stationary equilibrium transition rules for an overlapping generations model with uncertainty abstract an overlapping generations model incorporating random production shocks is studied households have finite life spans futures markets are incomplete agents have full information in one case and receive only a limited signal in another in both instances the existence of a time autonomous transition rule is proved such that if all agents forecast using it the economy s actual growth will bear the predictions out the rule corresponds to a steady state for a non stochastic model with limited information it is seen to depend on all past signals several approximation theorems which may facilitate future applications are presented

what has driven oil prices since 2000 a structural change perspective abstract this paper characterizes weekly international oil price fundamentals since 2000 by analyzing the transformation of the market mechanism based on structural change perspective using endogenously determined break tests that allow for changes in both level and trend we divide the price fluctuations in the international oil market after 2000 into three stages relatively calm market period january 07 2000 to march 12 2004 the bubble accumulation period march 19 2004 to june 06 2008 and the global economic crisis period june 13 2008 to september 11 2009 the results show the existence of structural breaks refutes the utility of investigation of the full sample period as a whole and in different structural periods the main drivers of oil price changes and their way of influence and degree are significantly distinct then we demonstrate the evolving process of market mechanism since 2000 through establishing comparative models we also quantitatively measure the roles of speculation and episodic events in oil price fluctuations

on the impact of shock persistence on the dynamics of a recursive economy abstract the present note relies exclusively on numerical computation of a parametric version of a stochastic version of the one sector neoclassical growth model to derive the qualitative properties of the optimal consumption investment policy functions and of the resultant steady state and to study the manner in which these properties are affected by an increase in the degree of shock persistence in particular we measure the effects of differing degrees of shock persistence on the means and variances of the resulting stationary distributions on output consumption and capital stock furthermore we explore the effects of increasing degrees of shock persistence on the dynamic time path of the economy

aggregate investment in a business cycle model with adjustment costs abstract this paper explains the observed cyclical variability of aggregate investment and the counter movements with respect to its relative price in the us data using a stochastic growth model with adjustment costs the exogenous disturbances of the model represent preference shocks productivity innovations and changes on the relative price between consumption and investment goods simulations of the model imply that the volatility of those relative price innovations need to be three to four times larger than the standard solow residual innovations in order to match the model with the data

economic determinants of oil futures volatility a term structure perspective to assess the economic determinants of oil futures volatility we firstly develop and estimate a multi factor oil futures pricing model with stochastic volatility that is able to disentangle long term medium term and short term variations in commodity markets volatility the volatility estimates reveal that in line with theory the volatility factors are unspanned persistent and carry negative market price of risk while crude oil markets are becoming more integrated with financial markets after 2004 short term volatility is driven by industrial production term and credit spreads the s p 500 and the us dollar index along with the traditional drivers including hedging pressure and vix medium term volatility is consistently related to open interest and credit spreads while after 2004 oil sector variables such as inventory and consumption also impact this part of the term structure interest rates mostly matter for long term futures price volatility

choose to lose health plan choices from a menu with dominated option we examine the health plan choices that 23 894 employees at a u s firm made from a large menu of options that differed only in financial cost sharing and premium these decisions provide a clear test of the predictions of the standard economic model of insurance choice in the absence of choice frictions because plans were priced so that nearly every plan with a lower deductible was financially dominated by an otherwise identical plan with a high deductible we document that the majority of employees chose dominated plans which resulted in excess spending equivalent to 24 of chosen plan premiums low income employees were significantly more likely to choose dominated plans and most employees did not switch into more financially efficient plans in the subsequent year we show that the choice of dominated plans cannot be rationalized by standard risk preference or any expectations about health risk testing alternative explanations with a series of hypothetical choice experiments we find that the popularity of dominated plans was not primarily driven by the size and complexity of the plan menu nor informed preferences for avoiding high deductibles but by employees lack of understanding of health insurance our findings challenge the standard practice of inferring risk preferences from insurance choices and raise doubts about the welfare benefits of health reforms that expand consumer choice

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

what drives the commodity price beta of oil industry stocks we test theoretical drivers of the oil price beta of oil industry stocks the strongest statistical and economic support comes for market conditions type variables as the prime drivers namely oil price bond rate volatility of oil returns and cost of carry though statistically significant exogenous firm characteristics and oil firms financing decisions have less compelling economic significance there is weaker support for the prediction that financial risk management reduces the exposure of oil stocks to crude oil price variation finally extended modelling shows that mean reversion in oil prices also helps explain cross sectional variation in the oil beta

index investment and financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become incr

why do defaults affect behavior experimental evidence from afghanistan we report on an experiment examining why default options impact behavior by randomly assigning employees to different varieties of a salary linked savings account we find that default enrollment increases participation by 40 percentage points an effect equivalent to providing a 50 matching incentive we then use a series of experimental interventions to differentiate between explanations for the default effect which we conclude is driven largely by present biased preferences and the cognitive cost of thinking through different savings scenarios default assignment also changes employees attitudes toward saving and makes them more likely to actively decide to save after the study concludes

stochastic growth with correlated production shocks this paper extends the stochastic growth model of brock and mirman j econ theory 4 1972 497 513 to allow the production shocks to be correlated over time the resultant optimal savings and consumption policies depend not only upon the current level of output but also upon the most recent realization of the random shock the properties of these policy functions are studied and it is shown that the markov process on output capital stock and consumption resulting from the application of these policies converges to a stationary distribution

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

oil prices the role of refinery utilization futures markets and non linearities we test the hypothesis that real oil prices are determined in part by refinery capacity non linearities in supply conditions and or expectations and that observed changes in these variables can account for the rise in prices between 2004 and 2006 results indicate that the refining sector plays an important role in the recent price increase but not in the way described by many analysts the relationship is negative such that higher refinery utilization rates reduce crude oil prices this effect is associated with shifts in the production of heavy and light grades of crude oil and price spreads between them non linear relationships between opec capacity and oil prices as well as conditions on the futures markets also account for changes in real oil prices together these factors allow the model to generate a one step ahead out of sample forecast that performs as well as forecasts implied by far month contracts on the new york mercantile exchange and is able to account for much of the 27 rise in crude oil prices between 2004 and 2006

index investment and the financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become increasingly correlated with oil prices this trend has been significantly more pronounced for commodities in two popular commodity indices this finding reflects the financialization of the commodity markets and helps explain the large increase in the price volatility of non energy commodities around 2008

on some computational aspects of equilibrium business cycle theory abstract this paper evaluates the accuracy of quadratic approximate methods in the context of a simple real business cycle model the level of accuracy is found to be very high on the face of the results reported here we are confident that the different computation methods proposed to date in this literature can be employed interchangeably

a note on the effects of capital income taxation on the dynamics of a competitive economy abstract in this paper we investigate the effect of changing capital income tax rates on the time paths of a competitive economy in an uncertain environment

investment stability and taxation in a long run macroeconomic model abstract this paper investigates for a one sector model in which the consumer investor s preferences are randomly changing the relationship between an economy s size and variability it is observed that means and variances of the stationary probability distributions on capital stock and output move together for given parameter changes unless some specific form of government intervention is introduced

nobel lecture the transformation of macroeconomic policy and research what i am going to describe for you is a revolution in macroeconomics a transformation in methodology that has reshaped how we conduct our science prior to the transformation macroeconomics was largely separate from the rest of economics indeed some considered the study of macroeconomics fundamentally different and thought there was no hope of integrating macroeconomics with the rest of economics that is with neoclassical economics others held the view that neoclassical foundations for the empirically determined macro relations would in time be developed neither view proved correct finn kydland and i have been lucky to be a part of this revolution and my address will focus heavily on our role in advancing this transformation now all stories about transformation have three essential parts the time prior to the key change the transformative era and the new period that has been affected by the change and that is the story i am going to tell how macroeconomic policy and research changed as a result of the transformation of macroeconomics from constructing a system of equations of the national accounts to an investigation of dynamic stochastic model economies

stochastic optimal policies when the discount rate vanishes abstract dutta 1991 what do discounted optima converge to a theory of discount rate asymptotics in economic models journal of economic theory 55 64 94 showed that long run optimality of the limit of discounted optima when the discount rate vanishes is implied by a certain bound on the value function of the optimal program we introduce a new method to verify this bound using coupling techniques

peer effects in financial decision making abstract peer effects might play an important role in complex financial decisions because many consumers lack experience with them and the costs of thinking through such decisions can be very high we study peer effects in retirement savings life insurance purchase and two charitable giving programs in a military setting with plausibly exogenous assignment of individuals to social groups peers defined broadly as social groups which may include members of different ranks appear to play an important role in the charitable giving programs but not in the other outcomes we assess a number of potential reasons for the disparate findings and provide suggestive evidence that the observability of individuals choices is key

the role of trader positions in spot and futures prices for wti abstract we extend the analysis of causal relations between trader positions and oil prices and the process of price discovery by estimating a cointegrating vector autoregression cvar model that expands the cash and carry relation between spot and futures prices to quantify long and short run relations among oil prices trader positions interest rates and oil inventories results indicate that oil inventories and trader positions are needed to generate cointegration between spot and futures prices the presence of trader positions and oil inventories suggest that both play a role in price discovery furthermore the cointegrating relation for price loads into the equation for both oil prices and trader positions this suggests a bi directional simultaneous adjustment process between oil prices and trader positions this expands the unidirectional causal relation from oil prices to trader positions that is generated by previous studies additional results suggest that price discovery occurs in the market for heavily traded near month futures contracts but discovery for thin far month futures markets occurs in the spot market together these results suggest mechanisms by which speculation could affect oil prices but the results presented here are moot regarding their effects

on the superneutrality of money in a stochastic dynamic macroeconomic model abstract this paper explores the robustness of the superneutrality of money result to the introduction of uncertainty while qualitatively superneutrality fails to obtain in our model quantitatively the observed tobin effect is insignificant the equilibrium time paths of real variables are nearly unaffected by changes in the money growth rule we argue that our conclusions reinforce the theoretical case for superneutrality

comparison friction experimental evidence from medicare drug plans consumers need information to compare alternatives for markets to function efficiently recognizing this public policies often pair competition with easy access to comparative information the implicit assumption is that comparison friction the wedge between the availability of comparative information and consumers use of it is inconsequential because information is readily available and consumers will access this information and make effective choices we examine the extent of comparison friction in the market for medicare part d prescription drug plans in the united states in a randomized field experiment an intervention group received a letter with personalized cost information that information was readily available for free and widely advertised however this additional step providing the information rather than having consumers actively access it had an impact plan switching was 28 percent in the intervention group versus 17 percent in the comparison group and the intervention caused an average decline in predicted consumer cost of about 100 per year among letter recipients roughly 5 percent of the cost in the comparison group our results suggest that comparison friction can be large even when the cost of acquiring information is small and may be relevant for a wide range of public policies that incorporate consumer choice

intergenerational risk sharing abstract in this paper we examine government debt and tax transfer policies that can be improve the allocation of risk between generations markets cannot allocate risk efficiently between two generations whenever the two generations are not both alive prior to the occurence of a stochastic event this implies that government policies transferring risk between generations have the potential to create first order welfare improvements our model provides a non keynesian justification for the debt finance of wars and recessions as well as an added rationale for social security type tax transfer schemes which aid unlucky generations e g the depression generation at the expense of luckier generations

the steady states of a stochastic decentralized growth model the purpose of this paper is to prove the existence of a steady state for a simple decentralized growth model which is subject to random shocks the model has the following elements the population is composed of an endless sequence of overlapping cohorts of two period households each cohort is the same size and there is an aggregate production function and one output good because the labor supply is fixed the production function relates output in each period t to the total saving of all young families in period t 1 and to the current realization zt of a random variable z the random variable has an exogenous unchanging and known distribution futures markets are imperfect young families can save at time t only by investing in physical capital which will pay a return at time t 1 the return depends on the size of the time t 1 capital stock k and on zl r let y y k 1 zt be the vector of incomes of young families at time t then such families use a function g vf k to predict k note that g is nonstochastic the families adjust their saving to maximize their expected utility where the latter is computed using g and the distribution function for 5 we call resulting aggregate savings by young families y y g we use a fixed point argument to prove the existence of sets k and y and an expectation function g such that if all realizations of 5 fall within z i y k x z c k ii g y k and iii g y y y g all y e y the resulting g determines in a very simple context what grandmont 7 would call rational expectations and what radner 17 181 would call an equilibrium of plans and expectations we use this g to generate a transition function v for k we then show v has a finite invariant set k which includes all feasible states except one trivial one there are a finite number of ergodic sets el en c k for v and there is a unique stationary distribution function di associated with each ei each pair di ei constitutes a steady state corresponding to green and majumdar s 9 concept of an equilibrium distribution and to grandmont s 71 long run equilibrium once the evolution of the economy carries it into ei some

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

does the s p500 index lead the crude oil dynamics a complexity based approach abstract taking the complex property of nonlinear feedback connectivity into consideration the goal of this paper is to apprehend the interdependences between the financial and energy sectors our contribution is both theoretical and methodological we conduct a multivariate analysis employing nonlinear tools namely the partial transfer entropy and the asymmetric mackey glass causality test in particular we build a system comprising the petroleum complex crude oil gasoline and heating oil the s p500 index and the 1 month futures spot spread for crude oil by adopting a rolling window approach we observe a persistent lead lag relationship between the s p500 index and the market participants expectations for crude oil from 2004 to 2009 depending on the bubble period in the stock market it appears that the resulting coupling becomes subject to the deterioration of global economic activity induced by large common shocks

relationships between oil price shocks and stock market an empirical analysis from china this paper investigates the interactive relationships between oil price shocks and chinese stock market using multivariate vector auto regression oil price shocks do not show statistically significant impact on the real stock returns of most chinese stock market indices except for manufacturing index and some oil companies some important oil price shocks depress oil company stock prices increase in oil volatility may increase the speculations in mining index and petrochemicals index which raise their stock returns both the world oil price shocks and china oil price shocks can explain much more than interest rates for manufacturing index

how much to save decision costs and retirement plan participation abstract deciding how much to save for retirement can be complicated drawing on a field experiment conducted with the department of defense we study whether such complexity depresses participation in an employer sponsored retirement saving plan we find that simplifying one dimension of the enrollment decision by highlighting a potential rate at which non participants might contribute increases participation in the plan similar communications that did not include a highlighted rate yield smaller effects the results highlight how reducing complexity on the intensive margin of a decision how much to contribute can affect extensive margin behavior whether to contribute at all in a setting of policy interest

the optimal inflation path in a sidrauski type model with uncertainty abstract in this paper it is shown that in a sidrauski type model with uncertainty the chicago rule remains valid as a prescription for the average rate of inflation although there is a systematic difference between the perfect foresight and the uncertainty case quantitatively however the difference turns out to be very small the paper shows how to calculate the optimal monetary policy as a function of the state variables using the method of parameterized expectations in terms of expected utility the optimal policy is as good as the simple policy that reduces the money supply at the rate of time preference

a dynamic model of investment and endogenous growth models of endogenous growth assume that private investment in either physical or human capital yields positive externalities to production possibilities as a whole but what is the structure of such externalities we present a model of learning by watching which implies a nonlinear relationship between productivity growth and the investment rate this results in multiple steady state growth rates in a deterministic setting and in a rich dynamic structure that generates both growth and cycles in a stochastic model calibrated by reference to observable shocks to tax rates in the u k economies with identical structures can experience very different growth rates for long periods the model exhibits pathdependence and history matters

bequest division and income inequality comparative dynamics of markov branching processes the purpose of this paper is to investigate the relationship between income inequality and bequest division rules an old but untouched topic addressed by sir josiah stamp nearly seventy years ago we show that the bequest income transition rule for each child should be linearly combined to form an inter generational income transition rule which dominates the dynamics of the underlying stochastic processes the various bequest division rules correspond to different linear combinations of parent child bequest transition and hence distinct intergenerational mobility matrix under different assumptions about parents information background we derive conditions needed to establish the causal relationship between more equal bequest division and better income distribution in the sense of second degree stochastic dominance

price of oil and world inflation and recession new evidence shows that the commonly held assumption that the 1973 74 oil price increase directly affected us and world inflation and subsequent recession is consistent with the empirical data an extended lucas varro real income equation applied to the us united kingdom canada france germany italy japan and the netherlands gives mixed results partly because of price control and decontrol programs simulation experiments on the price control variable using us data finds strong effects further studies can be made when consistent international data is available for the 1979 80 period 18 references 4 figures 3 tables dck

de financialization of commodities evidence from stock crude oil and natural gas markets abstract in order to investigate whether the crude oil and natural gas market volatility is influenced by the volatility in the stock market or whether these different variables move all together we introduce the volatility threshold dynamic conditional correlations vt dcc approach to investigate the spillover effect of stock market volatility index vix vstoxx on crude oil and natural gas markets during 1999 2015 and make the correlation dynamics dependent on conditional variance values through a threshold grid search algorithm by detecting one endogenous break point in the raw series we identify two clusters one in 2008 and another in 2014 due to the financial crisis and the structural low oil prices linked to changing fundamentals respectively also the u s henry hub gas seems to be associated with the stock market volatility indexes contrary to the european nbp gas which is linked to the brent besides regarding the volatility behaviors of our series the four energy variables violate their thresholds at similar moments and the stock market vix and vstoxx exhibit logically similarities co movements are detectable as well between the vix and crude oil series when investigating the volatility extracted from the garch model in addition the block dcc estimates provide ample evidence of similarities in the correlation dynamics between the crude oil and stock volatility series it should be noted that the modeling framework proposed in this paper represents a useful tool for the study of cross market contagion

a neoclassical model of unemployment and the business cycle this paper investigates a general equilibrium model of unemployment and the business cycle in which specialization of labor plays a key role a rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those who are without jobs workers are unemployed either because they are in the process of relocating for a better job or because they are waiting for conditions in the depressed sector to improve moreover seemingly small disruptions in the supplies of primary commodities such as energy could be the source of fluctuations in aggregate employment and can exert surprisingly large effects on real output

oil price shocks and stock markets in the u s and 13 european countries abstract oil price shocks have a statistically significant impact on real stock returns contemporaneously and or within the following month in the u s and 13 european countries over 1986 1 2005 12 norway as an oil exporter shows a statistically significantly positive response of real stock returns to an oil price increase the median result from variance decomposition analysis is that oil price shocks account for a statistically significant 6 of the volatility in real stock returns for many european countries but not for the u s increased volatility of oil prices significantly depresses real stock returns the contribution of oil price shocks to variability in real stock returns in the u s and most other countries is greater than that of interest rate an increase in real oil price is associated with a significant increase in the short term interest rate in the u s and eight out of 13 european countries within one or two months counter to findings for the u s and for norway there is little evidence of asymmetric effects on real stock returns of positive and negative oil price shocks for oil importing european countries

small cues change savings choices we present evidence from randomized field experiments that 401 k savings choices are significantly affected by one to two sentence anchoring goal setting or savings threshold cues embedded in emails sent to employees about their 401 k plan even though these cues contain little to no marginal information cues that make high savings rates salient increased 401 k contribution rates by up to 2 9 of income in a pay period and cues that make low savings rates salient decreased 401 k contribution rates by up to 1 4 of income in a pay period cue effects persist between two months and a year after the email

tight oil real wti prices and u s stock returns abstract following the adoption of new techniques of shale and fracking by u s oil companies a structural vector autoregression model svar complements studies on why brent and wti started to diverge around early 2011 using monthly data from 2000 to 2018 we decompose oil supply into world oil excluding u s u s conventional non tight oil and u s tight oil we examine the variance decomposition of stock returns for the aggregate market s p 500 the s p energy sector and chevron and exxon mobil oil companies and we further identify differences between two subsamples from 2000 to 2010 and 2011 to 2018 respectively we find that supply considerations especially due to tight oil become more important in the subsample after 2011 not only for individual oil companies but also for the aggregate market and energy sector supply shocks due to tight oil explain in our benchmark model between 29 s p 500 and 31 s p energy of the variance in stock returns after 24 months and between 28 and 29 for oil companies none of these are statistically significant in the pre 2011 subsample among impulse responses tight oil production responds positively to disruptions in world oil and u s stock returns respond positively to oil price shocks and respond negatively to tight oil shocks which is a further finding while being consistent with the literature copula modeling uncovers stronger tail dependences in the second subsample for the interactions during downturns and upturns among global demand crude oil prices and stock markets

crude oil and stock markets stability instability and bubbles abstract we analyze the long run relationship between the world price of crude oil and international stock markets over 1971 1 2008 3 using a cointegrated vector error correction model with additional regressors allowing for endogenously identified breaks in the cointegrating and error correction matrices we find evidence for breaks after 1980 5 1988 1 and 1999 9 there is a clear long run relationship between these series for six oecd countries for 1971 1 1980 5 and 1988 2 1999 9 suggesting that stock market indices respond negatively to increases in the oil price in the long run during 1980 6 1988 1 we find relationships that are not statistically significantly different from either zero or from the relationships of the previous period the expected negative long run relationship appears to disintegrate after 1999 9 this finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years which may suggest the presence of several stock market bubbles and or oil price bubbles since the turn of the century

rational destabilizing speculation positive feedback trading and the oil bubble of 2008 abstract this article examines how the interaction of different participants in the crude oil futures markets affects the crude oil price efficiency normally the commercial market participants such as oil producers and oil consumers act as arbitrageurs and ensure that the price of crude oil remains within the fundamental value range however institutional investors that invest in crude oil to diversify their portfolios and or hedge inflation can destabilize the interaction among commercial participants and liquidity providing speculators we argue that institutional investors can impose limits to arbitrage particularly during the financial crisis when the investment demand for commodities is particularly strong in support we show that commercials hedgers had significantly reduced their short positions leading to the 2008 oil bubble they were potentially aggressively offsetting their short hedges as a result by essentially engaging in a positive feedback trading commercial hedgers at least contributed to the 2008 oil bubble these findings have been mainly overlooked by the existing research

dynamic conditional correlations in political science time varying relationships and volatility are two methodological challenges that are particular to the field of time series in the case of the former more comprehensive understanding can emerge when we ask under what circumstances relationships may change the impact of context such as the political environment the state of the economy the international situation etc is often missing in dynamic analyses that estimate time invariant parameters in addition time varying volatility presents a number of challenges including threats to inference if left unchecked among time varying parameter models the dynamic conditional correlation dcc model is a creative and useful approach that deals effectively with over time variation in both the mean and variance of time series the dcc model allows us to study the evolution of relationships over time in a multivariate setting by relaxing model assumptions and offers researchers a chance to reinvigorate understandings that are tested using time series data we demonstrate the method s potential in the first example by showing how the importance of subjective evaluations of the economy are not constant but vary considerably over time as predictors of presidential approval a second example using international dyadic time series data shows that the story of movement and comovement is incomplete without an understanding of the dynamics of their variance as well as their means

certainty planning in an uncertain world a reconsideration in a recent paper merton 1975 seeks to extend the theory of growth under uncertainty beyond the customary concern of demonstrating the existence uniqueness and stability of the asymptotic stationary distributions of consumption output and capital stock his goal is to derive additional properties of these asymptotic distributions and in particular to investigate the biases in an expected value sense induced by assuming a certainty model when in fact outcomes are uncertain merton 1975 p 375 for his only source of uncertainty merton 1975 models the size of the aggregate labour force as a diffusion process by further assuming the aggregate savings policy to be linear homogeneous in output and specifying per worker output as being cobb douglas in capital per worker merton 1975 is able to derive closed form expressions for the associated stationary distributions of per worker consumption output and capital stock by comparing the expected values of these distributions with the corresponding steadystate values obtained by applying the identical savings rule to the same model specification though in the absence of uncertainty he demonstrates biases in the certainty estimates of the corresponding uncertainty expected values specifically in his model expected per worker consumption output and capital stock under uncertainty strictly exceed their respective certainty levels merton 1975 p 383 is therefore led to conclude that care must be taken in using the certainty analysis even as a first moment approximation theory this note is an attempt to replicate merton s 1975 results in an alternative discrete time version of the one sector model of optimal stochastic growth it suggests that diffusion process models have no monopoly or even apparent advantages in pursuing characterizations of the asymptotic distributions our work confirms the assertion that certainty estimates may be biased approximations of analogous uncertainty values although our biases are exactly opposite in sign to those of merton s 1975 model in our model the linear homogeneous savings function which results from optimizing behaviour under uncertainty rather than being imposed as in merton 1975 is the same as that arising in the certainty specification thus while our results illustrate mirrlees 1974 p 48 contention that the introduction of uncertainty may not at the aggregative level have significantly large influence on optimal policies the indicated biases nevertheless suggest that the introduction of uncertainty does significantly alter the description of economies growing along optimal paths

capital income taxation and perfect foresight abstract this paper develops a perfect foresight model of capital income taxation in a representative household neoclassical one sector framework the household sector is based on intertemporal utility maximization the main result is the equivalence of a perfect foresight solution and an artificial central planning solution if there is no tax this is the equivalence of a market equilibrium and social optinum the equivalence result is used to deduce the implications of a partial tax reform policy it is shown that a partial reform increases capital at each time following the initial period of the program

retirement contribution rate nudges and plan participation evidence from a field experiment simple interventions like changing the default or sending a short message can induce individuals to save more for retirement however messages that emphasize high savings rates may increase the amount that savings plan participants save while reducing the total number of plan participants we study this possibility in the context of a field experiment designed to increase retirement savings by us military service members we find that service members who received a message emphasizing a low contribution rate were more likely to participate in a savings plan than were service members whose message emphasized a high contribution rate or no rate at all

defaults and donations evidence from a field experiment we study the effects of defaults on charitable giving in a large scale field experiment on an online fundraising platform we exogenously vary default options along two choice dimensions the chari

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

crude oil commodity or financial asset abstract we examine the relation among daily returns to crude oil prices equity prices and commodity markets by modifying previous efforts in two important ways expanding the model to include the equity price for an oil producing firm conocophillips which ameliorates omitted variable bias and estimating the expanded model using the kalman filter which reduces uncertainty associated with ols estimates from rolling windows consistent with the notion of a commodity price beta for oil industry stocks there is a positive correlation between returns to the spot price of wti and conocophillips this correlation indicates not all price changes in crude oil are expected to persist indeed some of the price reductions associated with the asian financial crisis and the price increase associated with the 2008 price spike are not included in our estimate for long run prices in 2008 q4 the correlations between daily returns to crude oil and equities flip from negative to positive we hypothesize that this flip is triggered by a large reduction in interest rates in the fourth quarter of 2008 which is associated with a reduction in convenience yields and a change from backwardation to contango in futures markets these changes increase the returns to holding crude oil as a financial asset relative to holding oil as a commodity

oil price dynamics and speculation a multivariate financial approach abstract this paper assesses empirically whether speculation affects oil price dynamics the growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations strategies of this kind foster feedback trading that may cause considerable departures of prices from their fundamental values we investigate this hypothesis using a modified capm following shiller 1984 and sentana and wadhwani 1992 first a univariate garch 1 1 m is estimated assuming the risk premium to be a function of the conditional oil price volatility the single factor model however is outperformed by the multifactor icapm merton 1973 which takes into account a larger investment opportunity set analysis is then carried out using a trivariate ccc garch m model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior we find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affects both the capm and feedback trading components of the model despite the difficulties we identify a significant role played by speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices a clear evidence that it is not a fundamental driven market thus from a policy point of view given the impact of volatile oil prices on global inflation and growth actions that monitor speculative activities on commodity markets more effectively are to be welcomed

capital deepening and impatience equivalence in stochastic aggregative growth models this paper analyzes the aggregative growth model subject to random production shocks it is shown that for a higher discount factor the associated optimal plan maintains higher capital input at every time period and for almost all environments in both the finite and infinite horizon problems it is further shown that two alternative notions of decreasing impatience lengthening the horizon for a fixed discount factor and increasing the discount factor for a fixed horizon are in a precise sense equivalent discount factor insensitivity is also established

the 2014 oil bust causes and consequences abstract this article suggests that the 2014 oil price collapse was possibly triggered by the falling euro versus the us dollar specifically the usd eur exchange rate likely adjusted to the sudden economic growth outlook divergence between the us and the eu as evident by the relative short term interest rate spread measures and triggered a strong dollar trade which is negative for the crude oil prices thus in our view the 2014 oil price bust is another episode of oil price inefficiency similar to the 2008 oil bubble the key argument presented in this article is that as long as there are temporary economic growth divergences between the us and the eu the resulting exchange rate volatility is likely to create the pricing inefficiencies in crude oil which in fact are mean reverting as the economic growth divergences eventually dissipate

comparative dynamics of an equilibrium intertemporal asset pricing model this paper uses recursive competitive theory to develop a general equilibrium asset pricing model in this framework all prices and rates of return are endogenously determined thus enabling us to analyze the effects of changes in preferences technological uncertainty and expectations on the structure of security prices in particular we focus on how the market risk premium varies with changes in the underlying economic environment an issue which other asset pricing models have chosen not to address

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model