on identification of bayesian dsge models this article is concerned with local identification of individual parameters of dynamic stochastic general equilibrium dsge models estimated by bayesian methods identification is often judged by a comparison of the posterior distribution of a parameter with its prior however these can differ even when the parameter is not identified instead we propose two bayesian indicators of identification the first follows a suggestion by poirier of comparing the posterior density of the parameter of interest with the posterior expectation of its prior conditional on the remaining parameters the second examines the rate at which the posterior precision of the parameter gets updated with the sample size using data simulated at the parameter point of interest for an increasing sequence of sample sizes t for identified parameters the posterior precision increases at rate t for parameters that are either unidentified or are weakly identified the posterior precision may get updated but its rate of update wi

cultural differences in consumer impatience abstract in this article the authors examine cross cultural variations in how people discount the future specifically they predict that people from western cultures are relatively less patient and therefore discount the future to a greater degree than do people from eastern cultures and thus westerners value immediate consumption relatively more furthermore on the basis of regulatory focus theory the authors predict that when easterners are faced with the threat of a delay in receiving a product i e a prevention loss they are more impatient whereas when westerners are faced with the threat of not being able to enjoy a product early i e a promotion loss their impatience increases this enhanced impatience manifests in preference for expedited consumption of a product purchased online in two studies in both studies the authors used a priming methodology on bicultural singaporean participants the results support the predictions in the second study they also found evidence in support

china s official rates and bond yields abstract recent research shows that bond yields are influenced by monetary policy decisions to learn how this works in a bond market that differs significantly from those in the us and europe we model chinese bond yields using the one year deposit interest rate as a state variable we also include the spread between the one year market interest rate and the one year deposit interest rate as another factor the model is developed in an affine framework and closed form solutions are obtained we then test the model empirically with a markov chain monte carlo simulation procedure the results show that the new model that incorporates the official rate in china characterizes the changing shape of the yield curve well

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

international transmission of inflation among g 7 countries a data determined var analysis abstract we investigate the international transmission of inflation among g 7 countries using data determined vector autoregression analysis as advocated by swanson and granger swanson n granger c 1997 impulse response functions based on a causal approach to residual orthogonalization in vector autoregressions journal of the american statistical association 92 357 367 over the period 1973 2003 we find that unexpected changes in us inflation have large effects on inflation in other countries although they are not always the dominant international factor similarly shocks to some other countries also have a statistically and economically significant influence on us inflation moreover our evidence indicates that us inflation has become less vulnerable to foreign shocks since the early 1990s mainly because of the diminished influence from germany and france

a joint model for the term structure of interest rates and the macroeconomy we present and estimate a continuous time term structure model that incorporates observable macroeconomic variables and latent variables with a clear macroeconomic interpretation our model is able to accurately describe the joint dynamics for us macroeconomic variables and the yield curve however the observable variables do not explain the long end of the term structure central tendencies of these macroeconomic variables do a much better job in this respect these unobservable factors also play an important role in the description of the interest rate policy rule both observable and non observable factors determine the risk premia and hence bond excess holding returns copyright 2006 john wiley sons ltd

modelling sovereign credit spreads with international macro factors the case of brazil 1998 2009 abstract this paper develops a macro finance model of the brazilian economy and its sovereign debt markets that allows for domestic and international macroeconomic influences as well as swings in investor confidence it finds significant evidence of common trends in the us and brazilian economies and bond markets as well as spillover effects from us inflation and business cycles to the brazilian economy the us fed funds rate influences brazilian sovereign spreads as do brazilian inflation and policy rates the brazilian confidence factor dominates the behavior of the spreads during periods of crisis and we find that it also has a powerful effect on the level and volatility of macroeconomic variables these results suggest that the macro finance approach could throw light upon the behavior of other economies that are troubled by sovereign risk

monetary policy indeterminacy and identification failures in the u s results from a robust test we propose a novel identi cation robust test for the null hypothesis that an estimated new keynesian model has a reduced form consistent with the unique stable solution against the alternative of sunspot driven multiple equilibria our strategy is designed to handle identi cation failures as well as the misspeci cation of the relevant propagation mechanisms we invert a likelihood ratio test for the cross equation restrictions cer that the newkeynesian system places on its reduced form solution under determinacy if the cer are not rejected sunspot driven expectations can be ruled out from the model equilibrium and we accept the structural model otherwise we move to a second step and invert an anderson and rubin type test for the orthogonality restrictions or implied by the system of euler equations the hypothesis of indeterminacy is accepted if the or are not rejected we investigate the nite sample performance of the suggested two steps testing strategy by some monte carlo experiments we apply our robust test to a new keynesian ad as model estimated with actual u s post wwii data in spite of some evidence of weak identi cation

the effect of explicit reference points on consumer choice and online bidding behavior sellers often explicitly suggest to buyers that they compare one option to other reference options building on the notion that loss aversion is more pronounced when comparisons are explicit rather than implicit we propose that the mere fact that consumers are explicitly told to make particular comparisons induces more risk averse cautious choice and bidding behavior this proposition was supported in a field experiment involving real online auctions in which comparisons among listings either were done spontaneously by bidders or were encouraged using an explicit instruction to compare the focal auction with adjacent listings results showed that explicit reference points 1 diminished the influence of adjacent auction prices on the focal auction s price 2 led participants to submit fewer lower and later bids 3 increased the incidence of sniping 4 decreased bidding frenzy and 5 decreased the tendency to bid on multiple items simultaneously the impact of explicit comparisons on risk averse behavior was further tested in a very different context using a laboratory choice experiment in that study explicit instructions to compare option sets increased the tendency to choose the compromise low risk and all average alternatives we discuss the theoretical and practical implications of this research

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

could ralph nader s entrance and exit have helped al gore the impact of decoy dynamics on consumer choice abstract people are frequently faced with making a new choice decision after a preferred option becomes unavailable prior research on the attraction effect has demonstrated how the introduction of an option into a choice set increases the share of one of the original options the authors examine the related but previously unaddressed issue of whether the unexpected exit of an option from a choice set returns the choice shares of the original options to the status quo in a series of experiments they observe that when an option turns out to be unselectable following a choice problem in which it was selectable the choice shares of the remaining options are predictably different from those of a choice problem in which the option was unselectable from the start they also observe that this attraction effect due to the disappearance of a decoy is likely a consequence of changes in the importance of decision criteria they conclude with a discussion of the theoretical and managerial implications of the research

more or less a model and empirical evidence on preferences for under and overpayment in trade in transactions abstract trade in transactions typically involve an exchange of an old used version for a new or newer version of the product when consumers trade in their used model for a new model the firm faces the choice of paying the consumer a relatively low price for the used model and charging a commensurately low price for the new model or paying a relatively high price for the used model and charging a commensurately high price for the new model the extant literature suggests that consumers always prefer to be overpaid in trade in transactions because they disproportionately value the gain associated with the revenues from the sale of the used version of the product the authors draw from the prospect theory value function to develop a simple analytical model that identifies a condition under which this preference for overpayment is reversed their model predicts that even when faced with economically equivalent price formats consumers prefer to be overpaid when the ratio of the price of their used product

the joint response of stock and foreign exchange markets to macroeconomic surprises using us and japanese data abstract this paper investigates the joint response of stock and foreign exchange fx market returns to macroeconomic surprises employing a system method of estimation that allows for the cross country and cross market interaction for asset returns and risk premia using us and japanese data we find that us stock markets are asymmetrically responsive to domestic developments in output growth and interest rates but are not influenced by macroeconomic surprises from japan the surprise in the fx market seems to affect stock markets in the us and japan respectively in particular we find that the interest rate surprise in the us and inflation surprise in japan tend to overstate the impact that these surprises would have on the respective stock market the impact of the surprises would appear smaller if macroeconomic developments induced by the fx market were incorporated into the model

common factors and local factors implications for term structures and exchange rates this paper studies a multi factor two country term structure and exchange rate model when a diversification effect for an international bond portfolio is expected it shows that the diversification gain calls upon certain restrictions on the process of the stochastic discount factor in a factor structured economy existence of local factors is shown to be a necessary condition for the gains from investing in foreign bonds further the exchange rate risk premia are shown to be a function of the differentials of the risk premia of the factors in bond returns empirical results reveal the tendency for investors to respond sensitively to rare shocks which is shown to be a potential solution to the forward premium puzzle

evaluating the information matrix in linearized dsge models abstract in this note we show how the stochastic general equilibrium dsge models can be evaluated analytically the result is useful for the estimation and identification analysis of such models

a tale of fat tails abstract we document the extent to which major macroeconomic series used to inform linear dsge models can be characterized by power laws whose indices we estimate via maximum likelihood assuming data follow a linear recursion with multiplicative noise low estimated indices suggest fat tails we then ask whether standard dsge models under constant gain learning can replicate those fat tails by an appropriate increase in the estimated gain and without much change in the transmission mechanism of shocks we find that is largely the case via implementation of a minimum distance estimation method that eschews any allegiance to distributional assumptions

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

macro factors and the term structure of interest rates this paper presents an essentially affine model of the term structure of interest rates making use of macroeconomic factors and their long run expectations the model extends the approach pioneered by kozicki and tinsley 2001 by modeling consistently long run inflation expectations simultaneously with the term structure application to the u s economy shows the importance of long run inflation expectations in the modeling of long term bond yields the paper also provides a macroeconomic interpretation for the latent factors found in standard finance models of the yield curve the level factor represents the long run inflation expectation of agents the slope factor captures business cycle conditions and the curvature factor expresses a clear independent monetary policy factor

frequentist evaluation of small dsge models this article proposes a new evaluation approach for the class of small scale hybrid new keynesian dynamic stochastic general equilibrium nk dsge models typically used in monetary policy and business cycle analysis the empirical assessment of the nk dsge model is based on a conditional sequence of likelihood based tests conducted in a vector autoregressive var system in which both the low and high frequency implications of the model are addressed in a coherent framework if the low frequency behavior of the original time series of the model can be approximated by nonstationary processes stationarity must be imposed by removing the stochastic trends this gives rise to a set of recoverable unit roots cointegration restrictions in addition to the short run cross equation restrictions the procedure is based on the sequence lr1 lr2 lr3 where lr1 is the cointegration rank test lr2 is the cointegration matrix test and lr3 is the cross equation restrictions test lr2 is computed conditional on lr

close encounters of two kinds false alarms and dashed hopes people are frequently exposed to potentially attractive events that are subsequently and unexpectedly reversed and to potentially painful events which are also unexpectedly reversed in the process of being returned to the initial asset position does the sequence in which the positive and negative events occur matter this issue of the combined effect of pleasurable and painful stimuli has received scant theoretical or empirical attention we attempt to fill this lacuna in the literature by studying the retrospective evaluation of surprises that return individuals to their original economic state although such surprises do not change an individual s original economic state we argue that the individual s psychological state changes and the final affective state is among other things a function of the sequence in which the events occur from a theoretical standpoint several perspectives can be brought to bear on the issue for instance one reading of mental accounting based on prospect theory s value function would predict that losses should dominate gains and therefore regardless of sequence people should be unhappy when exposed to two economically equivalent outcomes of different signs conversely the literature on intertemporal choice would suggest that a series that ends on an up note is preferred to a series that ends on a down note because people like to defer gratification so that they may savor positive outcomes similarly people apparently have a preference for happy endings finally the extant literature on recency effects would predict that the last event in a series should have a disproportionate influence on overall affect our model relies on a shift in the reference point to explain how a surprising reversal of an event will lead to a nonzero evaluation of the sequence we suggest that people s reference points shift immediately but imperfectly after a stimulus is presented intuitively this implies that the first stimulus will shift the reference point in its direction as a result of which the evaluation of a sequence of events in which an initial event is unexpectedly reversed will be more favorable if the first event is a loss than if it is a gain this model captures the unanticipated nature of the second event i e the surprise element by allowing the first event to move the reference point consequently by the time the next event occurs the reference point has been updated as a result of which the zero economic outcome of the sequence yields nonzero utility we further posit that the magnitude of the reference point shift should be affected by the time elapsed between the two stimuli specifically the reference point shifts gradually with time until it is fully updated consequently the final affective state of the sequence is also a function of the temporal distance between the two events the main predictions of the model were empirically supported first in a survey using a mall intercept sample subsequently we conducted a study of student subjects involving a coin tossing game in which real money was at stake and in which subjects in one condition experienced the second outcome after a two day delay our results from this second study supported the model s prediction regarding the impact of the elapsed time between the events the experimental tasks involved surprising reversals of initial outcomes thus ensuring that savoring dread types of explanations which require that subjects anticipate the second event could not be operating finally in a series of three follow up studies we tested the claim that the magnitude of outcomes would have an impact on observed affect and consistent with our theory and contrary to recency predictions we observed similar results across different magnitudes while theoretically interesting we should also note that our research is of potential pragmatic significance people s reactions to a series of events is of considerable interest to marketers desirous of generating enhanced attitude affect purchase intention and the like without offering economic inducements such as rebates coupons or other costly discounts additionally public policy officials may be interested in protecting people from being manipulated into purchasing a product simply because of changes in the sequence in which a series of offers is made by the merchant

capital gains overhang with a dynamic reference point financial models incorporating a reference point such as the capital gains overhang cgo model typically assume it is fixed at the purchase price combining experimental and market data this pa

predicting buyer seller pricing disparities numerous studies have shown that compensation demanded cd to give up a commodity often greatly exceeds willingness to pay wtp to obtain the same commodity even in incentive compatible experiments that penalize strategic misrepresentation observed cd wtp disparities are too large to be reconciled with traditional assumptions of economic rationality a prospect theory based behavioral framework for predicting cd and wtp is proposed which produces five distinct transaction encoding rules any one of which can in principle apply to a buyer or a seller according to this framework cd wtp gaps occur when buyers and sellers encode the prospective transaction differently and gaps can occur in multiple ways and vary in size depending on encoding the transaction encoding framework was tested in two experiments in experiment 1 model fits to subjects cd and wtp for lottery tickets were consistent with the hypothesis that buyers and sellers encode transaction problems differently moreover the quite large observed cd wtp gaps were explained fully by encoding when differences between buyers and sellers encoding processes were taken into account their estimated utility value and probability weighting functions did not differ the present framework and results show that the widely cited endowment effect is but one of several ways in which loss aversion can give rise to cd wtp gaps consistent with this broadened perspective experiment 2 demonstrated cd wtp gaps in the absence of an endowment effect and in the absence of rational economic causes the transaction encoding framework 1 provides a structured approach for predicting and testing the effects of a variety of task factors on pricing behavior and transaction outcomes and 2 reveals the useful property that in many cases the ratio cd wtp can be interpreted as a direct measure of the degree of loss aversion

an open economy macro finance model of international interdependence the oecd us and the uk abstract this paper develops a multi country macro finance model to study international economic and financial linkages this approach models the economy and financial markets jointly using both types of data to throw light on such issues the world economy is modelled using data for the us and aggregate oecd economies as well as the us treasury bond market using latent variables to represent a common inflation trend and a us real interest rate factor we find strong evidence of global effects on both the us and uk calling into question the standard closed economy macro finance specification these economic linkages also help to explain the co movement of yields in the us and uk treasury bond markets

stochastic volatility in a macro finance model of the u s term structure of interest rates 1961 2004 this paper generalizes the standard homoscedastic macro finance model by allowing for stochastic volatility using the square root specification of the mainstream finance literature empirically this specification dominates the standard model because it is consistent with the square root volatility found in macroeconomic time series thus it establishes an important connection between the stochastic volatility of the mainstream finance model and macro economic volatility of the okun friedman type this research opens the way to a richer specification of both macro economic and term structure models incorporating the best features of both macro finance and mainstream finance models

consumer price and promotion expectations an experimental study the authors report results from a controlled experiment designed to investigate the impact of a brand s price promotion frequency and the depth of promotional price discounts on the price consumers

shifting endpoints in the term structure of interest rates abstract this paper links the term structure to perceptions of monetary policy long horizon forecasts of short rates required by no arbitrage term structure models are heavily influenced by the endpoints or limiting conditional forecasts of the short rate process common assumptions that the short rate is mean reverting or contains a unit root are shown to generate unrealistic yield predictions failures occur because these assumptions inadequately account for historical shifts in market perceptions of the policy target for inflation this paper links endpoint shifts to agent learning about shifts in long term policy goals shifting endpoints in short rate processes significantly improve yield predictions

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

flexible inflation targeting and financial stability is it enough to stabilize inflation and output abstract we investigate empirically whether a central bank can promote financial stability by stabilizing inflation and output and whether additional stabilization of asset prices and credit growth would enhance financial stability in particular we employ an econometric model of the norwegian economy to investigate the performance of simple interest rate rules that allow a response to asset prices and credit growth in addition to inflation and output we find that output stabilization tends to improve financial stability additional stabilization of house prices equity prices and or credit growth enhances stability in both inflation and output but has mixed effects on financial stability in general financial stability as measured by e g asset price volatility improves while financial stability measured by indicators that depend directly on interest rates deteriorates mainly because of higher interest rate volatility owing to a more active monetary policy

determinants of investor expectations and satisfaction a study with financial professionals abstract we investigate determinants of price expectations and satisfaction levels of financial professionals and students in experiments with 150 professionals and 576 students we systematically vary price paths according to the final return positive or negative and the way in which the final return is achieved upswing followed by downswing or vice versa professionals show the most optimistic price expectations and are most satisfied if assets fall in price first and then recover in addition professionals price expectations are highest after positive returns among students qualitatively similar patterns emerge but professionals price expectations are less prone to framing effects

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

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

do workers prefer increasing wage profiles we present survey data challenging the assumption implicit in analyses of labor supply that all else being equal workers prefer declining over increasing wage profiles we test several explanations for our results including that a there is something special about wages e g their association with productivity as opposed to other types of payments that induces the preference for increasing wages b utility depends not only on absolute levels of consumption but also on changes in consumption over time and c respondents who prefer increasing wage profiles are irrational and would change their behavior if the rationale for preferring declining wages were explained

when two plus two is not equal to four errors in processing multiple percentage changes when evaluating the net impact of a series of percentage changes we predict that consumers may employ a whole number computational strategy that yields a systematic error in their calculation we report on three studies conducted to examine this issue in the first study we identify the computational error and demonstrate its consequences in a second study we identify several theoretically driven boundary conditions for the observed phenomenon finally we demonstrate in a real world retail setting that consistent with our premise sequential percentage discounts generate more purchasers sales revenue and profit than the economically equivalent single percentage discount

payment depreciation the behavioral effects of temporally separating payments from consumption research suggests that individuals mentally track the costs and benefits of a consumer transaction for the purpose of reconciling those costs and benefits on completion of the transaction prelec and loewenstein 1998 thaler 1980 1985 in transactions where costs precede benefits this can lead to a systematic and economically irrational attention to sunk costs arkes and blumer 1985 thaler 1980 in this article we consider economic exchanges in which costs significantly precede benefits as with many prepayment types of consumer transactions we predict a consumer will gradually adapt to a historic cost with the passage of time thereby decreasing its sunk cost impact on the consumption of a pending benefit we label this process of gradual adaptation to costs payment depreciation in a series of experiments we find evidence of payment depreciation across a range of consumer transactions and offer insight into the behavioral implications of temporally separating costs from benefits

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

formation and adaptation of reference prices in grain marketing an experimental study this study aimed to explore how producers reference prices are formed and adapt over time and how they affect marketing decisions results indicate that producers focus on three major variables to form their reference prices the current market price the highest price to date and their expectation about price behavior further they update their reference prices during the marketing season mainly in response to changes in current market prices their own expectations about price behavior and the general price trend finally our findings suggest that producers marketing decisions are based on the spread between current market price and reference price the general market trend and price expectation

identification of dsge models the effect of higher order approximation and pruning abstract this paper shows how to check rank criteria for a local identification of nonlinear dsge models given higher order approximations and pruning this approach imposes additional restrictions on higher order moments and polyspectra which can be used to identify parameters that are unidentified in a first order approximation the identification procedures are demonstrated by means of the kim 2003 and the an and schorfheide 2007 models both models are identifiable with a second order approximation furthermore analytical derivatives of unconditional moments cumulants and corresponding polyspectra up to fourth order are derived for the pruned state space

extracting inflation expectations and inflation risk premia from the term structure a joint model of the uk nominal and real yield curves abstract this paper analyses the uk interest rate term structure over the period since october 1992 when the united kingdom adopted an explicit inflation target using an affine term structure model estimated using both government bond yields and survey data the model imposes no arbitrage restrictions across nominal and real yields which enables interest rates to be decomposed into expected real policy rates expected inflation real term premia and inflation risk premia the model is used to shed light on major developments over the period including the impact of bank of england independence and the low real bond yield conundrum