems

downstream integration of natural gas prices across u s states evidence from deregulation regime shifts abstract this study examines the cointegration between city gate and residential retail natural gas prices at the u s state level using monthly data from 1989 1 to 2012 12 both price series are tested for unit roots using the harris 2009 procedure to endogenously identify structural breaks related to deregulation associated with ferc order no 636 the endogenously determined structural breaks are then used in the saikkonen and lutkepohl 2000a 2000b 2000c maximum likelihood approach to test cointegration of the series tests show cointegration of the two price series for all 50 states estimates of the long run relationship in the pre and post structural break periods result in mixed evidence about the degree of perfect market integration induced by deregulation although the magnitude and variation of parameters indicate increased integration a vector error correction model is used to infer causality in the short and long run dynamics for the pre and post structural break periods for each state the post break period exhibits bidirectional causality in both short and long run dynamics for all states an indication of greater downstream integration of the natural gas market

dynamic coordination with individual learning we study coordination in dynamic global games with private learning players choose whether and when to invest irreversibly in a project whose success depends on its quality and the timing of investment players gradually learn about project quality we identify conditions on temporal incentives under which in sufficiently long games players coordinate on investing whenever doing so is not dominated roughly speaking this outcome occurs whenever players payoffs are sufficiently tolerant of non simultaneous coordination we also identify conditions under which players coordinate on the risk dominant action we provide foundations for these results in terms of higher order beliefs

crises and prices information aggregation multiplicity and volatility crises are volatile times when endogenous sources of information are closely monitored we study the role of information in crises by introducing a financial market in a coordination game with imperfect information the asset price aggregates dispersed private information acting as a public noisy signal in contrast to the case with exogenous information our main result is that uniqueness may not obtain as a perturbation from perfect information multiplicity is ensured with small noise in addition we show that a multiplicity may emerge in the financial price itself b less noise may contribute toward nonfundamental volatility even when the equilibrium is unique and c similar results obtain for a model where individuals observe one another s actions highlighting the importance of endogenous information more generally

the sustainability of india s current account this study conducts an investigation into the sustainability of the indian current account using data for 1950 onwards a necessary condition for current account sustainability is that exports and imports are cointegrated after testing for unit roots that allow for a structural break we employ parametric tests for cointegration based on johansen 1995 and saikkonen and lutkepohl 2000a b c as well as the nonparametric procedure proposed by breitung 2002 and breitung and taylor 2003 that does not assume linearity by employing these procedures recursively two distinct regimes are identified characterized by whether or not imports and exports are cointegrated the regime of noncointegration runs until the late 1990s and the second regime of cointegration is present after that this latter regime coincides with the liberalization of the indian economy