welfare implications of the transition to high household debt abstract aggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced indebted households required home equity and a borrowing surge followed this paper uses a calibrated general equilibrium model of lending from the wealthy to the middle class to evaluate the welfare effects of this reform quantitatively we find that the indirect effects of endogenous interest rate and other relative price changes dominate the direct effect of relaxing the constraint the borrowing household s welfare falls even though the reform directly relaxes a constraint on its trade the saving household s welfare rises substantially

housing markets consumption and financial liberalisation in the major economies abstract this paper analyses the implications of relaxing credit restrictions in housing finance markets a theoretical model of the interaction of financial and housing markets and forward looking agents is developed the effects of financial liberalisation in the model are analysed and evidence from the u s a and u k on the impact of easing credit restrictions is presented estimates are also made of the degree to which credit restrictions may bind on households in those countries where the range of mortgage products on offer is still more limited than in the u k and u s a simulations are undertaken to gauge the effect on consumption saving and bequests of wealth of possible future convergence in national systems of housing finance

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

planning to cheat eu fiscal policy in real time using real time data from europe s stability and convergence programs we explore how fiscal plans and their implementation in the eu are determined we find that 1 implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon 2 variability in the eventual fiscal outcomes is dominated by the implementation errors 3 there is a limited role for traditional political variables 4 stock flow adjustments are more important when plans are more ambitious and 5 most importantly both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions we emphasize also the importance of credible plans for the eventual fiscal outcomes roel beetsma massimo giuliodori and peter wierts

twin deficits openness and the business cycle in this paper we study the co movement of the government budget balance and the trade balance at business cycle frequencies in a sample of 10 oecd countries we find that the correlation of the two time series is negative but less so in more open economies moreover for the us the cross correlation function is s shaped we show that a standard business cycle model featuring government spending and technology shocks is able to replicate these empirical regularities the model predicts that conditional on spending shocks the correlation of the budget balance and the trade balance is close to perfect consistent with the twin deficit hypothesis despite this high correlation however the economic effect of spending shocks on the trade balance is contained if the economies are not very open to trade

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

application of public domain market information to forecast ontario s wholesale electricity prices this paper evaluates the usefulness of publicly available electricity market information in forecasting the hourly ontario energy price hoep in order to do so relevant data from ontario and its neighboring electricity markets namely new york new england and pjm electricity markets are investigated and a final set of explanatory variable candidates that are available before real time are selected multivariate transfer function and dynamic regression models are employed to relate hoep behavior to the selected explanatory variable candidates univariate arima models are also developed for the hoep the hoep models are developed on the basis of two forecasting horizons i e 3 h and 24 h and forecasting performance of the multivariate models is compared with that of the univariate models the outcomes show that the market information publicly available before real time can be used to improve hoep forecast accuracy to some extent however unusually high or low prices remain unpredictable and hence the available data cannot lead to significantly more accurate forecasts nevertheless the generated forecasts in this paper are significantly more accurate than currently available hoep forecasts to analyze the relatively low accuracy of the hoep forecasts comparisons are made with respect to arima models developed for locational marginal prices lmps of ontario s three neighboring markets and price volatility analyses are presented

wars of attrition in experimental duopoly markets oligopolists often bear large fixed costs these fixed costs can change for example through rising property rents increased taxes and renegotiated labor contracts in this paper we imagine oligopoly market structures that are identical except for the level of fixed costs does this level influence the strategic behavior of firms since marginal profits are unaffected by fixed costs one answer is that there should be no change in behavior alternatively firms may seek more cooperative outputs in order to maintain profits enough cooperation can even generate bigger profits but if fixed costs rise to a level where there are too many firms in the market for any seller to earn an adequate profit a price war could result attrition leaves more profits for the survivors and the higher fixed costs are an increased barrier to later entry thus it also can be argued that greater fixed costs engender less cooperation among rivals because agents are fighting over a smaller profit pie 1 through the use of experimental markets this paper shows that fixed costs do have an influence on the level of cooperation after they have reached a relatively high level in a duopoly market structure subjects as rivals engage in price wars outputs are kept large larger than the cournot level until a rival exits the market by contrast such behavior does not take place when fixed costs are relatively low this difference in behavior at low and high fixed cost levels

what do vars tell us about the impact of a credit supply shock in the aftermath of the recent financial crisis a variety of structural var models have been proposed to identify credit supply shocks using a monte carlo experiment we show that the performance of these models can vary substantially with some identification schemes producing particularly misleading results when applied to us data the estimates from the best performing var models indicate on average that credit supply shocks that raise spreads by 10 basis points reduce gdp growth and inflation by 1 after one year these shocks were important during the great recession accounting for about half the decline in gdp growth this article is protected by copyright all rights reserved

business cycle implications of mortgage spreads abstract how do aggregate quantities at the business cycle frequency respond to shocks to the spread between residential mortgage rates and government bonds using a structural var approach we find that mortgage spread shocks impact the real economy by both economically and statistically significant magnitudes a 100 basis point decline in the spread causes a peak increase in consumption residential investment and gdp by 1 6 percent 6 2 percent and 1 9 percent respectively presumably these effects are magnified when the policy rate is held fixed as was the case in the us during the recent implementation of unconventional monetary policy

labor market institutions and aggregate fluctuations in a search and matching model abstract this paper explores the influence of labor market institutions on aggregate fluctuations it uses a dynamic stochastic general equilibrium model characterized by search and matching frictions in the labor market and nominal rigidities in the goods market it finds that firing costs and unemployment benefits can have substantial effects on aggregate fluctuations increasing firing costs decreases the volatility of output employment and job flows due to the reduction in the mass of jobs sensitive to disturbances and lower incentives for firms to hire and fire workers hence firms adjust to shocks mainly through prices causing inflation to become more volatile raising unemployment benefits has the reverse effect on aggregate fluctuations

caveat innovator strategic and structural characteristics of new product introductions abstract the assumptions underlying models of strategic behavior by incumbents are evaluated using a case study of a ground coffee product introduction the assumption underlying earlier strategic models that the entrant does not know the incumbent s payoffs after strategic have been tested does not appear to apply instead strategic behavior is observed to hinge on ex ante uncertainty about the structure of the payoff matrix and the incremental decision making which this uncertainty spawns in this environment strategies which create noise can slow learning and delay entry

local identification in dsge models abstract the issue of identification arises whenever structural models are estimated lack of identification means that the empirical implications of some model parameters are either undetectable or indistinguishable from the implications of other parameters therefore identifiability must be verified prior to estimation this paper provides a simple method for conducting local identification analysis in linearized dsge models estimated in both full and limited information settings in addition to establishing which parameters are locally identified and which are not researchers can determine whether the identification failures are due to data limitations such as lack of observations for some variables or whether they are intrinsic to the structure of the model the methodology is illustrated using a medium scale dsge model

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

unemployment in the great recession did the housing market crisis prevent the unemployed from moving to take jobs the labor market in the great recession and its aftermath is characterized by great difficulty in escaping unemployment i present two empirical analyses of a particular explanation for that difficulty that the housing market crisis has prevented the unemployed from selling their homes and moving to take new jobs first i examine post job loss mobility rates by home ownership status using data from the displaced workers survey second i examine mobility rates for unemployed homeowners and renters from the month to month cps match neither analysis provides any support for the idea that the housing market crisis has reduced mobility of the unemployed

employment efficiency and sticky wages evidence from flows in the labor market i consider three views of the labor market in the first wages are flexible and employment follows the principle of bilateral efficiency workers never lose their jobs because of sticky wages in the second wages are sticky and inefficient layoffs do occur in the third wages are also sticky but employment governance is efficient i show that the behavior of flows in the labor market strongly favors the third view in the modern u s economy recessions do not begin with a burst of layoffs unemployment rises because jobs are hard to find not because an unusual number of people are thrown into unemployment

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

the effects of rent asymmetries in posted offer markets abstract we report the results of six posted offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium the posted offer experiments are compared with twelve double auction experiments reported by smith and williams 1982 results differ markedly across trading institutions unlike trading under double auction rules we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus posted offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

housing really is the business cycle what survives the lessons of 2008 09 the downturn of 2008 09 has confirmed that i housing is the single most critical part of the u s business cycle ii the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later and iii the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so what was different this time was the rapid and substantial decline in home prices

booms and busts in the uk housing market the often volatile behaviour of uk house prices between 1957 and 1994 is analysed in an annual econometric model theory suggests that financial liberalisation of mortgage markets in the 1980s should have led to notable shifts in house price behaviour the evidence supports the predictions of theory suggesting shifts took place in wealth effects as in the consumption function and that real interest rates and income expectations became more important the presence of transactions costs suggests important nonlinearities in house price dynamics the paper also contains an explicit econometric treatment of expectations demography supply spillovers from the rented sector and of composition biases in the official house price index

an experimental examination of vertical control and cost predation abstract in recent years there has been renewed interest in and concern about firms use of vertical control as a way to exert market power such behavior could be used to gain a competitive advantage over rivals in input and or output markets this paper uses laboratory experimental methods to examine three questions i is anti competitive behavior by a dominant firm in input markets an observable behavior ii is cost predation an observable laboratory phenomenon and iii if such behaviors are observed what are the efficiency consequences results of this dominant firm experiment indicate that all three questions can be answered in the affirmative and the negative efficiency consequences can be profound

selecting input factors for clusters of gaussian radial basis function networks to improve market clearing price prediction in a deregulated power market bidding decisions rely on good market clearing price prediction one of the common forecasting methods is gaussian radial basis function grbf networks that approximate input output relationships by building localized gaussian functions clusters currently a cluster uses all the input factors certain input factors however may not be significant and should be deleted because they mislead local learning and result in poor predictions existing pruning methods for neural networks examine the significance of connections between neurons and are not applicable to deleting center and standard deviation parameters in a grbf network since those parameters bear no sense of significance of connection in this paper the inverses of standard deviations are found to capture a sense of connection and based on this finding a new training method to identify and eliminate unimportant input factors is developed numerical testing results from two classroom problems and from new england market clearing price prediction show that the new training method leads to significantly improved prediction performance with a smaller number of network parameters

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

homeowner borrowing and housing collateral new evidence from expiring price controls i empirically analyze how changes to the collateral value of real estate assets affect homeowner borrowing behavior while previous research has documented a positive relationship between house prices and home equity based borrowing a key empirical challenge has been to disentangle the role of collateral constraints from that of wealth effects in generating this relationship to isolate the role of collateral constraints i exploit the expiration of resale price controls on owner occupied housing units created through an inclusionary zoning regulation in montgomery county maryland because the duration and stringency of the price controls are set by formula and known in advance their expiration has no effect on expected lifetime wealth but directly shocks collateralized borrowing capacity using data on all transactions and loans secured against every property in the county from 1997 2012 i estimate that the marginal propensity to borrow out of increases in housing collateral induced by expiring price controls is between 0 04 and 0 13 the magnitude of this effect is correlated with a homeowner s initial leverage and indicates that a significant fraction of the additional borrowing arising from house price increases is due to relaxing collateral constraints additional analysis of residential investment and ex post loan performance further suggests that borrowers used at least some portion of the extracted funds to finance current consumption and investment expenditures these results highlight the importance of collateral constraints for homeowner borrowing and suggest a potentially important role for house price growth in driving aggregate consumption

on the detection of collusion and predation abstract this lecture not only shows how game theory can contribute to the detection of collusion and predation but also how experts for the defense can use game theoretic arguments to make such detection difficult a few important european anti trust cases are discussed to illustrate

unemployment dynamics in britain we examine the inter related dynamics of the unemployment flows and stock our model allows them to be linked through the standard accounting identity but also through behavioural relationships we find that for the uk the bulk of the correlation between duration and the unemployment stock arises from the dependence of duration on unemployment taking careful account of the inter temporal identity outflow shocks have contributed little to the evolution of unemployment since the late 1960s given that the correlation of duration and unemployment arises from the behavioural relationship we show that unemployment dynamics arise mostly from shocks to the inflow unemployment remains one of europe s more pressing economic and social problems as highlighted in the eu s lisbon declaration of 2000 a dynamic approach to unemployment starts from the recognition that unemployment is a stock and changes through shocks to the outflow and inflow the research and policy focus has generally been on the outflow process or equivalently unemployment duration a glance at figure 1 shows why this might be so it reveals a very strong co movement of the unemployment rate and the proportion of the unemployed out of work for a year or more analysts have used data like this to argue that the source of unemployment fluctuations has been changes in the outflow process 1 possibly as a consequence of this most policies directed at reducing unemployment focus on improving the search effectiveness and employability of the currently unemployed the unemployment flows and stock are related in quite complex ways and in this paper we focus on these inter related dynamics the model we use allows them to be linked in two ways first there is the simple accounting relationship whereby shocks to the flows accumulate in the stock second search and matching models suggest behavioural relationships of the flows depending on unemployment the presence of the nonlinear accounting identity in the model makes the analysis of the joint system problematic so we proceed sequentially investigating first one link and then the other we find that for the uk the bulk of the correlation between duration and the unemployment stock displayed in figure 1 arises from the dependence of the former on the latter we find a strong dependence of the outflow rate on unemployment taking careful account of the inter temporal identity on the other hand outflow shocks have contributed little to the evolution of unem

predation by public enterprises abstract this paper demonstrates that in addition to the usual niskanen type losses generated by excess production by public firms there is an unrecognized second type of loss in order to sell their excess production public firms have to price their output below the competitive price and thereby cause more efficient firms at the margin to be eliminated the discussion is then extended to include the case where public enterprises finance additional expansions of output by price discriminating against inframarginal customers but then face the threat of competition for these inframarginal customers from new potential entry public enterprises are further shown to provide more credible threats to potential entrants since unlike private firms they value the increased output associated with predation and not merely the higher future benefits produced by it

market thickness and the impact of unemployment on housing market outcomes abstract a search and matching model is developed to study how unemployment influences the housing market in the presence of the thick market effect a structural estimation of the model is conducted based on texas city level data that covers three years 1990 2000 and 2010 simulations help clarify how much the thick market effect amplifies the impact of unemployment a three percentage point increase in the unemployment rate lowers the price by 10 74 and reduces the transaction volume by 5 49 incorporating a feedback mechanism from housing prices to unemployment strengthens the amplification magnitude of the thick market effect

spatial lock in do falling house prices constrain residential mobility abstract falling house prices have caused numerous homeowners to suffer capital losses those with little home equity may be prevented from moving because of imperfections in housing finance markets the proceeds from the sale of their home may be insufficient to repay their mortgage and provide a down payment on a new home a data set of mortgages is used to examine the magnitude of these constraints estimates show that average mobility would have been 24 higher after 3 years had house prices not declined and after 4 years it would have been 33 higher among those with high initial loan to value ratios the differences are even greater

tentative evidence of tax foresight abstract when lagged interest rates and prices are included in a var responses to a tax shock decrease this reduced form result is consistent with tax foresight and hence casts doubt on estimates of tax effects under the no foresight assumption

residential mobility housing equity and the labour market henley a g 1998 residential mobility housing equity and the labour market economic journal 108 447 414 427

introducing financial frictions and unemployment into a small open economy model the current nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from nancial factors it is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations some questions which the dominating extant business cycle models are mute on but that we would like to answer are how important are nancial and labor market frictions for the business cycle dynamics of a

an experimental evaluation of strategic preemption abstract this paper reports the results of a series of two stage two person noncooperative games where one player can strategically preempt the other in one of our designs the subgame perfect equilibrium entails complete preemption in the other it entails partial preemption the data show that players tend to completely preempt when it is privately optimal however when partial preemption is privately optimal a non trivial fraction of players persist in choosing the non preemptive structure this may result because of occasional irrational behavior following preemptive play which induces some dominant agents to play less aggressively

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

hot and cold seasons in the housing market every year housing markets in the united kingdom and the united states experience systematic above trend increases in prices and transactions during the spring and summer hot season and below trend falls during the autumn and winter cold season house price seasonality poses a challenge to existing housing models we propose a search and matching model with thick market effects in thick markets the quality of matches increases rising buyers willingness to pay and sellers desire to transact a small deterministic driver of seasonality can be amplified and revealed as deterministic seasonality in transactions and prices quantitatively mimicking seasonal fluctuations in uk and us markets

nominal loss aversion housing equity constraints and household mobility evidence from the united states abstract this paper exploits the recent variation in us house prices to examine the effect of equity constraints and nominal loss aversion on household mobility detailed data from the 1985 1996 national longitudinal survey of youth nlsy79 were matched with house price data from 149 metropolitan areas to estimate instrumental variables linear probability and semi parametric proportional hazard models of intra metropolitan mobility household mobility is significantly influenced by nominal loss aversion there is little evidence that low equity because of fallen house prices constrains mobility

day ahead price forecasting of electricity markets by mutual information technique and cascaded neuro evolutionary algorithm in a competitive electricity market price forecasts are important for market participants however electricity price is a complex signal due to its nonlinearity nonstationarity and time variant behavior in spite of much research in this area more accurate and robust price forecast methods are still required in this paper a combination of a feature selection technique and cascaded neuro evolutionary algorithm cnea is proposed for this purpose the feature selection method is an improved version of the mutual information mi technique the cnea is composed of cascaded forecasters where each forecaster consists of a neural network nn and an evolutionary algorithm ea an iterative search procedure is also incorporated in our solution strategy to fine tune the adjustable parameters of both the mi technique and cnea the price forecast accuracy of the proposed method is evaluated by means of real data from the pennsylvania new jersey maryland pjm and spanish electricity markets the method is also compared with some of the most recent price forecast techniques

the ins and outs of uk unemployment this study shows that in the uk increases in unemployment in a recession are driven by rises in the separation rate a new decomposition of unemployment dynamics is devised that does not require unemployment to be in steady state at all times this is important because low uk transition rates one quarter the size of the us imply substantial deviation of unemployment from steady state near cyclical turning points in periods of moderation the job finding rate is shown to have most influence on uk unemployment dynamics evidence comes from the first study of monthly data derived from individuals labour market spells recorded in the british household panel survey from 1988 to 2008

liquidity flows and fragility of business enterprises abstract this paper develops a macroeconomic model in which funds are channeled to entrepreneurs through long term relationships between entrepreneurs and lenders the flow of funds to a relationship may be low causing it to break up due to insufficient liquidity multiple pareto ranked steady states emerge from complementarity between financial intermediation reflected by the number of relationships and households incentives to provide funds this complementarity also serves as a mechanism for propagating aggregate shocks financial collapse may become inescapable if a shock destroys sufficiently many relationships

mutual forbearance under experimental conditions since corwin edwards first raised it 30 years ago 4 the question whether conglomerate mergers and diversification will affect competition within markets has remained unanswered diversification or conglomeration has no direct impact on entry conditions or market shares or concentration ratios aside from claims for advantages from size per se and not from conglomeration itself the most promising theoretical rationale to explain potential anticompetitive effects has been the mutual forbearance or spheres of influence theory by mutual forbearance we mean the possible tendency for firms meeting in more than one market to account for rivals reactions across market boundaries by adopting less competitive price and output strategies possibly because real world oligopolists have a large set of decision variables available to act on price output capacity advertising research and development etc the effects of interrelationships among firms such as mutual forbearance have been difficult to determine by subjecting industrial data to statistical testing on the other hand in a controlled laboratory setting the validity of particular behavioral assumptions can be examined with some precision sherman has discussed results of previous oligopoly experiments 19 which generally have supported cournot noncooperative solutions rather than cooperative collusive ones and plott has surveyed experiments related to antitrust and industrial organization issues 17 under various information and

geographic reallocation and unemployment during the great recession the role of the housing bust abstract we provide a spatial general equilibrium model of migration and job searching to study the role the housing bust played in mobility rates and labor market outcomes we estimate the parameters governing the migration decisions of households using data on state level migration and labor market patterns from 1991 to 2007 and use the estimated model to characterize the effects of the housing market collapse on labor market outcomes our analysis suggests that the housing bust is responsible for 12 of the increase in unemployment as it reduces workers reallocation and forces more homeowners to look for jobs in areas with lower job finding rates

in search of predatory pricing can predatory pricing be reproduced in a laboratory environment we report research motivated by this objective we began with conditions that based on the literature appeared to combine the features this literature has suggested are favorable to the emergence of predation next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories of 10 experiments none evidenced predatory behavior most supported the dominant firm theory the second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency

an adaptive wavelet neural network based energy price forecasting in electricity markets in a competitive electricity market an accurate forecasting of energy prices is an important activity for all the market participants either for developing bidding strategies or for making investment decisions an adaptive wavelet neural network awnn is proposed in this paper for short term price forecasting stpf in the electricity markets a commonly used mexican hat wavelet has been chosen as the activation function for hidden layer neurons of feed forward neural network ffnn to demonstrate the effectiveness of the proposed approach day ahead prediction of market clearing price mcp of spain market which is a duopoly market with a dominant player and locational marginal price lmp forecasting in pjm electricity market are considered the forecasted results clearly show that awnn has good prediction properties compared to other forecasting techniques such as wavelet arima multi layer perceptron mlp and radial basis function rbf neural networks as well as recently proposed fuzzy neural network fnn

experimental evidence of a sunk cost paradox a study of pricing behavior in bertrand edgeworth duopoly a well known implication of microeconomic theory is that sunk costs should have no effect on decision making we test this hypothesis with a human subjects experiment students recruited from graduate business courses with an average of over six years of work experience played the role of firms in a repeated price setting duopoly game in which both firms had identical capacity constraints and costs including a sunk cost that varied across experimental sessions over six different values we find contrary to the prediction of microeconomic theory that subjects pricing decisions show sizable differences across treatments the effect of the sunk cost is non monotonic as it increases from low to medium levels average prices decrease but as it increases from medium to high levels average prices increase these effects are not apparent initially but develop quickly and persist throughout the game cachon and camerer s 1996 loss avoidance is consistent with both effects while cost based pricing predicts only the latter effect and is inconsistent with the former

on the existence of predatory pricing an experimental study of reputation and entry deterrence in the chain store game a single monopolist plays a sequence of eight periods against a series of different entrants there are two types of monopolists weak monopolists whose single period best response is to acquiesce after entry and strong monopolists whose dominant strategy is to fight entry data show high levels of predatory pricing defined as weak monopolists fighting all entrants in early periods both with and without experimenter induced strong monopolists we reject a number of predictions of the asymmetric information sequential equilibrium model of kreps and wilson 1982 and find important deviations from more general sequential equilibrium models as well

tacit collusion in auctions and conditions for its facilitation and prevention equilibrium selection in laboratory experimental markets the paper studies bidder behavior in simultaneous continuous ascending price auctions we design and implement a collusion incubator environment based on a type of public symmetrically folded and item aligned preferences tacit collusion develops quickly and reliably within the environment once tacit collusion developed it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game theoretic model the only successful remedy was a non public change in the preference of participants that destroyed the symmetrically folded and item aligned patterns of preferences creating head to head competition between two agents reminiscent of the concept of a maverick

mortgages and monetary policy mortgages are long term nominal loans under incomplete asset markets monetary policy is shown to affect housing investment and the economy through the cost of new mortgage borrowing and the value of payments on outstanding debt these channels distinct from traditional transmission of monetary policy are evaluated within a general equilibrium model persistent monetary policy shocks resembling the level factor in the nominal yield curve have larger effects than transitory shocks manifesting themselves as long short spread the transmission is stronger under adjustable than fixed rate mortgages higher persistent inflation benefits homeowners under frms but hurts them under arms

vacancy posting job separation and unemployment fluctuations abstract what is the relative importance of hiring and separation in driving unemployment fluctuations this paper presents a framework to decompose the moments of unemployment and study the respective contributions of vacancy posting a measure of firms hiring efforts and separation separation accounts for about 40 of unemployment s variance compared to 60 for vacancy posting and contributes to about 60 of unemployment steepness asymmetry the fact that unemployment increases faster than it decreases further while vacancy posting is on average the most important contributor of unemployment fluctuations the opposite is true around business cycle turning points when separation is responsible for most of unemployment movements

home equity mobility and macroeconomic fluctuations how does a fall in house prices affect real activity this paper presents a business cycle model in which a decline in house prices reduces geographical mobility creating distortions in the labor market this happens because homeowners face declines in their home equity levels after which it becomes more difficult to provide the down payment required for a new mortgage loan unemployed homeowners therefore turn down job offers that would require them to move the model explains joint cyclical patterns in housing and labor market aggregates as well as the puzzling breakdown of the u s beveridge curve that occurred during 2009

the timing and persistence of fiscal policy impacts on growth evidence from oecd countries the literatures testing for aggregate short run or long run growth impacts of fiscal policy use quite different methodologies the former generally focuses on temporary fiscal shocks the latter typically have no short run dynamics or assume homogeneity we use regression methods that treat heterogeneous short run dynamics explicitly within a long run model results suggest that previously estimated long run growth effects of fiscal policy are typically achieved quickly consistent with results from short run models in principle these short run effects persist in practice regular fiscal policy changes in oecd countries mean that persistent increases or decreases in growth rates are rare the recent global recession has brought renewed interest in the question can fiscal policy affect the growth rate of output if so are these effects temporary affecting only output levels over the longer run or permanent so that output growth rates are persistently higher perhaps surprisingly the literatures looking for growth impacts of fiscal policy over the short run say up to five years and over the longer run of 10 years or more have tended to be quite distinct and followed quite different methodologies this article considers how far the results from these two literatures are consistent to do so we apply the heterogeneous panel econometric methods mean group and pooled mean group proposed by pesaran and smith 1995 pesaran 1997 and pesaran et al 1999 to an annual panel dataset for oecd countries these methods allow both long run equilibrium relationships and short run dynamic adjustments around those equilibria to be investigated simultaneously in brief our results support the conclusion that changes in fiscal structure that is between different types of tax

building a composite help wanted index abstract this paper builds a measure of vacancy posting over 1951 2009 that captures the behavior of total print and online help wanted advertising and can be used for time series analysis of the us labor market

strategic entry deterrence recent developments in the economics of industry this paper reviews the recent developments in the economics of industry with respect to strategic entry deterrence starting from bain s 1956 classical analysis a simple two stage game between an incumbent firm and a potential entrant is used to present the general structure of the entry deterrence problem commitments credible threat and sub game perfection are illustrated in this context the various strategic variables that an incumbent firm can use to bar entry are discussed the issue of whether a group of incumbents can noncooperatively deter entry is taken up and some empirical evidence is reviewed copyright 1989 by blackwell publishers ltd

predation asymmetric information and strategic behavior in the classroom an experimental approach to the teaching of industrial organization abstract classroom market experiments can complement the theoretical orientation of standard industrial organization courses this paper describes various experiments designed for such courses and presents details of a multi market game with entry and exit in this experiment incumbents have a cost advantage in their home markets and mobile firms decide which market to enter after entry decisions are made firms choose prices and quantities to offer for sale predatory pricing is possible with this setup and the experiment can be used to motivate discussions of monopoly competition entry and efficiency other classroom experiments with an industrial organization focus are surveyed

the effects of government purchases shocks review and estimates for the eu in this article we review the theoretical consequences of government purchases shocks for both closed and open economies followed by a discussion of the empirical literature next we provide our own estimates for the eu countries we find that an increase in government purchases raises output consumption and investment and reduces the trade balance however the stimulating effect is weaker and the trade balance reduction is larger for the more open eu economies consistent with larger leakage effects further we show that government purchases shocks in large eu economies have non negligible consequences for economic activity in the main trading partners

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

job uncertainty and deep recessions abstract we study a model where households are subject to uninsurable unemployment risk price setting is subject to nominal rigidities and the labor market is characterized by matching frictions and inflexible wages higher risk of job loss and worsening job finding prospects during unemployment depress goods demand because of a precautionary savings motive lower goods demand reduces job vacancies and the job finding rate producing an amplification mechanism due to endogenous countercyclical income risk amplification derives from the combination of incomplete financial markets and frictional goods and labor markets the model can account for key features of the great recession

twin deficit or twin divergence fiscal policy current account and real exchange rate in the u s abstract in spite of concerns about twin deficits fiscal and the current account deficits for the united states economy empirical evidence suggests that twin divergence is a more usual feature of the historical data i e when fiscal accounts worsen the current account improves and vice versa this paper empirically studies the effects of fiscal policy government budget deficit shocks on the current account and the real exchange rate during the flexible exchange rate regime period based on var vector auto regression models we identified exogenous fiscal policy shocks after controlling for business cycle effects on fiscal balances in contrast to the predictions of most theoretical models the u s results suggest that an expansionary fiscal policy shock or a government budget deficit shock improve the current account and depreciate the real exchange rate increases in private savings and declines in investment contribute to the current account improvement while a nominal exchange rate depreciation as opposed to a relative price level change is mainly responsible for the real exchange rate depreciation the twin divergence of fiscal balances and current account balances is also explained by the prevalence of output shocks i e output shocks more than fiscal shocks appear to drive the co movements of the current account and the fiscal balance

job finding and separation rates in the oecd abstract we provide a set of comparable estimates of average monthly job finding and separation rates for over 20 oecd countries that can be used for the cross country analysis of labor markets

production effects of price and cost based anti dumping laws under flexible exchange rates this paper investigates the production response of an exporting firm when faced with the threat of an anti dumping ad action the firm s production decision is sensitive to market conditions at home and abroad as well as to the definition of dumping we examine the incentives facing the exporting firm under price based marginal cost based and average total cost based anti dumping laws depending on the nature of the anti dumping rules and market conditions a firm s production may rise fall or remain unchanged in response to ad legislation les effets de production des lois anti dumping fondees sur les prix et sur les couts dans un

the collateral channel how real estate shocks affect corporate investment abstract what is the impact of real estate prices on corporate investment in the presence of financing frictions firms use pledgeable assets as collateral to finance new projects through this collateral channel shocks to the value of real estate can have a large impact on aggregate investment to compute the sensitivity of investment to collateral value we use local variations in real estate prices as shocks to the collateral value of firms that own real estate over the 1993 2007 period the representative us corporation invests 0 06 out of each 1 of collateral jel d22 g31 r30

the ins and outs of european unemployment in this paper we study the contribution of inflows and outflows to the dynamics of unemployment in three european countries the united kingdom france and spain all countries are interesting in their own right and in the comparison with each other britain s labour markets were strictly regulated up to the mid 1980s but they have been liberalized since then france is still a regulated economy compared with britain with unemployment averaging about 8 spain has had the biggest rise in unemployment in europe reaching 24 in the mid 1990s but policy reforms and fast growth since then brought it down to a level below france s we compare performance in these three countries making use of both administrative and labor force survey data we find that the impact of the 1980s reforms in britain is evident in the contributions of the inflow and outflow rates the inflow rate became a bigger contributor after the mid 1980s although its significance subsided again in the late 1990s and 2000s in france the dynamics of unemployment are driven by the outflow rate virtually entirely which is consistent with a regime with strict employment protection legislation in spain however both rates contribute significantly to the dynamics perhaps as a consequence of the prominence of fixed term contracts since the late 1980s

the impact of supply constraints on house prices in england we test the theoretical prediction that house prices respond more strongly to changes in local earnings in places with tight supply constraints using a unique panel dataset of 353 local planning authorities in england between 1974 and 2008 exploiting exogenous variation from a policy reform vote shares and historical density to identify the endogenous constraints measures we find that regulatory constraints have a substantive positive impact on the house price earnings elasticity the effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas and uneven topography has a quantitatively less meaningful impact

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

financial and fiscal shocks in the great recession and recovery of the spanish economy abstract in this paper we develop a new dsge model for a small open economy in a currency union estimated with bayesian methods which incorporates a banking and a housing supply sector consumers and entrepreneurs who accumulate debt a rich structure of fiscal variables and monopolistic competition in products and labor markets as an example of its capabilities the model has been estimated for the spanish economy which is an interesting example of a booming economy before the great recession and a country that particularly suffered from the negative consequences of the sovereign debt crisis and exhibited a robust recovery until 2019 our results show the usefulness of dsge models conveniently designed and extended to account for the interaction of real and financial variables and other prominent characteristics of modern economies as part of our toolkit to analyze the empirical evidence

improving market clearing price prediction by using a committee machine of neural networks predicting market clearing prices is an important but difficult task and neural networks have been widely used a single neural network however may misrepresent part of the input output data mapping that could have been correctly represented by different networks the use of a committee machine composed of multiple networks can in principle alleviate such a difficulty a major challenge for using a committee machine is to properly combine predictions from multiple networks since the performance of individual networks is input dependent due to mapping misrepresentation this paper presents a new method in which weighting coefficients for combining network predictions are the probabilities that individual networks capture the true input output relationship at that prediction instant testing of the new england market cleaning prices demonstrates that the new method performs better than individual networks and better than committee machines using current ensemble averaging methods

moving costs nondurable consumption and portfolio choice the substantial adjustment cost for housing affects nondurable consumption and portfolio allocations as well as the frequency of housing transactions a simple theoretical model roughly calibrated is used to assess the quantitative impact of adjustment costs on those decisions the impact on portfolios is found to be significant suggesting that housing wealth should be useful in empirical studies of portfolio choice the welfare loss from the transaction cost is also substantial the effect on nondurable consumption is small however so adjustment costs can explain only a small part of the equity premium puzzle

predatory pricing in a multiple market experiment a note abstract isaac and smith 1985a b present a strong behavioral case that predatory pricing is not an observable laboratory phenomenon we propose several modifications of their design resulting in a multiple market experiment in which predatory pricing is present the primary modification involves conducting several markets concurrently providing an active escape opportunity for any prey and a potential reward to a reputation for predation these results provide a behavioral existence proof for the predatory pricing phenomenon they do not address the issue of the phenomenon s behavioral robustness

house prices and job losses why are house prices 80 correlated with job losses over the uk business cycle my paper studies this striking fact together with the strong comovements between house prices and labour market variables in general first a regional panel is estimated to quantify the impact of house prices on the unemployment job finding and job separation rates whereby rejection rates of planning applications are used as instruments to find exogenous variation in house prices second an orthogonalised var is used to estimate the aggregate impact of house price shocks both methods confirm the large impact of house price shocks on labour market variables and credit supply to understand the mechanism a general equilibrium model with collateral constraints endogenous job separation and housing shocks is confronted with macroeconomic data via bayesian methods the results suggest that shocks to house prices i explain about 10 of output fluctuations and about 20 of fluctuations in corporate credit unemployment and job separation rates via the collateral channel over the forecast horizon and ii were a major cause in triggering the 1990 and 2008 recessions in the uk

government spending shocks in quarterly and annual time series government spending shocks are frequently identified in quarterly time series data by ruling out a contemporaneous response of government spending to other macroeconomic aggregates we provide evidence that this assumption may not be too restrictive for annual time series data

household debt and labor market fluctuations abstract the co movements of labor productivity with output total hours vacancies and unemployment have changed since the mid 1980s this paper offers an explanation for the sharp break in the fluctuations of labor market variables based on endogenous labor supply decisions following the mortgage market deregulation we set up a search model with efficient bargaining and financial frictions in which impatient borrowers can take an amount of credit that cannot exceed a proportion of the expected value of their real estate holdings when borrowers equity requirements are low the impact of a positive technology shock on the marginal utility of consumption is strengthened which in turn results in lower hours per worker and higher wages in the bargaining process this shift in labor supply discourages firms from opening vacancies reducing the impact of the shock on employment we simulate the effects of an increase in both the loan to value ratio and the share of borrowers in total population our exercise shows that the response of labor market variables might have been substantially affected by the increase in household leverage in the us in the last twenty years

market structure and incomplete information price formation in a real world repeated english auction abstract this paper examines the effect of buyer size on price formation in an english auction of used state police cars while open auctions generally favor competitive pricing bikhchandani 1988 develops a model of a second price common value auction in which bidders can use strategic behavior based on repeated sales to develop an aggressive reputation and as a result pay lower prices in equilibrium the paper tests this hypothesis by examining sales of 340 used automobiles sold at 13 public auctions conditional on the volume of purchases made by the three largest buyers at the auctions the empirical results show that the number of buyers plays a stronger role in price formation than does buyer size

mismatch shocks and unemployment during the great recession summary we investigate the macroeconomic consequences of fluctuations in the effectiveness of the labor market matching process with a focus on the great recession we conduct our analysis in the context of an estimated medium scale dynamic stochastic general equilibrium model with sticky prices and equilibrium search unemployment that features a shock to the matching efficiency or mismatch shock we find that this shock is not important for unemployment fluctuations in normal times however it plays a somewhat larger role during the great recession when it contributes to raise the actual unemployment rate by around 1 3 percentage points and the natural rate by around 2 percentage points the mismatch shock is the dominant driver of the natural rate of unemployment and explains part of the recent shift of the beveridge curve copyright 2016 john wiley sons ltd