parametric recoverability of preferences revealed preference theory is brought to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices we propose measures of the incompati

new perspectives on capital sticky prices and the taylor principle abstract our main result is that dynamic new keynesian dnk models with firm specific capital feature a substantial amount of endogenous price stickiness we use this insight to assess the desirability of alternative interest rate rules and make the case for combining active monetary policy with interest rate smoothing and or some responsiveness of the nominal interest rate to real economic activity the key mechanism behind our results is also useful from a positive point of view the feature of firm specific capital increases the empirical appealingness of dnk models as documented by a growing body of literature

investment and interest rate policy abstract the paper s theorems reverse two standard results of new keynesian economics simply by appending endogenous investment to a benchmark imperfect competition sticky price model our results are a a passive interest rate rule where the monetary authority responds to inflation by lowering the real interest rate implies local equilibrium uniqueness whereas an active rule does not generate a locally unique equilibrium b a temporary exogenous increase in the nominal interest rate causes a temporary increase in output and investment extensions of the benchmark model including generalized preferences and alternative interest rate rules are also examined journal of economic literature classification numbers e12 e31 e52

a new year a new you within individual variation in food purchases abstract we document that within individual variation in food choices is substantial and has potentially important consequences for nutrition and hence well being we develop an approach that allows us to study the determinants of this within individual variation within an economic framework and allow for across individual preference heterogeneity we show that around one fifth of within individual fluctuations in diet quality is explained by standard economic variables prices and budgets along with advertising and weather the residual fluctuations are important and are larger for lower income and younger people and individuals who state they are impulsive we propose a two selves model of food purchase behavior to structurally interpret these empirical patterns we use nonparametric revealed preference techniques to show that this model rationalizes our food purchase data

garp for kids on the development of rational choice behavior in this paper we examine the extent to which consumption choices by 7 and 11 year old children and college undergraduates satisfy the axioms of revealed preference we find that choices by even the 7 year olds are considerably more likely to obey revealed preference axioms than would be true if they were choosing randomly 11 year olds do better still while college students do no better than 11 year old children we also find that mathematical ability is not correlated with choosing rationally we argue that this evidence suggests that the ability to choose rationally is not innate but that it does develop quickly

choice by sequential procedures article history we propose a rule of decision making the sequential procedure guided by routes and show that three influential boundedly rational choice models can be equivalently understood as special cases of this rule in addition the sequential procedure guided by routes is instrumental in showing that the three models are intimately related we show that choice with a status quo bias is a refinement of rationalizability by game trees which in turn is also a refinement of sequential rationalizability thus we provide a sharp taxonomy of these choice models and show that they all can be understood as choice by sequential procedures

do new york dairy farmers maximize profits or minimize costs the weak axiom of profit maximization and weak axiom of cost minimization were used to determine whether each of forty nine new york dairy farms displayed behavior consistent with profit maximization or cost minimization these were tested for each farm across eleven years of data correcting for technological change using previously estimated nonparametric malmquist productivity indices the results indicate that some were moderately successful in maximizing profits but more came closer to minimizing costs over half of the observations were within 10 of minimum costs

the money pump as a measure of revealed preference violations we introduce a measure of the severity of violations of the revealed preference axioms the money pump index mpi the mpi is the amount of money one can extract from a consumer who violates the axioms it is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error we present an application using a panel data set of food expenditures the data exhibit many violations of the axioms mostly the mpi for these violations is small the mpi indicates that the hypothesis of consumer rationality cannot be rejected

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

chaotic interest rate rules a growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of taylor type interest rate feedback rules that is rules whereby the nominal interest rate is set as an increasing function of inflation with a slope greater than one around an intended inflation target this paper shows that such rules can easily lead to chaotic dynamics the result is obtained for feedback rules that depend on contemporaneous or expected future inflation the existence of chaotic dynamics is established analytically and numerically in the context of calibrated economies the battery of fiscal policies that has recently been advocated for avoiding global indeterminacy induced by taylor type interest rate rules such as liquidity traps are shown to be unlikely to provide a remedy for the complex dynamics characterized in this paper

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

backward looking interest rate rules interest rate smoothing and macroeconomic instability the existing literature on the stabilizing properties of interest rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation such rules have been found to give rise to aggregate fluctuations due to self fulfilling expectations in response to this concern a growing literature has focused on the stabilizing properties of interest rate rules whereby the central bank responds to a measure of past inflation the consensus view that has emerged is that backward looking rules contribute to protecting the economy from embarking on expectations driven fluctuations a common characteristic of the existing studies that arrive at this conclusion is their focus on local analysis the contribution of this paper is to conduct a more global analysis we find that backward looking interest rate feedback rules do not guarantee uniqueness of equilibrium we present examples in which for plausible parameterizations attracting equilibrium cycles exist the paper also contributes to the quest for policy rules that guarantee macroeconomic stability globally our analysis indicates that policy rules whereby the interest rate is set as a function of the past interest rate and current inflation are likely to ensure global stability provided that the coecient on lagged interest rates is greater than unity

an experiment on the pure theory of consumer s behaviour by checking whether consumer demand satisfies the axioms of revealed preference one can test the empirical validity of the neoclassical theory of consumer behaviour however applying the axioms to actual consumer purchase data is difficult if not impossible since it poses serious problems of both a methodological and a practical nature after commenting on the few existing empirical studies in this field we summarise the results from an experimental approach to revealed preference theory data were obtained through a controlled experiment that involved real consumption of the goods chosen we find that most subjects violated the axioms

nonparametric test of the expected utility hypothesis a nonparametric test of the expected utility hypothesis is developed in this paper the expected utility hypothesis is shown to hold if there exists a feasible solution to a particular system of linear inequalities furthermore when a feasible solution exists boundaries on the coefficient of absolute risk aversion can be calculated explicitly the test is applied to data on land allocations modeled as choices over lottery sets results contrary to those obtained in many laboratory experiments show that in most cases the expected utility hypothesis cannot be rejected

the design of monetary and fiscal policy a global perspective abstract we study the emergence of multiple equilibria in models with capital and bonds under various monetary and fiscal policies we show that the presence of capital is indeed another independent source of local and global multiplicities even under active policies that yield local determinacy we also show how a very similar mechanism generates multiplicities in models with bonds and distortionary taxation we then explore the design of monetary policies that avoid multiple equilibria we show that interest rate policies that respond to the output gap while potentially a source of significant inefficiencies may be effective in preventing multiple equilibria and costly oscillatory equilibrium dynamics

returns to scale market power and the nature of price rigidity in new keynesian models with self fulfilling expectations increasing returns to scale and firms market power are two potential sources of sunspot expectations in neoclassical models we show that in new keynesian models returns to scale and market power can have fundamentally different implications for broad macroeconomic issues including self fulfilling expectations depending on the nature of price rigidity our findings suggest that the design of stabilization monetary policy can depend on precise knowledge about the economy s real and nominal features therefore a clear understanding of the specific economic environment and its relevance to monetary policymaking for ensuring macroeconomic stability can be an integrated part of monetary policy practice

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

measuring rationality with the minimum cost of revealed preference violations abstract we introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large balanced panel of household level consumption data this new measure the minimum cost index is the minimum cost of breaking all revealed preference cycles found in choices from budget sets unlike existing measures of rationality it responds to both the number and severity of revealed preference violations

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

monetary policy under a fiscal theory of sovereign default abstract this paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt we apply a cash in advance model where the government does not have access to non distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate solvency is then not guaranteed and sovereign default can affect the return on public debt if the central bank sets the interest rate in a conventional way the equilibrium allocation cannot be determined if instead money supply is controlled the equilibrium allocation can uniquely be determined

testing motives for charitable giving a revealed preference methodology with experimental evidence abstract a large economics literature seeks to understand the reasons why individuals make charitable contributions fundamental features of most models of charitable giving are the inclusion of externalities induced by other agents and the lancasterian characteristics approach to specifying utility functions this paper develops a general revealed preference methodology for testing a variety of preference structures that allow for both externalities and characteristics the tests are simple linear programs that are transparent computationally efficient and straightforward to implement we show how the technique applies to standard models of privately provided public goods and novel models that account for other regarding preferences based on relative consumption and donations among individuals we also conduct an original experiment that enables testing and comparing many models on a single data set our experiment design allows us to focus on intrinsic motivations which are often hard to disentangle from other extrinsic or image effects in field data the results provide the first revealed preference evidence on the importance of social comparisons when individuals make charitable contributions models that include preferences for either relative consumption or donations yield significantly greater explanatory power than the standard model of impure altruism

i ll never forget my first cigarette a revealed preference analysis of the habits as durables model we provide a revealed preference analysis of the habits as durables model this approach avoids the need to impose a functional form on the underlying utility function we show that our characterization is testable by means of linear programming methods and we demonstrate its practical usefulness by means of an application to cigarette consumption using a spanish household consumption data set we find that the habits as durables model has better empirical fit in terms of predictive success compared to the short memory habits and life cycle models

how demanding is the revealed preference approach to demand a well known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory or a warning that these conditions are so undemanding that almost anything goes this paper allows researchers to make this distinction our approach uses an axiomatic characterization of a measure of predictive success due to selten 1991 we illustrate the idea using a panel dataset the results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory

fiscal risk in a monetary union diverse fiscal policies which are subject to fiscal limits and stochastic shocks can threaten price stability in a monetary union the fiscal limits arise due to distortionary taxation and political will stochastic shocks are random and could push a fiscally sound policy towards its limit in equilibrium agents refuse to lend along a path which violates the fiscal limits creating a crisis the crisis requires a policy response to restore lending we focus on two responses default and policy switching both of which must be designed to restore fiscal solvency under the assumption that agents know the policy response we show that default poses no risk to price stability but that policy switching does we simulate the model to quantify fiscal risk in the european monetary union with fiscal variables at end of 2009 values we find that the probability of a fiscal crisis in greece and italy countries whose debt relative to gdp had strayed far above the 60 percent limit is positive but small however a small increase in debt can lead to a large increase in risk

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

how basic are behavioral biases evidence from capuchin monkey trading behavior behavioral economics has demonstrated systematic decision making biases in both lab and field data do these biases extend across contexts cultures or even species we investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles we show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles including reference dependence and loss aversion given our capuchins inexperience with money and trade these results suggest that loss aversion extends beyond humans and may be innate rather than learned

chaos sunspots and automatic stabilizers abstract we consider a real business cycle model with an externality in production depending on parameter values the model has sunspot equilibria cyclical and chaotic equilibria and equilibria with deterministic or stochastic regime switching we study the implications of this model environment for automatic stabilizer tax systems stabilization is desirable because the efficient allocations are characterized by constant employment and output growth we identify an automatic stabilizer income tax subsidy schedule with two properties i it specifies the tax rate to be an increasing function of aggregate employment and ii earnings are subsidized when aggregate employment is at its efficient level the first feature eliminates inefficient fluctuating equilibria while the second induces agents to internalize the externality

equilibria under monetary and fiscal policy interactions in a portfolio choice model abstract this paper studies how the presence of income taxes changes the properties of general equilibrium models with monetary and fiscal policy interactions it is found that from a global perspective the only policy regime that leads to a unique equilibrium is one where fiscal policy is active i e the fiscal theory of the price level regime in sims 1994 from a local perspective there are three regimes in particular and relative to the previous literature following leeper 1991 a new third regime exists where a passive fiscal rule combined with a passive monetary rule can still deliver determinacy where the same area of the parameter space would lead to multiple solutions if taxes were lump sum to obtain the size of the new regime the paper characterizes analytically the extent to which tax cuts are self financing and how the distortionary tax laffer curve looks near the steady state in the new regime monetary and fiscal backstops are brought into play so as to rule out off equilibrium dynamics and inflation can temporarily increase in order to increase seigniorage revenues with this flexibility the monetary policy is consistent with the real debt remaining bounded and the arithmetic that follows is monetarist and unpleasant in the sense of sargent and wallace 1981

distortionary taxation debt and the price level this paper considers the nominal and real determinacy of equilibria under an exogenously specifi ed path of interest rates in an economy in which taxation is either lump sum or distortionary under lump sum taxation we confirm the well known finding that equilibria display nominal in determinacy if the primary surplus is exogenous endogenous under distortionary taxation this classification is no longer relevant nominal determinacy is always ensured since distortionary taxes establish a link between the allocation and the sequences of taxes and debt and hence the price level regardless of whether the primary surplus is exogenous or endogenous distortionary taxation however increases the scope for real indeterminacy as a general feature the real in determinacy of equilibria depends on the interaction of fiscal and monetary policies i e on the sequences of taxes debt and interest rates if for example fiscal policy runs a balanced budget the central bank should set the nominal interest rate in a way consistent with long run deflation in order to ensure real determinacy this finding is different from a balanced budget policy under lump sum taxes where no such qualification with respect to the interest rate needs to be made

investment and the taylor rule in a dynamic keynesian model abstract we study monetary policy in a reduced form dynamic model with bounded rationality and an empirically motivated investment function investment has important dynamic effects in our model in particular the cost of capital effect on investment is more important for monetary transmission than the more widely studied intertemporal substitution parameter in consumption furthermore a strong taylor rule response to unemployment in this model is more effective in stabilizing demand induced fluctuations than a strong response to inflation indeed an excessively aggressive response to inflation destabilizes the simulated output and inflation fluctuations

central bank independence and the monetary instrument problem we study the monetary instrument problem in a dynamic noncooperative game between separate discretionary fiscal and monetary policy makers we show that monetary instruments are equivalent only if the policy makers objectives are perfectly aligned otherwise an instrument problem exists when the central bank is benevolent while the fiscal authority is short sighted relative to the private sector excessive public spending and debt emerge under a money growth policy but not under an interest rate policy despite this property the interest rate is not necessarily the optimal instrument

nonparametric engel curves and revealed preference this paper applies revealed preference theory to the nonparametric statistical analysis of consumer demand knowledge of expansion paths is shown to improve the power of nonparametric tests of revealed preference the tightest bounds on indifference surfaces and welfare measures are derived using an algorithm for which revealed preference conditions are shown to guarantee convergence nonparametric engel curves are used to estimate expansion paths and provide a stochastic structure within which to examine the consistency of household level data and revealed preference theory an application is made to a long time series of repeated cross sections from the family expenditure survey for britain the consistency of these data with revealed preference theory is examined for periods of consistency with revealed preference tight bounds are placed on true cost of living indices

do real balance effects invalidate the taylor principle in closed and open economies this paper examines the determinacy implications of forecast based monetary policy rules that set the interest rate in response to expected future inflation in a neo wicksellian model that incorporates real balance effects we show that the presence of such effects in closed economies restricts the ability of the taylor principle to prevent indeterminacy of the rational expectations equilibrium the problem is exacerbated in open economies particularly if the policy rule reacts to consumer price rather than domestic price inflation however determinacy can be restored in both closed and open economies with the addition of monetary policy inertia

a nonparametric test of the life cycle rational expectations hypothesis in a world of perfect certainty and perfect capital markets agents allocate expenditure in such a way that the marginal utility of discounted expenditure is the same in each period in this paper we present a test of whether any particular series of discounted prices and quantities can be exactly reconciled with a utility function and marginal utility of discounted expenditure that do not change from period to period we find that uk us and canadian postwar aggregate data all reject our condition although it is not rejected for long sub periods we show that our results for the uk suggest particular modifications to the strong form of the rational expectations hypothesis that our condition tests in fact these data are exactly consistent with a number of alternative hypotheses from this we argue that time series data are ill suited to parametric testing of any of the competing hypotheses on the inter temporal allocation of expenditure the pure theory of the inter temporal allocation of goods and time with perfect capital markets and perfect foresight is identical to the static demand case there is a single lifetime budget constraint and the allocation of expenditure to each period is made so that the marginal utility of discounted expenditure is the same in each period bewley 1977 and hall 1978 have identified the life cycle rational expectations hypothesis under uncertainty reh with the proposition that expected utility maximising consumers will allocate expenditures and time in such a way as to try and keep the marginal utility of discounted money constant given a set of time series on prices purchases wages and labor supply we can ask whether these realised plans are consistent with the life cycle hypothesis in this paper we propose a test that requires no ad hoc specification of functional forms or error processes but rather gives an answer yes or no based on finite mathematical techniques the specific hypothesis we test is a strong form of the reh viz that the marginal utility of discounted expenditure is constant over the period of observation for long time series this seems to be an absurdly strong hypothesis since it is effectively equivalent to assuming perfect capital markets and perfect foresight with regard to all important variables if however we can accept this strong hypothesis for a particular data set then any test of the weaker forms of the life cycle rational expectations hypothesis on this data set must be interpreted

a household based nonparametric test of demand theory a nonparametric test of demand theory determining the consistency of price expenditure data with the generalized axiom of revealed preference is applied to household macroeconomic data for the first time the fraction of consumption bundle comparisons that violate the generalized axiom of revealed preference is proposed as a summary statistic to indicate the consistency of a data set with revealed preference axioms this violation rate is calculated among consumption pairs with similar expenditures to increase the power of the test the results suggest that similar households consumption choices and budget constraints are generally consistent with the joint hypotheses of optimizing behavior and common preferences copyright 1995 by mit press

the collective model of household consumption a nonparametric characterization we provide a nonparametric characterization of a general collective model for household consumption which includes externalities and public consumption next we establish testable necessary and sufficient conditions for data consistency with collective rationality that only include observed price and quantity information these conditions have a similar structure as the generalized axiom of revealed preference for the unitary model which is convenient from a testing point of view in addition we derive the minimum number of goods and observations that enable the rejection of collectively rational household behavior

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

income and ir rational food choice abstract increasing affluence is associated with increases in the variety and diversity of consumers diets while this relationship likely reflects a heightened ability of consumers to satisfy unique preferences it is also possible that higher income and food expenditure are associated with more preference instability as the relative cost of a mistake falls with income this paper shows that the ability to detect preference instability increases with income in an empirical application involving almost 540 000 food choices by almost 60 000 people 47 committed at least one preference reversal the odds a preference reversal are 1 8 2 5 times higher for individuals who spend at least 160 week on food at home away from home compared to individuals who spend less than 20 week individuals who commit preference reversals are less likely to rate price and are more likely to rate novelty as important food values

chaotic dynamics in a cash in advance economy abstract this paper introduces sufficient conditions for the existence of deterministic cycles and chaos in cash in advance models building on the earlier work of woodford 1994 chaotic equilibria are shown to be particularly likely in the cash in advance model because of a unique characteristic of such models a discontinuous derivative in the difference equation map at the satiation level of real balances the existence of a kink means that chaotic equilibria may exist without implausibly large curvatures in the utility function since a chaotic time series that makes use of the kink would sometimes exhibit zero nominal interest rates the paper also gives an example of chaos in which nominal interest rates remain strictly positive

revealed preference rational inattention and costly information acquisition we develop a revealed preference test for optimal acquisition of costly information the test encompasses models of rational inattention sequential signal processing and search we provide limits on the extent to which attention costs can be recovered from choice data we experimentally elicit state dependent stochastic choice data of the form the tests require in simple cases tests con rm that subjects adjust their attention in response to incentives as the theory dictates

revealed preference analysis of characteristics models characteristics models have been found to be useful in many areas of economics however their empirical implementation tends to rely heavily on functional form assumptions in this paper we develop a revealed preference approach to characteristics models we derive the necessary and su cient empirical conditions under which data on the market behaviour of heterogeneous price taking consumers are nonparametrically consistent with the consumer characteristics model where these conditions hold we show how information may be recovered on individual consumer s marginal valuations of product attributes in some cases marginal valuations are point identi ed and in other cases we can only recover bounds where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data we implement these ideas using consumer panel data on the danish milk market

homothetic efficiency theory and applications we provide a nonparametric revealed preference approach to demand analysis based on homothetic efficiency homotheticity is widely assumed often implicitly because it is a convenient and often useful restriction however this assumption is rarely tested and data rarely satisfy testable conditions to overcome this we provide a way to estimate homothetic efficiency of consumption choices the method provides considerably higher discriminatory power against random behavior than the commonly used afriat efficiency we use experimental and household survey data to illustrate how our approach is useful for different empirical applications and can provide greater predictive success

predictive power in behavioral welfare economics when choices appear inconsistent duet obehavioral biases there is a theoretical debate about whether or not it is necessary to impose the structure of a model in order to provide meaning ful welfare guidance based on such choices to address this question empirically we evaluate the predictive power of the model free and non parametric approach to welfare analysis proposed by bernheim and rangel 2009 in two standard choice settings we show that for most hypothetical demands this approach does not offer clear welfare guidance however we find that for most observed demands this approach can be used to make tight predictions even though these demand functions exhibit inconsistencies for the experimental choices of manzini and mariotti 2010 we show that the welfare guidance provided by these predictions is consistent with delaya version eventhough the guidance provided by revealed preferences is more ambiguous

fiscal adjustment and inflation targeting in less developed countries inflation targeting may not be viable in less developed countries ldcs where policymakers rely too heavily on cuts in infrastructure investment to balance the budget using a mix of analytical and numerical methods we demonstrate that the equilibrium ceases to be saddle point stable under active policy when infrastructure cuts account for 30 70 of fiscal adjustment and the return on infrastructure exceeds a comparatively low threshold value the result is robust to the form of the taylor rule the degree of real wage flexibility the initial level of debt the choice of a balanced budget or debt targeting rule and the q elasticity of private investment spending

stock market reactions to announcements of the board of directors evidence from italy the board of directors plays an important role in corporate governance it is an internal mechanism that controls and monitors the actions of managers and aligns the utility functions between corporate owners and managers the board of directors performs multiple functions that concern for example the replacement of the managers financial policy the preparation of strategic plans and other actions that affect the performance of the company the board plays an important role since on the one hand it controls the actions of management and on the other it advises the management regarding the strategies to be adopted in this study 100 announcements regarding the appointment of the board of directors of 100 italian listed companies during the period 2012 2014 are investigated the results show a positive reaction within 20 days around the announcement date in four of the six time windows cumulative abnormal returns cars are positive and statistically significant the positive reaction of the market w

exchange rate policy under sovereign default risk abstract we examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency under interest rate policy and floating exchange rates the equilibrium is indetermined under a fixed exchange rate the equilibrium is uniquely determined and independent of sovereign default

the fiscal myth of the price level i examine the fiscal theory of the price level according to which non ricardian policy and predetermined nominal government debt fiscally determine prices i argue that the non ricardian policy

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

investment and interest rate policy a discrete time analysis this paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy it conducts the analysis in a calvo style sticky price model a key innovation is to add investment spending to the analysis in this environment local real indeterminacy is much more likely in particular all forward looking interest rate rules are subject to real indeterminacy

consume now or later time inconsistency collective choice and revealed preference this paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit an empirical application to household level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level for our particular short panel data set simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98 4 of the sample to be rationalised by a model that assumes exponential discounting at the individual level we also find that couples characterized by lower divergence in spousal discount rates are older more likely to have children and wealthier which we take as indications of experiencing higher match quality

firm specific capital nominal rigidities and the taylor principle in the presence of firm specific capital the taylor principle can generate multiple equilibria sveen and weinke new perspectives on capital sticky prices and the taylor principle j econ theory 123 2005 21 39 obtain that result in the context of a calvo style sticky price model one potential criticism is that the price stickiness which is needed for our theoretical result to be relevant from a practical point of view is somewhat to the high part of available empirical estimates in the present paper we show that if nominal wages are not fully flexible which is an uncontroversial empirical fact then the taylor principle fails already for some minor degree of price stickiness we use our model to explain the consequences of both nominal rigidities for the desirability of alternative interest rate rules