interpreting economic time series this paper explores some of the implications for econometric practice of the principle that people s observed behavior will change when their constraints change in dynamic contexts a proper definition of people s constraints includes among them laws of motion that describe the evolution of the taxes they must pay and the prices of the goods that they buy and sell changes in agents perceptions of these laws of motion or constraints will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess until very recently received dynamic econometric practice ignored this principle the practice of dynamic econometrics should be changed so that it is consistent with the principle that people s rules of choice are influenced by their constraints this is a substantial undertaking and involves major adjustments in the ways that we formulate estimate and simulate econometric models

the asset pricing effects of fixed holding costs an upper bound the capital asset pricing model predicts that investors will hold diversified portfolios but many households actually hold very few assets the paper examines the asset pricing implications of one possible explanation for this phenomenon fixed costs of holding assets while earlier authors found the exact asset pricing effects of such costs in single period models under restrictive assumptions i derive a general upper bound on these effects that is also valid in continuous time illustrative calculations reveal that large holding costs must be postulated to generate significant asset pricing effects

dynamics of market structure advertising and profitability a var approach the purpose of this study is to provide an econometric characterization of the dynamic interrelationship among structure conduct and performance variables with a vector autoregressive var model particular attention will be given to the causality and response patterns of the variable involved in the light of our desire to ascertain descriptive characterizations of historical behaviour we let the data speak for itself the result suggests a weak realtionship existing between market structure and profitability

martingales and arbitrage in securities markets with transaction costs abstract we derive the implications from the absence of arbitrage in dynamic securities markets with bid ask spreads the absence of arbitrage is equivalent to the existence of at least an equivalent probability measure that transforms some process between the bid and the ask price processes of traded securities into a martingale the martingale measures can be interpreted as possible linear pricing rules and can be used to determine the investment opportunities available in such an economy the minimum cost at which a contingent claim can be obtained through securities trading is its largest expected value with respect to the martingale measures journal of economic literature classification numbers g11 g12 g13 d52 and d90

taxes and transaction costs in asset market equilibrium abstract this paper examines the effects of capital taxation in an imperfect capital market in which acquiring risky assets incurs costs individual portfolio choice has two distinct aspects the extensive choice of which assets to hold in the portfolio and the intensive choice of what fraction of wealth to invest in each asset held the traditional assumption of zero transaction costs obscures the extensive choice this paper shows that if trading in assets is costly capital taxes have extensive effects as well as the intensive effects previously studied

long forward and zero coupon rates can never fall in frictionless markets having no arbitrage the asymptotic zero coupon rate never falls the same is true of the long forward rate the long par coupon rate can rise and fall due to forward rate movements at short maturities this article relates the three types of interest rates and formalizes and proves the impossibility results for falling asymptotic rates these results can be tested in a parametric term structure specification that is rich enough to identify a time series of long rates the results show that it is not possible to specify arbitrarily the long forward or zero coupon rate process copyright 1996 by university of chicago press

coordination and contagion individual connections and peer mechanisms in a randomized field experiment abstract this paper investigates peer effects at the level of individual connections leveraging the approach to shed light on peer mechanisms in a field experiment using college freshmen we elicited best friends and offered monetary incentives for gym visits to a treated subset we find large spillovers from treated subjects to treated best friends but none from treated subjects to control best friends we also find evidence of a mechanism subjects coordinate by visiting the gym with best friends indicating that the intervention harnesses complementarities in utility or commitment mechanisms results highlight subtle peer effects and mechanisms that often go undetected

who gets the job referral evidence from a social networks experiment we use recruitment into a laboratory experiment in kolkata india to analyze how job networks select individuals for employment opportunities we present evidence that individuals face a tradeoff between choosing the most qualified individual for the job and the individual who is ideal from the perspective of their social network the experiment allows randomly selected subjects to refer members of their social networks to subsequent rounds of the experiment and varies the incentive schemes offered to these participants we find that when faced with performance pay individuals are more likely to refer co workers and less likely to refer family members high ability participants who are offered performance pay recruit referrals who perform significantly better on a cognitive ability task and also prove to be more reliable as evidenced by their choices in the trust game and performance on an effort task

does whom you know matter unraveling the influence of peers network attributes on academic performance this paper examines how students network size distance prestige and connections to influential individuals impact academic performance larger and closer networks facilitate information exchange but may also increase distractions that decrease productivity we resolve this ambiguity using administrative data from a business school that features random assignment of students to multiple overlapping sets of peers allowing us to calculate degree closeness eigenvector and katz bonacich centrality for each node we find that increasing closeness centrality within the network negatively affects student performance measured by grade point average suggesting that synergy reduction and information processing costs outweigh benefits from greater information access jel i23 l14 l23

mean variance theory in complete markets two paradigms in the pricing of risky assets are the complete markets model of arrow and debreu and mean variance pricing as embodied in the capital asset pricing model capm the former is primarily of theoretical interest in fact prior to the recent work of banz and miller 1978 and breeden and litzenberger 1978 there was little thought or hope of practical applications on the other hand the hegemony of the capm is due mostly to its apparent ease of applicability and to a lesser extent its empirical justification in a competitive market with no taxes transactions costs or institutional constraints on portfolio holdings the allocation of the available assets will be pareto optimal the end of period distribution of wealth or the consumption goods however will typically be pareto optimal only when there is available an arrow debreu security for each contingency since by definition a pareto superior reallocation is weakly preferred by all investors a complete set of arrow debreu markets should naturally arise provided they are not too costly to establish the complete markets model of arrow and debreu and the meanvariance capital asset pricing model capm are two paradigms of risky asset markets this paper provides an integration of these two theories we prove that the standard meanvariance separation theorem obtains in a complete market only if all investors have quadratic utility in addition the familiar capm pricing relation can hold for all assets in a complete market only if arbitrage opportunities exist on the positive side we show that the validity of this relation for the primary assets in a complete market is unaffected by the distribution of returns on the created financial assets

the state preference approach to general equilibrium in corporate finance abstract this paper attempts to implement the state preference approach in a multiperiod exchange economy the procedure is relevant for a further investigation of various important issues in corporate finance such as the results of modigliani and miller and the integration of the state preference and the mean variance approach to asset pricing

an equilibrium model of asset pricing with progressive personal taxes this paper examines how the progressive personal tax rate affects the equilibrium asset pricing model in a continuous time framework with progressive taxation it can be shown that the expected excess rate of return on a risky asset is an increasing function of i the covariance of asset return with aggregate consumption rate changes and ii the covariance of asset return with the aggregation of individual wealth change weighted by the investor s tax scheme progressivity index the capital asset pricing model derived in the absence of tax is shown to understate the expected excess rate of return and to have a misspecification error under the progressive tax scheme furthermore the expected excess rate of return can be decomposed as the consumption risk premium and tax premium the tax premium depends on the tax structure prevailing in the economy

peer effects in medical school abstract using data on the universe of students who graduated from us medical schools between 1996 and 1998 we examine whether the abilities and specialty preferences of a medical school class affect a student s academic achievement in medical school and his choice of specialty we mitigate the selection problem by including school specific fixed effects and show that this method yields an upper bound on peer effects for our data we estimate positive peer effects that disappear when school specific fixed effects are added to control for the endogeneity of a peer group we find no evidence that peer effects are stronger for blacks that peer groups are formed along racial lines or that students with relatively low ability benefit more from their peers than students with relatively high ability however we do find some evidence that peer groups form along gender lines

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

peers at work we study peer effects in the workplace specifically we investigate whether how and why the productivity of a worker depends on the productivity of coworkers in the same team using high frequency data on worker productivity from a large supermarket chain we find strong evidence of positive productiv ity spillovers from the introduction of highly productive personnel into a shift worker effort is positively related to the productivity of workers who see him but not workers who do not see him additionally workers respond more to the presence of coworkers with whom they frequently interact we conclude that social pressure can partially internalize free riding externalities that are built into many workplaces jel j24 l81 m54

social networks and the identification of peer effects there is a large and growing literature on peer effects in economics in the current article we focus on a manski type linear in means model that has proved to be popular in empirical work we critically examine some aspects of the statistical model that may be restrictive in empirical analyses specifically we focus on three aspects first we examine the endogeneity of the network or peer groups second we investigate simultaneously alternative definitions of links and the possibility of peer effects arising through multiple networks third we highlight the representation of the traditional linear in means model as an autoregressive model and contrast it with an alternative moving average model where the correlation between unconnected individuals who are indirectly connected is limited using data on friendship networks from the add health dataset we illustrate the empirical relevance of these ideas

peer effects and social networks in education this paper studies whether structural properties of friendship networks affect individual outcomes in education we first develop a model that shows that at the nash equilibrium the outcome of each individual embedded in a network is proportional to her katz bonacich centrality measure this measure takes into account both direct and indirect friends of each individual but puts less weight to her distant friends we then bring the model to the data by using a very detailed dataset of adolescent friendship networks we show that after controlling for observable individual characteristics and unobservable network specific factors the individual s position in a network as measured by her katz bonacich centrality is a key determinant of her level of activity a standard deviation increase in the katz bonacich centrality increases the pupil school performance by more than 7 percent of one standard deviation

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

the pricing of stock index options in a general equilibrium model this paper analyzes the pricing of stock index options in a simple general equilibrium model in this model the volatility of the stock index and the spot rate of interest are functions of a stochastic variable the paper investigates the biases that arise when using the black scholes model with the assumed volatility and interest rate dynamics it is shown that the model can in principle explain the biases observed in empirical work on stock index options

simple binomial processes as diffusion approximations in financial models a binomial approximation to a diffusion is defined as computationally simple if the number of nodes grows at most linearly in the number of time intervals it is shown how to construct computationally simple binomial processes that converge weakly to commonly employed diffusions in financial models the convergence of the sequence of bond and european option prices from these processes to the corresponding values in the diffusion limit is also demonstrated numerical examples from the constant elasticity of variance stock price and the cox ingersoll and ross 1985 discount bond price are provided article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the empirical implications of the cox ingersoll ross theory of the term structure of interest rates the one factor version of the cox ingersoll and ross model of the term structure is estimated using monthly quotes on u s treasury issues trading from 1952 through 1983 using data from a single yield curve it is possible to estimate implied short and long term zero coupon rates and the implied variance of changes in short rates analysis of residuals points to a probable neglected tax effect the term structure of interest rates is important to economists because the relationship among the yields on default free securities that differ in their term to maturity reflects the information available to the market about the future course of events the expectations hypothesis the liquidity preference hypothesis hicks 10 and the market segmentation hypothesis culbertson 6 are theories of the term structure that predict little more than that the implied forward rate is either equal to or not equal to the expectation of future spot rates cox ingersoll and ross 5 cir model the term structure of interest rates in a competitive equilibrium context their model has elements in common with the earlier hypotheses of the term structure however the cir model has a rich class of empirical implications not only for the pricing of default free securities but also for the pricing of bond options callable bonds and other types of financial claims this paper examines the extent to which the model in its simplest one factor form is descriptive of the prices of u s treasury bills bonds and notes traded from 1952 to 1983 section i describes the model and the parsimonious representation of bond prices which it implies section ii describes the data and section iii outlines the preliminary results obtained by fitting the model to observed data the final section outlines directions for future research

loan commitments and monetary policy abstract in this paper we examine the impact of loan commitment agreements on the way in which monetary policy affects the economy we estimate a vector autoregressive var model and find evidence of a smaller impact of monetary policy on loans made under commitment agreements than on loans not made under commitment our conclusion is that loan commitments effectively protect borrowers from quantity credit rationing and thus force monetary policy to work mainly through interest rate channels

arbitrage and the existence of competitive equilibrium a general equilibrium model of markets for commodities and assets is considered the author develops the notion of a price system that admits no arbitrage opportunity and demonstrates the fundamenta l role of this concept for the theory of the existence of a competiti ve equilibrium a price system admits no arbitrage opportunity for a consumer if every bundle of desired commodities has a positive market value the author proves that the existence of a price system that a dmits no arbitrage opportunity for all consumers is sufficient for th e existence of an equilibrium copyright 1987 by the econometric society

transactions costs and portfolio choice in a discrete continuous time setting abstract this paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of merton 1971 with transaction costs suppose an investor observes his or her current wealth only when making a transaction that transactions are costly and that decisions to transact can be made at any time based on all current information if at each transaction the agent is charged a fixed fraction of current portfolio value an optimal policy exists and the optimal interval of time between transactions is fixed independent of time and current wealth

a global model of oecd aggregate supply and demand using vector autoregressive techniques this paper presents a vector autoregressive model of the aggregate oecd economy using a theoretical model of global aggregate supply and demand relationships between industrial production cpi money supply and energy prices are examined using f tests variance decompositions and impulse response functions the empirical results are consistent with theory energy prices influence output and the price level in the short run while money influences the price level in the long run despite data problems this approach appears to be a reasonable compromise between simple arima models and the very detailed link type models

arbitrage with fixed costs and interest rate models in this paper we study securities market models with fixed costs we characterize the absence of arbitrage opportunities and we provide fair pricing rules we then apply these results to extend some popular interest rate and option pricing models which present arbitrage opportunities in the absence of fixed costs in particular we prove that the quite striking result obtained by dybvig ingersoll and ross 1996 which asserts that under the assumption of absence of arbitrage long zero coupon rates can never fall is no longer true in models with fixed costs even arbitrarily small ones for instance models where the long term rate follows a diffusion process are arbitrage free in the presence of fixed costs including arbitrarily small ones we also rationalize models with partially absorbing or reflecting barriers on the price processes in particular we propose a version of the cox ingersoll and ross 1985 model which as in longstaff 1992 produces yield curves with realistic humps but does not assume an absorbing barrier for the short term rate this is made possible by the presence of even arbitrarily small fixed costs

the valuation of multivariate contingent claims in discrete time models there are several examples in the literature of contingent claims whose payoffs depend on the outcomes of two or more stochastic variables familiar cases of such claims include options on a portfolio of options options whose exercise price is stochastic and options to exchange one asset for another this paper derives risk neutral valuation relationships rnvrs in a discrete time setting that facilitate the pricing of such complex contingent claims in two specific cases joint lognormally distributed underlying variables and constant proportional risk aversion on the part of investors and joint normally distributed underlying variables and constant absolute risk aversion preferences respectively this methodology is then applied to the valuation of several interesting complex contingent claims such as multiperiod bonds multicurrency option bonds and investment options

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

transaction costs and the pricing of assets the existence of transaction costs explains why investors do not fully diversify their portfolios this paper examines the implications of such limited diversification oi equilibrium asset prices in the framework of the capital asset pricing model in the pricing equation obtained here an asset s risk premium depends on a weighted average of its covariance with the market and its own variance the absence of transaction costs in the sharpe lintner capital asset pricing model capm is often claimed to be only a minor idealization which hardly affects the substantive implications of the model this paper aims to demonstrate that this is not the case incorporating transaction costs into the capm leads to a major reformulation of its basic asset pricing equation in contrast with the capm formula

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

what is a peer the role of network definitions in estimation of endogenous peer effects we employ a standard identification strategy from the peer effects literature to investigate the importance of network definitions in estimation of endogenous peer effects we use detailed information on friends in the national longitudinal study of adolescent health survey add health to construct two network definitions that are less ad hoc than the school grade cohorts commonly used in the educational peer effects literature we demonstrate that accurate definitions of the network seriously impact estimation of peer effects in particular we show that peer effects estimates on educational achievement smoking and drinking are substantially larger with our more detailed measures than with the school grade cohorts these results highlight the need to further understand how friendships form in order to fully understand implications for policy that alters the peer group mix at the classroom or cohort level

peer effects in higher education does the field of study matter does the peer effect vary with the field of study using data from a middle sized public university located in southern italy and exploiting the random assignment of first year students to college accommodation we find that roommate peer effects for freshmen enrolled in the hard sciences are positive and significantly larger than for freshmen enrolled in the humanities and social sciences we present a simple theoretical model which suggests that the uncovered differences between fields in the size of the peer effect could plausibly be generated by between field variation in labor market returns which affect optimal student effort jel i21 z13 j24 i introduction understanding the nature and importance of peer group effects in education is crucial for education policy peer effects are relevant for school choice tracking affirmative action selective admissions and the sources of school quality empirical research which seeks to estimate the existence size and non linearity of peer effects has run into several problems including the self selection reflection and correlated effects described by manski 1993 following sacerdote 2001 and zimmerman 2003 a popular approach in this literature has been to investigate roommate peer effects because in a number of universities and colleges the allocation of students to rooms can be argued

network structure and the aggregation of information theory and evidence from indonesia abstract we use unique data from over 600 indonesian communities on what individuals know about the poverty status of others to study how network structure influences information aggregation we develop a model of semi bayesian learning on networks which we structurally estimate using within village data the model generates qualitative predictions about how cross village patterns of learning relate to network structure which we show are borne out in the data we apply our findings to a community based targeting program where citizens chose households to receive aid and show that the networks that the model predicts to be more diffusive differentially benefit from community targeting jel d14 d83 d85 i32 o12 z13

the dynamic behavior of business loans and the prime rate a comment abstract in a recent paper published in this journal kling uses a vector autoregressive model to study the market for bank loans in the united states the paper s analytical method consisting of reduced form estimation orthogonal transformation of the residuals and innovation analysis suffers however from certain methodological difficulties that put its results and suggested interpretations into question the purpose of this note is to enlighten the nature of these problems through a simple example and to show that the evidence presented by the author is not sufficient to resolve them

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

capital structure equilibrium under market imperfections and incompleteness this paper generalizes miller s supply side equilibrium argument to other forms of capital market imperfections and incompleteness if corporations possess a comparative advantage in dealing with these imperfections they have an incentive to act as financial intermediaries corporations attempts to profit from these intermediation activities dictate an optimal capital structure for the corporate sector as a whole but in equilibrium the capital structure of any single firm is a matter of indifference in addition the positive role that corporate finance plays in completing the market restores standard perfect market results on asset pricing and the associated portfolio separation properties

currency options hedging and social value in early september 1982 a conference on exchange rate determination organized by l klein and w krelle took place at the deutsche bundesbank in frankfurt at this conference i presented a paper currency options theory and practicability this paper gave formulas for the pricing and hedging of currency options and showed by means of ex post simulations their practicability examples were given of how to hedge dm options on either the spot bond or forward market cp sondermann 1985a at that time markets for currency options did not yet exist but i was convinced that these markets would soon emerge since i the theory for pricing and hedging of currency options was now available ii the computational facilities were available and most importantly iii currency options do have a social value the stormy development of these markets which started soon after has proved this expectation correct that currency options have a social value has been questioned both on practical and theoretical grounds the first type of arguments stress the speculative element of such options and refer to the forward exchange markets as the approved means of hedging against foreign exchange risks this view overlooks the fact that only future currency streams which are expected with certainty can be hedged on forward markets if for some reason these future payments fail to realize or deviate from their expected value the hedger on the forward market may end up with a costly open position this may e g be the case in a tender situation currency options as a non redundant alternative to forward markets allow for a better allocation of exchange risks the social value of currency options is

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

identity and schooling some lessons for the economics of education abstract this review culls noneconomic literature on education by sociologists anthropologists and practitioners to present a new economic theory of students and schools this theory elaborates two themes that have eluded economic analysis first is the student as decision maker whose primary motivation is her identity second is a conception of the school as a social institution this framework suggests a new perspective on questions such as resource allocation and school reform it explains why some educational policies succeed and others fail we show how sociological variables may affect outcomes and suggest ways economists can incorporate them into theoretical and empirical research

it s not your peers and it s not your friends some progress toward understanding the educational peer effect mechanism abstract using a new administrative panel data set from the university of maryland this paper explores conventional peer effects and the effects of socially proximate peers at a large public university where some students are randomly assigned to housing results show that there is little evidence of robust residential peer effects on undergraduate performance the impact of socially proximate peers characteristics on student achievement is then examined using an instrumental variables technique results indicate that social friends do not impact performance more than randomized peers the paper casts doubt on the notion that social tie formation is the route to peer effects and urges caution in the continued pursuit of peer effects in education without substantial empirical or theoretical innovation

choice of specialization do peers matter social influence is an important factor in learning and decision making we estimate peer influence on student choice of specialization using data on undergraduate students of a russian university information about individual social ties has been gathered from a questionnaire survey we show that specialization choice is significantly influenced by friends as well as by study partners the strongest effect is produced by friends who are study partners and those who have similar academic achievements reciprocal friendship ties have a stronger influence on the choice than nonreciprocal ones also the decision is affected by classmates with similar academic achievement the results allow us to better understand the mechanisms of peer effects in the specialization choice

the dynamic behavior of business loans and the prime rate abstract the purpose of this research is to determine the relevant variables channels of influence and dynamics characterizing the business loan market to achieve this goal the statistical approach of vector autoregressive time series analysis popularized by sims 1980 1981 and litterman 1979 is applied to a group of variables suggested by the portfolio and liability allocation problems of a representative bank and a representative business firm the variance and historical decomposition analyses suggest that innovations in the level of business inventories and commercial bank financial assets are the most important casual variables in the business loan market

the case of the negative nominal interest rates new estimates of the term structure of interest rates during the great depression throughout the 1930s and early 1940s u s treasury bonds and notes appeared to have negative nominal yields as they approached maturity but negative nominal interest rates are impossible in a world in which one can always hold cash the resolution to this puzzle is that treasury securities in addition to making coupon payments gave the owner the right to buy a new security on a future date this paper describes the institutional environment that led to the apparent negative nominal interest rates develops a method for valuing the exchange privilege and computes accurate measures of the yield to the coupon bearing component of these composite bond options these corrected bond and not yields are then used to calculate new estimates of the term structure of interest rates from 1929 to 1949