learning to believe in sunspots a number of authors have shown that competitive economies may possess sunspot equilibria that is rational expectations equilibria in which purely extrinsic uncertainty affects equilibrium prices and allocations 2 such results demonstrate that it does not require a lack of faith in the rationality of market participants to believe that competitive markets may be subject to purely speculative fluctuations driven solely by expectations 3 the mere existence of sunspot equilibria as solutions to a system of marketclearing conditions however might not be judged sufficient to indicate that competitive markets with rational participants could ever be subject to speculative instability the sunspot equilibria represent states of affairs in which agents act differently in the case of different realizations of the sunspot variable and it is rational for each agent to do so but it might be thought unlikely that the beliefs of all the participants in the market could ever come to be coordinated so as to bring about an equilibrium of that kind it is rational to believe that sunspots convey information about future states of affairs once the economy is in a sunspot equilibrium but why would rational agents ever begin to believe in such a thing so as to create the conditions under which the belief is rational in order to address such a question one must go beyond the mere statement of the conditions for equilibrium and discussion of what states of affairs satisfy them one must specify an explicit dynamic process according to which the beliefs of agents adjust when out of equilibrium any exercise of this kind is necessarily unsatisfactory as there is no univocal meaning for the postulate of rational behavior outside of an equilibrium it may well be the case that

exchange rate expectations since the financial crisis performance evaluation and the role of monetary policy and safe haven abstract we analyze and evaluate novel data on exchange rate expectations after the collapse of lehman brothers for more than 60 economies over different horizons at a first stage we establish a potential discrepancy between statistical and economic measures market expectations are superior compared to trend and carry trade strategies based on economic evaluation criteria despite a weak statistical performance we then turn to determinants of both expectations and resulting forecast errors we find that monetary policy effects on expectations are time varying and identify substantial international spillovers over the recent period of unconventional monetary policy our results also indicate that markets have been surprised by monetary policy effects on the exchange rates and point to an unexpected safe haven status of the us dollar after 2009

on the existence of sunspot equilibria in an overlapping generations model abstract the existence of sunspot equilibria is shown in a one commodity overlapping generations model without stationarity assumptions on preferences endowments or nominal taxes the essential assumption is that there is a continuum of perfect foresight equilibria the technique is also useful for constructing stationary sunspot equilibria when they exist consumption in a sunspot equilibrium is shown to lie within the range consistent with perfect foresight

indeterminacy of stationary equilibrium in stochastic overlapping generations models abstract in this paper we consider the local uniqueness properties of stationary rational expectations equilibria ree in a stochastic overlapping generations olg model it is known that in non stochastic olg models steady state equilibria are locally isolated although there may exist indeterminate non stationary perfect foresight equilibria we show by construction that in the stochastic model even stationary equilibrium may be indeterminate we also show that this result is robust in the sense that there exists a non empty open set of economies for which the result is true

modeling inertia and variety seeking tendencies in brand choice behavior theories of exploratory behavior suggest that inertia and variety seeking tendencies may coexist within the individual implying that the same individual may exhibit inertia and variety seeking at different times depending on his her choice history past research has not allowed for such within consumer variability in these tendencies the purpose of this study is to present a choice model that allows us to identify such hybrid behavior i e a mixture of inertia and variety seeking and to distinguish hybrid behavior from simpler types of behavior such as pure inertia pure variety seeking and zero order behavior the model is estimated at the household level using panel data for three product classes covering a total of 1069 households the empirical analysis shows that more than half the households analyzed exhibited hybrid behavior rather than simpler types of behavior

comparative statics in a simple class of strategic market games this paper investigates the effects of entry in two sided markets where buyers and sellers act strategically applying new tools from supermodular optimization games sufficient conditions for different comparative statics results are obtained while normality of one good is sufficient for the equilibrium price to be increasing in the number of buyers normality of both goods is required for equilibrium bids and sellers equilibrium utilities to be increasing in the number of buyers when the economy is replicated normality of both goods and gross substitutes guarantee that the equilibrium of the strategic market game converges monotonically in quantities to the competitive equilibrium simple counter examples are provided to settle other potential conjectures of interest c 2007 elsevier inc all rights reserved

a negative equilibrium interest rate the average after tax real interest rate on u s t bills and the average rate of return on long term government bonds ltgb have been negative over the past 75 years is this negative rate an equilibrium phenomenon or simply an empirical fluke we show that a negative equilibrium interest rate is possible and that the wealthier the nation is the more negative the equilibrium interest rate can be this phenomenon results from a positive inflation rate and taxation of nominal profits and it cannot hold in a period of zero inflation or in a period of deflation a positive demand for t bills and for ltgb exists also in a portfolio framework even when these two assets are characterized by a negative expected rate of return and other risky assets are yielding positive expected returns

trade fragmentation and coordination in strategic market games abstract this paper analyzes the incentives to trade and the validity of the law of one price in three strategic market games with multiple trading posts in bilateral oligopolies where traders have corner endowments in one commodity all agents participate in all the markets the law of one price holds in bilateral oligopolies and in the buy or sell market game where equilibrium strategies are locally unique when traders can simultaneously buy and sell on every market the law of one price fails and the set of equilibrium prices generically has the same dimension as the number of active markets journal of economic literature classification numbers d43 d51

dynamic production teams with strategic behavior abstract we analyze if intergenerational teams reveal workers productivities some uncertainty on agents productivities persists when i each agent must work independently or ii technological shocks are agent specific in compulsory teams however when technological shocks are team specific in compulsory teams each worker s productivity is revealed when agents choose to work independently or in teams that problem falls in the class of dynamic games elective teams are preferred by high productivity young workers when the technological shocks are agent specific and maximize the expected utility of a young worker when shocks are team specific

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

stationary pareto optimality of stochastic asset equilibria with overlapping generations abstract a way of establishing the stationary pareto optimality of asset equilibria in stochastic settings with age diversity among the agents is suggested difficulties in obtaining such results arise because agents behavior is affected by random future state variables while pareto optimality defined in terms of expected lifetime utility of representative agents conditioned on their first period state involves redistributions of consumption among agents with different histories of realized states frobenius theorem is used to establish the existence of weights for which the so weighted sum of representative agents conditional expected utilities is maximized at the asset equilibrium allocation

stochastic olg models market structure and optimality for a general class of pure exchange olg economies under uncertainty we provide a complete characterization of the efficency properties of competitive equilibria when markets are only sequentially complete and the criterion of efficency is conditional pareto optimality we also consider a particular case in which markets fail to be even sequentially complete and provide a characterization when the criterion of efficency is weakened to ex post pareto optimality

a model of stochastic variety seeking in this paper we propose and test a stochastic model of consumer choice that incorporates attribute based variety seeking our stochastic variety seeking model svs has nested within it a fixed variety seeking model a zero order model of choice and a first order pure variety model we compare the svs model to alternative models under stochastic variety seeking we examine the nature of the variety sought and provide a test of the satiation hypothesis unlike fixed variety seeking models our model allows variety seeking to vary in intensity and consistency over individuals as well as over purchase occasions we show that the model is equivalent to a random utility model with the features that the attributes of brands relative to those of the brand previously bought influence choice and the extent of variety seeking is random over choice occasions for a given individual the model permits a closed form solution to the conditional switching probabilities parameterized by variety seeking parameters and dependent on brand attributes we apply our model to individual choice data obtained from a field study specifically designed for the purpose at hand

capturing consumption flexibility in assortment choice from scanner panel data this study develops and estimates a model to empirically identify two behavioral effects namely consumption flexibility and state dependence that may underlie temporal and horizontal assortment choice using scanner panel data where consumption information is unavailable the proposed approach permits a consumer s consumption utility to be dependent on previous consumptions thus capturing state dependence both across purchase occasions and within horizontal assortments moreover consumers purchase and consumption decisions are modeled at two distinctive and sequentially related stages which allows for incorporating the effect of consumption flexibility the model is estimated on scanner panel data of yogurt purchase it is found that the two captured effects provide strong empirical support with face validity for the temporal and horizontal assortment choice patterns observed in the data the behavioral insights derived from estimating the proposed model can also be translated into significant managerial implications

endogenous strategic business cycles this paper examines an overlapping generations version of the shapley shubik market game we show existence of equilibria for the simple one commodity model and analyze the dynamics of the equilibrium trajectories generated in the model because of the non linearities generated by strategic interaction of agents in the model we find that complex and chaotic equilibrium dynamics are possible in this model for a much broader range of preferences than those for which grandmont econometrica53 no 5 1995 995 1045 found complicated dynamics in the perfectly competitive version of this model these results then provide an alternative to the usual technology based explanation for the historical fact that business cycles became an important economic phenomenon only with the onset of industrialization journal of economic literatureclassification numbers c72 c73 d51 l16

predictability of output growth and inflation a multi horizon survey approach we develop an unobserved components approach to study surveys of forecasts containing multiple forecast horizons under the assumption that forecasters optimally update their beliefs about past current and future state variables as new information arrives we use our model to extract information on the degree of predictability of the state variable and the importance of measurement errors in the observables empirical estimates of the model are obtained using survey forecasts of annual gdp growth and inflation in the united states with forecast horizons ranging from 1 to 24 months and the model is found to closely match the joint realization of forecast errors at different horizons our empirical results suggest that professional forecasters face severe measurement error problems for gdp growth in real time while this is much less of a problem for inflation moreover inflation exhibits greater persistence and thus is predictable at longer horizons than gdp growth and the persistent component of bot

stationary monetary equilibria in overlapping generations models with incomplete markets abstract the objective of this paper is to study the stationary monetary equilibria of a stochastic overlapping generations model with a general incomplete asset structure it is proved that a stationary equilibrium with a nonzero price of money generically exists and is locally isolated when there is outside money for an open set of economies there is an equilibrium with positive money prices in all states the equilibrium is also given a neat characterisation in terms of the properties of the underlying state prices with only inside money there will instead be a continuum of equilibria journal of economic literature classification numbers d52 d90 e40

variety seeking through brand switching a concept of variety seeking behavior is modeled as a stochastic brand choice model the model yields a measure of variety seeking for each individual consumer panel data for 28 products are analyzed for each household and the possibility of market segmentation by variety seeking behavior is explored

large market games with demand uncertainty abstract we consider a market game with a continuum of consumers where the measure of each type is stochastic nature selects the set of active consumers who make bids and offers on l 1 spot market trading posts existence of type symmetric nash equilibrium is proven when facing price uncertainty best responses are unique and a nash equilibrium to the sell all game is typically not a nash equilibrium to the original game under plausible circumstances consumers strictly prefer to be on one side of the market

market uncertainty correlated and sunspot equilibria in imperfectly competitive economies first version received june 1988 final version accepted november 1990 eds an imperfectly competitive economy is very prone to market uncertainty including uncertainty about the liquidity or thickness of markets we show in particular that there exist stochastic equilibrium outcomes in nonstochastic market games if and only if the endowments are not pareto optimal we also provide a link between extrinsic uncertainty arising in games e g correlated equilibria and extrinsic uncertainty in market economies e g sunspot equilibria a correlated equilibria to the market game is either a sunspot equilibrium or a non sunspot equilibrium to the related securities games but the converse is not true in general

inertia and variety seeking in a model of brand purchase timing previous research on state dependence indicates that a brand s purchase probabilities vary over time and depend on the levels of inertia and variety seeking and on the identity of the previously purchased brand brand choice probabilities obtained from models such as the logit and the probit are however fixed over time conditional on the previous brand purchased and on the levels of marketing variables consequently state dependence has largely been studied as a time invariant phenomenon in brand choice models with the levels of inertia and variety seeking assumed to be constant over time to account for the time varying nature of state dependence would require a model in which brand switching probabilities depend upon interpurchase times one modeling framework that can account for this dependence is based on the hazard function approach the proposed approach works as follows all other factors being equal an inertial household purchasing a brand on a particular occasion is most likely to repurchase that brand on the next occasion if the household switches it will be to a brand located perceptually close in attribute space to the previously purchased brand in other words an inertial household has the highest switching hazard for the same origin and destination brands with a progressively lower hazard rate for brands perceptually located farther and farther away from the origin brand the amount by which the hazard is lowered depends upon the perceptual distance and the inertia level of the household on the other hand if the household is variety seeking the most likely brand purchased would be a brand located farthest away from the previously purchased brand in attribute space in other words the hazard rate of repurchase is the lowest with the rate increasing with the distance of the destination brand from the origin brand and the level of that household s variety seeking tendency the effects of inertia and variety seeking are therefore incorporated at the attribute level into a brand purchase timing model in doing so we attempt to provide greater insight into the nature of state dependence in models of purchase timing our model and estimation procedure will enable us to distinguish between households that are inertial and those that are variety prone in addition to accounting for state dependence the model also accounts for the effects of unobserved heterogeneity among households in their brand preferences and in their sensitivities to marketing activities a majority of studies in marketing using the hazard function approach to investigate purchase timing have not accounted for heterogeneity in marketing mix effects the study integrates recent methods that incorporate the effects of inertia and variety seeking in brand choice models with a semi markov model of purchase timing and brand switching the proposed model enables us to 1 infer market structure via a perceptual map for the sample households and 2 investigate implications for the introduction of a line extension we provide empirical applications of the proposed method using three different household level scanner panel data sets we find that differing levels of inertia and variety seeking characterize the three data sets the findings are consistent with prior beliefs regarding these categories in addition our results indicate that the nature of interbrand purchase timing behavior depends upon the extent of inertia or variety seeking in the data we are also able to characterize the structure of the three product markets studied this provides implications for interbrand rivalry in the market further we demonstrate how the model and results can be used to predict the location of a line extension in the perceptual space of households finally we obtain implications for the timing of brand promotions

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

existence and local uniqueness of functional rational expectations equilibria in dynamic economic models abstract this paper established the existence and local uniqueness of stationary functional rational expectations equilibria for an open set of multi good multi agent pure exchange overlapping generations models in which agents endowments are random such equilibria are given by prices which are functions of one period lagged prices and endowments and of current endowments

monopolistic competition business cycles and the composition of aggregate demand abstract we develop a dynamic general equilibrium model with monopolistically competitive firms and endogenous markups and show the possibility of equilibria with persistent fluctuations driven by self fulfilling revisions of expectations for some parameter values such fluctuations are characterized by time series properties similar to those observed in u s postwar business cycles in contrast with the existing literature our results do not rely on the presence of increasing returns or nominal rigidities a key ingredient of the model is the link between markups and the composition of aggregate demand some econometric evidence on the latter is also reported journal of economic literature classification number d43 d58 e32

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

endogenous market incompleteness without market frictions dynamic suboptimality of competitive equilibrium in multiperiod overlapping generations economies abstract in this paper we show that within the set of stochastic three period lived olg economies with productive assets such as land markets are necessarily sequentially incomplete and agents in the model do not share risk optimally we start by characterizing perfect risk sharing and find that it requires state dependent consumption claims which depend only on the exogenous shock realizations we show then that the recursive competitive equilibrium of any overlapping generations economy with weakly more than three generations is not strongly stationary this then allows us to show directly that there are short run pareto improvements possible in terms of risk sharing and hence that the recursive competitive equilibrium is not pareto optimal we then show that a financial reform which eliminates the equity asset and replaces it with zero net supply insurance contracts arrow securities will implement to pareto optimal stochastic steady state known to exist in the model finally we also show via numerical simulations that a system of government taxes and transfers can lead to a pareto improvement over the competitive equilibrium in the model

sunspot like effects of random endowments abstract random endowments can affect economic outcomes in two ways directly by affecting resources and indirectly by endogenously affecting expectations this second effect which we call a sunspot like effect allows prices to overreact to movements in fundamentals we prove that sunspot equilibria can be viewed as the limiting case of markets overreacting to small shocks to fundamentals two examples illustrate the theorem and show that sunspot like effects can be present even with significant shocks to fundamentals

an investigation into the order of the brand choice process this paper investigates the order of the brand choice process at the individual family level using a variety of tests t likelihood ratio binomial runs and multinomial runs tests the test of stationarity developed permits separate analyses for stationary and nonstationary purchase sequences our analyses indicate that the purchase sequences of a majority of stationary consumers are consistent with the zero order assumption this result is observed for all the nine frequently bought packaged goods studied with the use of panel data and for a product category soft drinks using experimental data

positioning and pricing in a variety seeking market we study competitive positioning and pricing strategies in markets where consumers seek variety variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion using a three stage hotelling type model we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium thereby explaining some otherwise counterintuitive findings in empirical research we find that firms charge higher prices in period 1 and lower prices in period 2 the lower price in period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching furthermore we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers finally we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus surplus increases for variety seeking consumers as well as regular consumers therefore the presence of variety seeking consumers benefits everyone in the market

non existence of recursive equilibria on compact state spaces when markets are incomplete abstract this paper analyzes one good exchange economies with two infinitely lived agents and incomplete markets it is shown that there are no recursive markov equilibria for which borrowing debt constraints never bind if the state space of exogenous and endogenous variables is a compact subset of r n moreover for large enough but finite borrowing limits no recursive equilibrium with compact state space exists these non existence results hold for any economy satisfying the following standard assumptions preferences are additively separable across time and states the one period utility function is time and state independent and unbounded from below endowments are bounded and follow a markov chain with stationary transition matrix there is some idiosyncratic risk and no aggregate risk

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

dominant root characterization of pareto optimality and the existence of optimal equilibria in stochastic overlapping generations models abstract we characterize pareto optimality of interior stationary allocations in single good overlapping generations models with stochastic aggregate shocks and heterogeneous but recurring generations an interior stationary allocation is pareto optimal if and only if it is an equilibrium allocation and the associated contingent claims price matrix has a dominant root less than or equal to unity we then use this characterization to show that there always exists an optimal equilibrium with or without valued fiat money

instability imprecision and inconsistent use of equilibrium real interest rate estimates abstract the debate on monetary and fiscal policy is heavily influenced by estimates of the equilibrium real interest rate in particular this concerns estimates derived from a simple aggregate demand and phillips curve model with time varying components as proposed by laubach and williams 2003 for example summers 2014a refers to these estimates as important evidence for a secular stagnation and the need for fiscal stimulus yellen 2015 2017 has made use of such estimates in order to explain and justify why the federal reserve has held interest rates so low for so long first we re estimate the united states equilibrium rate with the methodology of laubach and williams 2003 then we build on their approach and an alternative specification to provide new estimates for the united states germany the euro area and japan third we subject these estimates to a battery of sensitivity tests due to the great uncertainty and sensitivity that accompany these equilibrium rate estimates the observed decline in the estimates is not a reliable indicator of a need for expansionary monetary and fiscal policy yet if these estimates are employed to determine the appropriate monetary policy stance such estimates are better used together with the consistent estimate of the level of potential output

is the negative interest rate policy effective abstract this paper examines the effectiveness of the negative interest rate policy conducted by several central banks to stabilize economic growth and inflation expectations through the signaling channel in doing so we assess survey based expectations data for up to 44 economies from 2002 to 2017 and analyze the impact of the adoption of a negative interest rate policy on expectations made by professionals based on a difference in differences approach our main findings are as follows first we show that the introduction of negative policy rates significantly reduces expectations regarding 3 month money market interest rates and also 10 year government bond yields second we also provide evidence for a significantly positive effect of this unconventional monetary policy tool on gdp growth and inflation expectations this implies that the negative interest rate policy appears to be effective in boosting economic growth and overcoming a deflationary spiral consequently the effect of negative nominal interest rates on real interest rate expectations is also negative

arbitrage equilibria in large games with many commodities abstract can identical goods sell at different prices in identical markets when people are perfectly mobile we provide a formal account of strategic behaviour in large games with many commodities and exhibit how it drives price dispersion at equilibrium interactions between agents are modelled using a shapley shubik market game we demonstrate the failure of the law of one price in this setup through a robust counterexample the proposed model and our findings constitute an alternative and plausible explanation to some anomalies which routinely appear in a wide array of fields ranging from banking business economics to international and labour economics

monetary policy and bank profitability in a low interest rate environment we analyse the impact of standard and non standard monetary policy on bank profitability we use both proprietary and commercial data on individual euro area bank balance sheets and market prices our results show that a monetary policy easing a decrease in short term interest rates and or a flattening of the yield curve is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions accommodative monetary conditions asymmetrically affect the main components of bank profitability with a positive impact on loan loss provisions and non interest income offsetting the negative one on net interest income a protracted period of low monetary rates has a negative effect on profits that however only materializes after a long time period and is counterbalanced by improved macroeconomic conditions monetary policy easing surprises during the low interest rate period improve bank stock prices and cds

nonmonetary steady states in stationary overlapping generations models with long lived agents and discounting multiplicity optimality and consumption smoothing abstract we construct a sequence of pure exchange stationary olg economies in which generations have longer and longer life spans and all agents maximize a discounted sum of utilities with a fixed positive and common discount rate period utility functions and endowment patterns are subject to mild restrictions and within generation heterogeneity is permitted we show that i every sequence of equilibrium interest rates converges to the discount rate ii eventually every non monetary steady state is optimal and a monetary steady state will never exist and iii for any agent consumption at any fixed age converges to permanent income evaluated using the utility discount rate

bounded rationality in pricing under state dependent demand do firms look ahead and if so how far the authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state dependent demand rather than assuming that firms are perfectl

inferring the order of the choice process using consumer purchase histories the small sample properties of the multinomial runs mr test which is often used to test for effects of previous brand choices on current brand choice probabilities are explored in this article through a monte carlo study of different buyer level brand choice probability models the power and the actual size of this test under a null hypothesis of no previous brand choice effects are shown to depend on the nature of the true underlying model length of purchase history and skewness in baseline choice probabilities we provide some guidelines for when the mr test is more useful in empirical research

markov rational expectations equilibria in an overlapping generations model abstract in this paper we analyze rational expectations equilibrium paths in a stochastic overlapping generations model the work presented here builds on results of s e spear j econ theory 35 1985 251 275 where is is shown that in a model with multiple goods and time non separable preferences a stochastic steady state equilibrium will generically fail to exist a stochastic steady state is defined as an equilibrium in which the stochastic process of endogenously determined variables is measure isomorphic to the exogenous process driving the model in this paper we establish the existence of non steady state equilibria and provide a characterization of their stochastic properties

products with branded components an approach for premium pricing and partner selection an increasing number of products are being sold with components that themselves are brand names examples are personal computers with intel microprocessors and diet soft drinks that use the nutrasweet formulation branded components may alter consumers valuation of the bundle necessitating changes in the ways firms identify and price such bundled products surprisingly the existing marketing literature is silent on this issue the purpose of our paper is to propose an analytical approach that helps marketers of products with branded components make optimal pricing and partner selection decisions our managerial objectives are twofold a to the seller of the bundled product we suggest the optimal bundled product offering optimal selling prices of alternative products revenues and profits and b to the branded component manufacturers we indicate the most favorable alliance partners and payoff gains losses of aligning with other branded components instead of unbranded alternatives our analytical approach is also likely to be helpful to academics researching bundling and ingredient branding issues the specific problem modeled assumes the bundled product has two components that are consumed jointly furthermore each component can be either a brand name or unbranded in this model the consumer has no control over the choice of the components in the bundle the seller decides what form of bundle components i e branded or unbranded to offer we assume that the product that is marketed eventually enjoys a monopoly drawing from research in signaling and brand alliance we posit each branded component may either enrich or suppress the value of the partnering component in the bundle as perceived by the consumers our approach has three methodological stages first we build an individual level model to assess the valuation of alternative products and their principal components at the level of a randomly drawn consumer to do so we rely primarily on the theory of reservation prices and weber s theory on price value changes second we aggregate such valuation across consumers to assess the market s overall valuation for this purpose we invoke parametric distributions based on integral transform theory third we develop payoff functions based on market valuation of alternative products and supply side costs the managerial objectives are met based on results from this stage our approach was successfully applied to the context of a university bookstore that intends to sell windows based laptop computers the two principal components of the laptop computer bundle are the microprocessor chip and the personal computer platform on which the chip is implanted the seller may choose either compaq with intel inside or a simpler bundle featuring one of these with an unbranded complementary component or an entirely unbranded bundle we used data collected from 192 potential consumers via a survey included in the survey were measures of consumers perceptions of functional aspects of the components and their reservation prices for alternative bundled products the approach identified the most profitable bundle for the seller and its optimal price it also provided estimates of the revenue impact of the gain or loss for each branded component by partnering the other branded component instead of the unbranded alternative as such the model facilitates the determination of the optimal price price premium and profits for products with branded components as well as the identification of the ideal partner for each branded component manufacturer it is apt to caution that products with branded components need not always lead to price premiums or lead to win win outcomes reasons such as incongruity between the branded components or domination of one of the components over the other may drive potential consumers away thus hurting profits implications of the results to negotiate component prices are discussed in the paper the study limitations and directions for future research are also presented

life below zero bank lending under negative policy rates we show that negative policy rates affect the supply of bank credit in a novel way banks are reluctant to pass on negative rates to depositors which increases the funding cost of high deposit banks and reduces their net worth relative to low deposit banks as a consequence the introduction of negative policy rates by the european central bank in mid 2014 leads to more risk taking and less lending by euro area banks with a greater reliance on deposit funding our results suggest that negative rates are less accommodative and could pose a risk to financial stability if lending is done by high deposit banks received april 17 2018 editorial decision september 18 2018 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

vertical differentiation with variety seeking consumers we analyze price and quality competition in a vertically differentiated duopoly in which consumers have a preference for variety the preference for variety is a consequence of diminishing marginal utility for repeated experiences with the same product we find consumer variety seeking can either soften or intensify price competition depending on the difference in firm qualities and the strength of consumer preference for variety when the qualities are similar or the consumer preference for variety is strong prices and profits are higher than would be obtained in the absence of variety seeking on the other hand if qualities differ enough or the preference for variety is weak stronger preferences for variety are associated with more intense price competition and lower profits when firms set their qualities before competing on price and the range of feasible qualities is restricted such that variety seeking softens competition competing firms choose to minimally differentiate themselves from each other the preference for variety can drive the firms to offer multiunit discounts and the greater price flexibility from these discounts does not necessarily reduce profits relative to simple unit pricing this paper was accepted by j miguel villas boas marketing

retrading in market games when agents are not price takers they typically cannot obtain an efficient real location of resources in one round of trade this paper presents a non cooperative model of imperfect competition where agents can retrade allocations consistent with edgeworth s idea of recontracting we show a there are pareto optimal allocations including competitive equilibrium allocations that can be approximated arbitrarily closely when trade is myopic i e when agents play a static nash equilibrium at every round of retrading b any converging sequence of allocations generated by myopic retrading can be supported along some retrade proof subgame perfect equilibrium path when traders anticipate future rounds of trading

the interest rate effects of government bond purchases away from the lower bound abstract i analyze the recent experience of unconventional monetary policy in sweden to study the interest rate transmission mechanisms of government bond purchases when interest rates are away from the lower bound using dynamic term structure models and event study regressions i find that government bond purchases have important portfolio balance and signaling effects the signaling channel operates mainly by lowering short rate expectations in the intermediate segment of the yield curve while the portfolio balance channel is effective in lowering longer maturity term premia in addition i find that target interest rate policy and government bond purchases operate in different segments of the yield curve this suggests that a combination of the two policies can be used to lower interest rates across the whole maturity spectrum making monetary policy more expansionary

sunspots correlation and competition correlated equilibria in strategic market games played simultaneously by overlapping generations of players correspond to sunspot equilibria in the associated competitive economy we provide a necessary and sufficient condition for existence of effective correlation an increase in the number of agents in a given economy may allow for effective correlation

informational diversity over time and the optimality of monetary equilibria abstract the temporal realizations of a random state variable in an overlapping generations model create an informational diversity between members of different generations and require a reexamination of the optimality that competitive equilibria might display in such an environment using an optimality criterion that reflects this informational diversity we prove the optimality of competitive equilibrium in a model with a fixed stock of fiat money a single spot market and good endowments that follow a markov process the need for an optimality criterion that incorporates informational diversity is further motivated by studying the same model with the operation of complete contingent commodities markets

short memory equilibrium in stochastic overlapping generations economies abstract in stochastic olg exchange economies we show that short memory equilibria the natural extension from deterministic economies of steady states low order cycles or finite state space stationary sunspots equilibria fail to exist generically in utilities as a result even with independent and identically distributed exogenous shocks there is serial correlation in endogenous economic variables in equilibrium this arises even if utilities are time separable some goods inferior and there are no technological lags hence the origins of economic fluctuations can be traced only to the demographic structure of a heterogeneous agent multiple good economy

rational expectations in the overlapping generations model abstract this paper reports results on the character of the rational expectations equilibria of a stochastic overlapping generations model with heterogenous markets the model considered is a stationary overlapping generations model in which the endowments of young agents are subject to i i d random shocks the main result shown is that if there are l 1 commodities traded in every period then for most preferences the rational expectations equilibrium stochastic process of prices and allocations necessarily exhibits serial correlation this is in marked contrast to the one commodity model in which there always exists an equilibrium which is measure isomorphic to the endowment process

price competition in markets with consumer variety seeking we investigate price competition between firms in markets characterized by consumer variety seeking while previous research has addressed the effect of consumer inertia on prices there exists no research on the effects of variety seeking on price competition our study fills this gap in the literature using a two period duopoly framework as in klemperer s analysis of inertial markets we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking specifically our variety seeking model implies tacit collusion between firms in both periods unlike the inertia model of klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period when consumers are assumed to have rational expectations about future prices the implied first period prices increase further which is consistent with what klemperer finds in an inertial market to summarize while our variety seeking analyses support two key results pertaining to second period prices and rational expectations previously derived for inertial markets by klemperer they depart from one key result pertaining to first period prices

the risk taking channel of monetary policy transmission in the euro area abstract in this paper we provide evidence for a risk taking channel of monetary policy transmission in the euro area that works through the relaxation of lending standards for borrowers our dataset covers the period 2003q1 2016q2 and includes in addition to the standard variables for real gdp growth inflation and the monetary policy stance indicators of bank lending standards and bank lending margins based on vector autoregressive models with i recursive identification and ii sign restrictions we show that banks react aggressively to an expansionary monetary policy shock by lowering their lending standards the banks efforts to keep their lending margin stable however are not successful as we detect a significant compression we document these findings for the euro area as a whole and for its individual member states in particular banks in the netherlands portugal spain and ireland lowered their lending standards after expansionary monetary policy shocks the compression of the lending margin is most pronounced in the five crisis countries greece ireland italy portugal and spain

debt deficits and finite horizons the stochastic case abstract we introduce aggregate uncertainty and complete markets into blanchard s 1985 perpetual youth model we derive a simple expression for the pricing kernel that can be used to close a variety of equilibrium models in which the set of agents changes over time

a model of balanced choice behavior in some product categories consumers appear to alternate among items in a consistent and purposeful though not entirely deterministic fashion such alternation occurs even in the absence of any apparent external influences on choice to explain such balanced choice behavior we present a model based upon the premise that past consumption influences the utility of items on subsequent choice occasions individuals may seek variety on certain product attributes and exhibit loyalty toward others the model specification yields a logit choice model which may be calibrated using consumption diary panel data at the individual or cross sectional level

existence and optimality of currency equilibrium in stochastic overlapping generations models the pure endowment case abstract we consider a pure exchange stochastic overlapping generations economy sufficient conditions for the existence of a monetary equilibrium and a characterization of optimality are provided it is shown that in a monetary equilibrium currency provides partial insurance and that the equilibrium allocation is optimal it is also shown that if an allocation is optimal the contingent claim prices associated with it are such that in an average sense the present value of the social endowment is bounded

stationary equilibria with incomplete markets and overlapping generations recent work on general equilibrium models with incomplete financial markets has demonstrated that when assets pay off in units of account equilibrium prices and allocations are indeterminate the equilibria in such models are also generically constrained suboptimal a central planner can typically reallocate assets in such a way as to pareto dominate the competitive equilibrium in this paper the authors consider an overlapping generations model with incomplete markets in which one asset is fiat money they show that when outside money has value in equilibrium the stationary equilibrium prices and allocations are both locally isolated and constrained optimal copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association