communication networks in markets abstract this paper proposes and tests experimentally a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network there is a unique equilibrium in which every individual obtains the same outcome independent of their network position and this outcome depends on the peripheral least connected individuals in the network the main testable predictions are that networks with high density and or low variability in the number of connections across individuals allow their members to obtain a better deal these predictions are tested in a lab experiment through 4 treatments that vary the network that subjects are assigned to the results of the experiment lend support to the theoretical predictions subjects converge to an outcome that is independent of their network position and they fare better if they are assigned to a network that is dense and or has low variability in number of connections across members

gender wage gaps reconsidered a structural approach using matched employer employee data in this paper we study the extent to which wage differentials between men and women can be explained by differences in productivity disparities in friction patterns segregation and wage discrimination for this purpose we propose an equilibrium search model that features rent splitting on the job search and two sided heterogeneity in productivity the model is estimated using german matched employer employee data overall the results reveal that female workers are less productive and more mobile than males in addition female workers have on average slightly lower bargaining power than their male counterparts

forecasting recessions the puzzle of the enduring power of the yield curve for over two decades researchers have provided evidence that the yield curve specifically the spread between long and short term interest rates contains useful information for signaling future recessions despite these findings forecasters appear to have generally placed too little weight on the yield spread when projecting declines in the aggregate economy indeed we show that professional forecasters are worse at predicting recessions a few quarters ahead than a simple real time forecasting model that is based on the yield spread this relative forecast power of the yield curve remains a puzzle the appendix is included online as supplementary material

dynamic matching and evolving reputations this paper introduces a general model of matching that includes evolving public bayesian reputations and stochastic production despite productive complementarity assortative matching robustly fails for high discount factors unlike in becker 1973 this failure holds around the highest lowest reputation agents for high skill low skill technologies we find that matches of likes eventually dissolve in another life cycle finding young workers are paid less than their marginal product and old workers more also wages rise with tenure but need not reflect marginal products information rents produce non monotone and discontinuous wage profiles

bilateral bargaining with externalities this paper provides an analysis of a non cooperative pairwise bargaining game between agents in a network we establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents that is we provide a non cooperative justification for a cooperative division of a non cooperative surplus the resulting division is related to the myerson shapley value with properties that are particularly useful and tractable in applications we demonstrate this by examining buyer seller networks and vertical foreclosure

nowcasting and the taylor rule actual federal funds rates in the u s have at times deviated from the recommendations of a simple taylor rule this paper proposes a nowcasting taylor rule that preserves the form of the taylor rule but encompasses realistic assumptions on information observable to policymakers because contemporaneous inflation rates and output gaps are not observable at the time policy is set policymakers must form nowcasts the optimal nowcast will depend in part on forecast uncertainty whenever policymakers have asymmetric costs to over and underpredicting inflation and output empirical evidence shows that actual policy rates are consistent with those recommended by a nowcasting taylor rule

convergence to efficiency in a simple market with incomplete information a model of trade with m buyers and m sellers is considered in which price is set to equate revealed demand and supply in a bayesian nash equilibrium each trader acts not as a price taker but instead misrepresents his true demand supply to influence price in his favor this causes inefficiency we show that in any equilibrium the amount by which a trader misreports is o 1 m and the corresponding inefficiency is o 1 m2 the indeterminacy and the inefficiency that is caused by the traders bargaining behavior in small markets thus rapidly vanishes as the market increases in size

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

two sided search marriages and matchmakers this article analyzes the provision of matching services in a model of two sided search agents belong to two heterogeneous populations and are distributed on 0 1 their utility is equal to the index of their mate in a search equilibrium agents form subintervals and are only matched to agents inside their class marriage brokers match agents according to a centralized procedure if the matchmaker charges a uniform participation fee only agents of higher quality participate in the centralized procedure if the matchmaker charges a commission on the matching surplus only agents of lower quality go to the intermediary

decentralized trading strategic behaviour and the walrasian outcome for a market with a finite number of agents pairwise matching and bargaining it is shown that even when the market is frictionless the equilibrium is not necessarily competitive it depends on the amount of information agents use if their behaviour is conditioned only on the sets of agents present and the time the competitive solution is the unique subgame perfect equilibrium if agents have full information and condition their behaviour on some of it there are also noncompetitive equilibria in which behaviour depends on specific information such as the identity of the trading partner and past events

existence of steady state equilibria in matching models with search frictions we prove existence of steady state equilibrium in a class of matching models with search frictions

sorting and the output loss due to search frictions we analyze a general search model with on the job search ojs and sorting of heterogeneous workers into heterogeneous jobs for given values of nonmarket time the relative efficiency of ojs and the amount of search frictions we derive a simple relationship between the unemployment rate mismatch and wage dispersion we estimate the latter two from standard micro data our methodology accounts for measurement error which is crucial to distinguish true from spurious mismatch and wage dispersion we find that without frictions output would be about 9 5 higher if firms can commit to pay wages as a function of match quality and 15 5 higher if they cannot noncommitment leads to a business stealing externality which causes a 5 5 drop in output

mismatch of talent evidence on match quality entry wages and job mobility we examine the impact of mismatch on entry wages separations and wage growth using unique data on worker talents we show that workers are sorted on comparative advantage across jobs within occup

trading in networks theory and experiments intermediation is a prominent feature of economic production and exchange two features of intermediation are salient coordination among traders between the source and the destination and competition between alternative combinations of intermediaries we develop a simple model to study these forces and we test the theoretical predictions in experiments our theoretical analysis yields a complete characterization of pricing equilibrium in networks there exist both ecient and inecient equilibria suggesting a key role of coordination among intermediaries strategic interaction leads to either buyer and seller retaining all surplus or intermediaries extracting all surplus we develop conditions on network structure under which these di erent extremal outcomes arise respectively laboratory experiments show that eciency prevails in almost all cases so traders are successful in coordination subjects coordinate on extreme surplus division finally experiments highlight the role of network structure in determining pricing and the

existence and convergence of equilibria in the buyer s bid double auction this paper concerns a bayesian game model of the buyer s bid double auction which is a procedure for organizing trade that selects a market clearing price from a list of offers bids strategic misrepresentation by traders may make the outcome of trade inefficient satterthwaite and williams 1989 showed that misrepresentation and inefficiency quickly converge to zero as the number of traders on each side of the market increases this is extended here to cases in which the number of buyers may differ from the number of sellers the existence of equilibria in a generic instance of the model is also proven this paper concerns a market in which each trader privately knows his own preferences such a trader may have an incentive to misrepresent his preferences in order to influence the market price in his favour a buyer for instance may bid less than his true evaluation of the good for sale in an attempt to drive the price down similarly a seller may ask for more than he is willing to accept with behaviour of this kind a seller s offer could exceed a buyer s bid even though a mutually profitable trade between them exists in the market as a whole a price may be determined at which all potential gains from trade are not achieved strategic misrepresentation may therefore cause inefficiency our confidence in markets rests upon the belief that this inefficiency is insignificant when there are a large number of small traders a small trader in a large market is unlikely to have much influence on the market price as a consequence he has little incentive to misrepresent and the market is therefore almost fully efficient this argument however is vague about a very important point when is a trader relatively small and how many traders constitute a large market the meaning of small and large in this context is critical to understanding when this intuitive argument applies this argument is investigated here by thoroughly analyzing a particular model of trade a market is considered in which money may be exchanged for indivisible units of a good for n m 1 there are n sellers each of whom has a unit to sell and m buyers each of whom wishes to buy a unit each trader is therefore small in that he trades at most one unit we shall consider arbitrary values of n and m however trade is organized with the following rules each seller submits an offer while each buyer submits a bid the n m offers bids are ordered in a list sl s2 sn m any

the optimality of a simple market mechanism strategic behavior in a finite market can cause inefficiency in the allocation and market mechanisms differ in how successfully they limit this inefficiency a method for ranking algorithms in computer science is adapted here to rank market mechanisms according to how quickly inefficiency diminishes as the size of the market increases it is shown that trade at a single market clearing price in the k double auction is worst case asymptotic optimal among all plausible mechanisms evaluating mechanisms in their least favorable trading environments for each possible size of the market the k double auction is shown to force the worst case inefficiency to zero at the fastest possible rate

dynamic matching and bargaining games a general approach this paper presents a new characterization result for competitive allocations in quasilinear economies this result is informed by the analysis of non cooperative dynamic search and bargaining games such games provide models of decentralized markets with trading frictions a central objective of this literature is to investigate how equilibrium outcomes depend on the level of the frictions in particular does the trading outcome become walrasian when frictions become small existing specifications of such games provide divergent answers the characterization result is used to investigate what causes these differences and to generalize insights from the analysis of specific search and bargaining games

assortative matching with explicit search costs in this paper i analyze a decentralized search and matching economy with transferable utility composed of heterogeneous agents i explore whether becker s assortative matching result generalizes to an economy where agents engage in costly search in an economy with explicit additive search costs complementarities in joint production supermodularity of the joint production function lead to assortative matching this is in contrast to previous literature which had shown that in a search economy with discounting assortative matching may fail even when the joint production function is supermodular

bargaining in a network of buyers and sellers abstract we analyze bargaining between buyers and sellers who are connected by an exogenously given network players can make repeated alternating public offers that may be accepted by any of the responders linked to each specific proposer our purpose is to find the conditions of the network which drive the price distribution in equilibrium this paper uses graph theory tools to provide necessary and sufficient conditions regarding the architecture of networks for the subgame perfect equilibrium of the bargaining game to coincide with the walrasian outcome

the role of networks in antitrust investigations antitrust investigations typically focus on the competitive pressures coming from within the defined markets of interest however competitive pressures can also come from other markets even when individually these markets place only weak constraints on one another collectively they may matter a networks approach to modelling competition permits a systemic view of competition that can sometimes paint a more accurate picture we demonstrate this through some simple examples and show more generally how tools from the networks literature can be applied to capture competition across a system of interrelated markets as a leading example we consider antitrust investigations into supermarkets where local geographic markets have been used as the basis of investigation

social status in economic theory social distinction or status is an important motivation of human behaviour this paper provides a selective survey of recent advances in the economic analysis of the origins and consequences of social status concerns first a selection of empirical research from a variety of scientific disciplines is discussed to underpin the further theoretical analysis i then consider the origins and determinants of tastes for status discuss the endogenous derivation of such preferences for relative standing and assess the different formalizations of these preferences subsequently the consequences of preferences for status are studied for a variety of problems and settings the last section discusses a number of implications of status concerns for normative economics and public policy

bargaining in dynamic markets abstract we study non stationary markets in which traders are randomly matched to bargain over the price of a heterogeneous good or the terms of a partnership the economy consists of a continuum of players drawn from a finite set of types players exogenously enter the market over time and exit upon trading at every date matching probabilities for each pair of types are determined by the endogenous distribution of trader types in the market the balance of bargaining power at any stage depends on variations in potential gains from trade the inflows of new traders the structure of agreements at future dates and the induced frequency of trading opportunities we establish that an equilibrium always exists moreover all equilibria that lead to the same evolution of the economy are payoff equivalent however we show that multiple self fulfilling expectations about the trajectory of the economy generating distinct equilibrium dynamics and payoffs may coexist

reassessing the relative power of the yield spread in forecasting recessions summary in this paper we replicate the main results of previous research showing that the use of the yield spread in a probit model can predict recessions better than the survey of professional forecasters we investigate the robustness of their results in several ways extending the sample to include the 2007 09 recession changing the starting date of the sample using rolling windows of data instead of just an expanding sample and using alternative measures of the actual value of real output our results show that the rudebusch williams findings are robust in all dimensions copyright 2015 john wiley sons ltd

dynamic matching two sided incomplete information and participation costs existence and convergence to perfect competition consider a decentralized dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good time is discrete each period has length and each unit of time continuums of new buyers and sellers consider entry traders whose expected utility is negative choose not to enter within a period each buyer is matched anonymously with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs both the seller and the winning buyer exit the market with their realized utility traders who fail to trade continue in the market to be rematched we characterize the steady state equilibria that are perfect bayesian we show that as converges to zero equilibrium prices at which trades occur converge to the walrasian price and the realized allocations converge to the competitive allocation we also show the existence of equilibria for sufficiently small provided the discount rate is small relative to the participation

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

coalitional bargaining in networks we analyze a noncooperative bargaining game with a general coalition structure in each period an opportunity for a feasible coalition to form arises according to a stochastic process and a randomly selected agent in the coalition makes a take it or leave it offer to the other agents in the coalition we develop a new technique based on convex programming to characterize the unique stationary equilibrium payoff of the game we apply the framework to various settings including trading networks with middlemen and cooperation networks with overlapping communities in these applications feasible coalitions are determined by an underlying network structure we study the effect of the underlying network on the pattern of trade and show how an agent s payoff is related to her position in the network

bilateral bargaining in networks abstract each connected pair of nodes in a network can jointly produce one unit of surplus a maximum number of linked nodes is selected in every period to bargain bilaterally over the division of the surplus according to the protocol proposed by rubinstein and wollinsky equilibrium in a market with sequential bargaining econometrica 53 1985 1133 1150 all pairs which reach an agreement obtain the discounted payoffs and are removed from the network this bargaining game has a unique subgame perfect equilibrium that induces the dulmage mendelsohn decomposition partition of the bipartite network of the set of nodes in this network

truthtelling in matching markets we analyze a search and matching model with non transferable utility and asymmetric information randomly paired agents go through an evaluation phase at the end of which they discover each other s types and choose to match or not before deciding to enter this phase agents can communicate through cheap talk we provide conditions for this communication to be informative and we examine how it affects agents welfare we show that communication is pareto improving only when the matching is assortative in the absence of communication and left unchanged by information transmission

transnational markets for sustainable development governance the case of redd summary transnational sustainable development that is sustainable development policy initiatives involving actors in multiple countries often involves donor sponsorship of sustainable development projects similar to matching markets like venture capital employment searches or college admissions these transaction systems also known as matching markets can be seen in a variety of phenomena in transnational development governance including private aid public private sustainable development projects and transnational polycentric governance initiatives in this paper we utilize the matching market framework to develop a new approach to addressing an important question in development studies how do donors understood as donor agencies funds and foundations and firms choose which projects to support beginning with the observation that matching markets in sustainable development governance are heavily constrained by transaction costs in the absence of formal institutions that lower costs of searching monitoring and communicating with potential partners we hypothesize that both donors and project participants are motivated to utilize strategies to lower transaction costs of making connections which results in selection of projects based on the presence of transnational brokers or familiar partners or as part of a strategy of spatial specialization conceptualizing the choices made in this matching market as an affiliation network connecting donors to sponsored projects we utilize exponential random graph models of 91 funders support of 195 reducing emissions from deforestation redd and sustainable forest management pilot projects undertaken between 1989 and june 2012 to test the effects of transaction costs on donors choices of projects to sponsor we find that brokerage prior collaboration with the donor in question and spatial specialization all contribute to the ability of project proponents to attract funder support often outperforming relevant project characteristics such as carbon density and accessibility these findings suggest tensions between local scale project implementation and the transnational search for resource support observed qualitatively in the development studies literature can have significant effects on the overall structure of transnational collaboration on sustainable development

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

bargaining dynamics in exchange networks abstract we consider a one sided assignment market or exchange network with transferable utility and the dynamics of bargaining in such a market our dynamical model is local involving iterative updates of offers based on estimated best alternative matches in the spirit of pairwise nash bargaining agents are not strategic in our model we establish that when a balanced outcome a generalization of the pairwise nash bargaining solution to networks exists our dynamics converges rapidly to such an outcome

information externalities and intermediaries in frictional search markets in frictional matching markets with heterogeneous buyers and sellers sellers incur discrete showing costs to show goods to buyers who incur discrete inspection costs to assess the suitability of the goods on offer we study how brokers can help reduce these costs by managing the level and mix of goods in their inventory intermediaries emerge and improve social welfare when there is sufficient heterogeneity in the types of goods and preferences learning and inventory management enable search intermediaries to internalize information externalities generated in unintermediated private search resume externalites informationnelles et intermediaires dans des marches frictionnels de recherche dans des marches frictionnels d arrimage ou acheteurs et vendeurs sont heterogenes les vendeurs doivent encourir des couts separes pour montrer leurs produits aux acheteurs qui doivent pour leur part encourir des couts separes d inspection pour s assurer que les biens offerts leur conviennent on etudie comment des courtiers peuvent aider a reduire ces couts en gerant le niveau et la mixite des biens dans leurs inventaires des intermediaires emergent qui ameliorent le bien etre social quand il y a heterogeneite suffisante des types de biens et de preferences l apprentissage et la gestion des inventaires permettent aux intermediaires de recherche d internaliser les externalites informationnelles engendrees dans le processus de recherche privee sans l aide d intermediaires

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

on the emergence of toyboys the timing of marriage with aging and uncertain careers we explore how gender bias in career opportunities affects matching in a marriage market with search frictions and where an individual s fitness decays with age we document a being left on the shelf effect where young singles who find the marriage market rapidly thins with age rush into early partnership singles with stronger career opportunities however have a greater option value to defer marriage more equal career opportunities for women captured by greater schooling and better occupations potentially explain the recent emergence of toyboy unions in which the woman is at least 5 years older than her partner 2011 by the economics department of the university of pennsylvania and the osaka university institute of social and economic research association

business cycles indicators and forecasting acknowledgments introduction james h stock and mark w watson 1 twenty two years of the nber asa quarterly economic outlook surveys aspects and comparisons of forecasting performance victor zarnowitz and phillip braun comment allen sinai 2 a procedure for predicting recessions with leading indicators econometric issues and recent experience james h stock and mark w watson comment kenneth f wallis 3 estimating event probabilities from macroeconometric models using stochastic simulation ray c fair comment james d hamilton 4 a nine variable probabilistic macroeconomic forecasting model christopher a sims comment pierre perron 5 why does the paper bill spread predict real economic activity benjamin m friedman and kenneth n kuttner comment ben s bernanke 6 further evidence on business cycle duration dependence francis x diebold glenn d rudebusch and daniel e sichel comment bruce e hansen 7 dynamic index models for large cross sections danny quah and thomas j sargent comment john geweke 8 modelling non linearity over the business cycle clive w j granger timo terdsvirta and heather anderson comment andrew harvey contributors author index subject index

price dispersion in stationary networked markets abstract different sellers often sell the same good at different prices using a strategic bargaining model i characterize how the equilibrium prices of a good depend on the interaction between its sellers costs its buyers values and a network capturing various frictions associated with trading it in contrast to the standard random matching model of bargaining in stationary markets i allow agents to strategically choose whom to make offers to which qualitatively changes how the network shapes prices as in the random matching model the market decomposes into different submarkets and in the limit as bargaining frictions vanish the law of one price holds within but not across them but strategic choice of partners changes both how the market decomposes into different submarkets and the determinants of each submarket s price

toward a strategic foundation for rational expectations equilibrium a step toward a strategic foundation for rational expectations equilibrium is taken by considering a double auction with n buyers and m sellers with interdependent values and affiliated private information if there are sufficiently many buyers and sellers and their bids are restricted to a sufficiently fine discrete set of prices then generically there is an equilibrium in nondecreasing bidding functions that is arbitrarily close to the unique fully revealing rational expectations equilibrium of the limit market with unrestricted bids and a continuum of agents in particular the large double auction equilibrium is almost efficient and almost fully aggregates the agents information

bargaining and efficiency in networks abstract we study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus players who reach agreement are removed from the network without replacement the global logic of efficient matchings and the local nature of bargaining in combination with the irreversible exit of player pairs following agreements create severe hurdles to the attainment of efficiency in equilibrium for many networks all markov perfect equilibria of the bargaining game are inefficient even as players become patient we investigate how incentives need to be structured in order to achieve efficiency via subgame perfect but non markovian equilibria the analysis extends to an alternative model in which individual players are selected according to some probability distribution and a chosen player can select a neighbor with whom to bargain

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

facts and challenges from the great recession for forecasting and macroeconomic modeling this paper provides a survey of business cycle facts updated to take account of recent data emphasis is given to the great recession which was unlike most other postwar recessions in the united states in being driven by deleveraging and financial market factors we document how recessions with financial market origins are different from those driven by supply or monetary policy shocks this helps explain why economic models and predictors that work well at some times do poorly at other times we discuss challenges for forecasters and empirical researchers in light of the updated business cycle facts

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

sorting through search and matching models in economics toward understanding assortative matching this is a self contained introduction to research on search and matching we first explore the nontransferable and perfectly transferable utility matching paradigms and then a unifying imperfectly transferable utility matching model motivated by some unrealistic predictions of frictionless matching we flesh out the foundational economics of search theory we then revisit the original matching paradigms with search frictions we finally allow informational frictions that often arise such as in college student sorting

delay in trade networks we study decentralized markets involving producers and consumers that are facilitated by middlemen we do this by analyzing a noncooperative networked bargaining game we assume a complete information setup wherein all the agents know the structure of the network the values of the consumers and the transaction costs involved but allow for some search friction when either producers or consumers trade with middlemen in such a setting we show that sunk cost problems and a heterogeneous network can give rise to delay or failure in negotiation and therefore reduce the total trade capacity of the network in the limiting regime of extremely patient agents we provide a sharp characterization of the trade pattern and the segmentation of these markets

too good to fire non assortative matching to play a dynamic game abstract we model stable non assortative labor market matchings we endogenize how transferable utility is a matched firm and worker play an infinite horizon game with one sided moral hazard becker s 1973 result that complementarity yields positively assortative matching fails because increasing match quality harms dynamic incentives a firm cannot credibly threaten to fire a worker who is productive even with low effort thus firms may prefer lower type workers who will exert more effort we offer a new interpretation of efficiency wages committing to a high wage improves effort incentives indirectly by increasing the firm s willingness to walk away we also show that the set of stable outcomes has a lattice structure

search and the efficient assignment of workers to jobs in a model in which different types of workers form matches with different types of employers a method of calculating opportunity costs of workers and jobs is derived these are shown to differ systematically from the reservation wages and profits used by workers and employers to determine whether matches should be formed ex ante differences among workers and among jobs then generate externalities in the labor market resulting in inefficient assignments of workers to jobs and multiple equilibria intervention in the labor market by altering the assignment can increase aggregate output but may cause regressive redistribution copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

marriage and class here we consider a matching model where agents are heterogeneous and utilities nontransferable we utilize this framework to study how equilibrium sorting takes place in marriage markets we impose conditions that guarantee the existence of a steady state equilibrium and then characterize it several examples are developed to illustrate the richness of equilibria the model reveals an interesting sorting externality that can support multiple steady state equilibria even with constant returns to matching excerpt

marriage markets and money a coasian theory of household formation this article integrates search based models of marriage and money we think about households as organizations the way coase thinks about firms as alternatives to markets that become more attractive when transactions costs increase in the model individuals consume market and home produced goods and home production is facilitated by marriage market frictions including taxes search and bargaining problems increase the marriage propensity the inflation tax encourages marriage because being single is cash intensive microdata confirm singles use cash more than married people we use macrodata over many countries to investigate how marriage responds to inflation taxation and other variables

rational expectations and macroeconomic forecasts the article presents extensive results from testing for bias and serially correlated errors in a collection of time series of quarterly multiperiod forecasts for six variables including real gnp growth inflation and unemployment the analysis covers responses by 79 frequent participants in economic outlook surveys conducted regularly since 1968 it shows much greater incidence of apparently systematic errors for inflation than for the other variables also the tests are more favorable to composite group forecasts than to most of the individual forecast sets

the yield spread puzzle and the information content of spf forecasts while the yield spread has long been recognized as a good predictor of recessions it seems to have been largely overlooked by professional forecasters we examine this puzzle established by rudebusch and williams 2009 in a data rich environment including not just the yield spread but many other predictors as well we confirm the puzzle in this context by examining the contributions of both the spf forecasts and the yield spread in predicting recessions and by examining the information content of spf forecasts directly furthermore we take the first step towards a possible resolution of this puzzle by recognizing the heterogeneity across professional forecasters

expert mediated sequential search abstract this paper studies markets such as internet marketplaces for used cars or mortgages in which consumers engage in sequential search in particular we consider the impact of information brokers experts who can for a fee provide better information on true values of opportunities we characterize the optimal search strategy given a price and the terms of service set by the expert and show how to use this characterization to solve the monopolist expert s service pricing problem our analysis enables the investigation of three common pricing schemes pay per use unlimited subscription and package pricing that can be used by the expert we demonstrate that in settings characteristic of electronic marketplaces namely those with lower search costs for consumers and lower costs of production of expert services unlimited subscription schemes are favored finally we show that the platform that connects consumer and experts can improve social welfare by subsidizing the purchase of expert services the optimal level of subsidy forces the buyer to exactly fully internalize the marginal cost of provision of expert services in electronic markets this cost is minimal so it may be worthwhile for the platform to make the expert freely available to consumers

bargaining in stationary networks we study an infinite horizon game in which pairs of players con nected in a network are randomly matched to bargain players who reach agreement are replaced by new players at the same positions in the network we show that all equilibria are payoff equivalent the payoffs and the set of agreement links converge as players become patient several new concepts mutually estranged sets partners and shortage ratios provide insights into the relative strengths of the positions in the network we develop a procedure to deter mine the limit equilibrium payoffs for all players characterizations of equitable and nondiscriminatory networks are also obtained jel c78 d85 competitive equilibrium theory assumes large and anonymous markets in which every buyer can trade with every seller underlying these assumptions are standard goods and services that may be traded at low transaction costs by agents who are not in specific relationships with one another however in many markets goods and services are heterogeneous e g cars apartments or need to be tailored to particular needs e g manufacturing inputs technical support furthermore trad ing opportunities may depend on transportation costs social relationships infor mation advertising trust technological compatibility joint business opportunities free trade agreements etc in such cases it is natural to model the market using a network where only pairs of connected agents may engage in exchange new theories are needed to explore the influence of the network structure on market outcomes many questions arise how does an agent s position in the net work determine his bargaining power and the local prices he faces who trades with whom and on what terms when are prices uniform in the network one possible conjecture is that an agent s bargaining power is determined by his relative number of connections in the network however this simple theory is implausible consider the network of four sellers located at the top nodes and nine buyers located at the bottom nodes depicted in figure 1 assume that each seller supplies one unit of a homogeneous indivisible good each buyer demands one unit of the good and all buyers have identical values for the good the buyer located in the middle has the largest number of links in the network as he is connected to each

the u shapes of occupational mobility using administrative panel data on the entire danish population we document a new set of facts characterizing occupational mobility for most occupations mobility is u shaped and directional not only low but also high wage earners within an occupation have a particularly large probability of leaving their occupation and the low high earners tend to switch to new occupations with lower higher average wages exceptions to this pattern of two sided selection are occupations with steeply rising declining productivity where mainly the lower higher paid workers within this occupation tend to leave the facts conflict with several existing theories that are used to account for endogeneity in occupational choice but it is shown analytically that the patterns are explained consistently within a theory of vertical sorting under absolute advantage that includes learning about workers abilities

steady states in matching and bargaining abstract we establish the existence of steady states in two classic matching and bargaining models with general trader asymmetries search processes and production functions

bilateral trading in networks in many markets goods flow from initial producers to final customers travelling through many layers of intermediaries and information is asymmetric we study a dynamic model of bargaining in networks that captures these features we show that the equilibrium price demanded over time is non monotonic but the sequence of transaction prices declines over time with the possible exception of the last period the price dynamic is therefore reminiscent of fire sales and hot potato trading traders who intermediate the object arise endogenously and make a positive profit the profit earning intermediaries are not necessarily traders with many connections for the case of multilayer networks they belong to the path that reaches the maximum number of potential buyers using the minimal number of intermediaries this is not necessarily the path of the network that maximizes the probability of consumption by traders who value the most the object i e welfare

augmenting the taylor rule monetary policy and the bond market i show that augmenting the taylor rule with bond yields observed at the start of the quarter significantly improves the in sample and out of sample fit moreover the augmented rule produces lower forecast errors than those of linear and non linear policy models

competitive pricing and efficiency in search equilibrium we consolidate and generalize some results on price determination and efficiency in search equilibrium extending models by rubinstein and wolinsky and by gale heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition when the discount rate r and search costs converge to 0 we show that prices in all exchanges are the same and equal the competitive market clearing price given positive search costs efficiency obtains iff bargaining satisfies hosios condition and r 0 when prices are set by third party market makers however we show that search equilibrium is necessarily efficient

dynamic markets with competitive bidding the model features a dynamic market in steady state in which prices are determined in first price auctions it combines competition over time familiar from the pairwise meeting models with instantaneous bidding competition it inquires how different properties of the model determine the relative importance of these two aspects of the competition and in particular how the non market clearing price result of the matching and bargaining models is affected by the

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

personality traits and the marriage market which and how many attributes are relevant for the sorting of agents in a matching market this paper addresses these questions by constructing indices of mutual attractiveness that aggregate information about agents attributes the first k indices for agents on each side of the market provide the best approximation of the matching surplus by a k dimensional model the methodology is applied on a unique dutch household survey containing information about education height body mass index health attitude toward risk and personality traits of spouses

education matching and the allocative value of romance societies are characterized by customs governing the allocation of non market goods such as marital partnerships we explore how such customs affect the educational investment decisions of young singles and the subsequent joint labour supply decisions of partnered couples we consider two separate matching paradigms for agents with heterogeneous abilities one where partners marry for money and the other where partners marry for romantic reasons orthogonal to productivity or debt these generate different investment incentives and therefore have a real impact on the market economy while marrying for money generates greater investment efficiency romantic matching generates greater allocative efficiency since more high ability individuals participate in the labour market the analysis offers the possibility of explaining cross country differences in educational investments and labour force participation based on matching regimes

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

eyes on the prize how did the fed respond to the stock market abstract since the stock market boom of the 1990s many have suggested the federal open market committee fomc has adopted an unannounced policy goal of supporting equity values this paper offers a new approach to disentangle the relationship between changes in equity values and monetary policy specifically the paper distinguishes the fomc s reaction to forecasts of traditional goal variables which may depend on equity prices from the fomc s independent reaction to changes in equity prices by using actual forward looking variables examined by the fomc before each action the greenbook forecasts the authors find little evidence to support the proposition that the fomc responds to stock values except as filtered through a forecast of accepted monetary policy goal variables

multi item auctions a collection of items is to be distributed among several bidders and each bidder is to receive at most one item assuming that the bidders place some monetary value on each of the items it has been shown that there is a unique vector of equilibrium prices that is optimal in a suitable sense for the bidders in this paper we describe two dynamic auction mechanisms one achieves this equilibrium and the other approximates it to any desired degree of accuracy

nash in nash bargaining a microfoundation for applied work a nash equilibrium in nash bargains has become the workhorse bargaining model in applied analyses of bilateral oligopoly this paper proposes a non cooperative foundation for nash in nash bargaining that extends the rubinstein 1982 model to multiple upstream and downstream rms assuming there exists gains from trade for each rm pair we prove that there exists an equilibrium with immediate agreement and negotiated prices that correspond to rubinstein prices if and only if the marginal contribution of a set of agreements is weakly greater than the sum of the agreements marginal contributions we provide stronger conditions under which equilibrium prices are unique

identifying sorting in theory assortative matching between workers and rms provides evidence of the complementarities or substitutes in production the presence of complementarities is important for policies that aim to achieve the optimal allocation of resources for example unemployment insurance we argue that using wage data alone it is virtually impossible to identify whether assortative matching is positive or negative even though we cannot identify the sign of the sorting we can identify the strength i e the magnitude of the cross partial and the associated welfare loss we show rst that the wage for a given worker is non monotonic in the type of his employer this is due to the fact that in a sorting model wages reect the opportunity cost of mismatch we show analytically that this non monotonicity prevents standard rm xed eects to correlate with the true type of the rm we then propose an alternative procedure that measures the strength of sorting in the presence of search frictions knowing the strength of sorting facilitates the measurement of the output loss due to mismatch

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

markov equilibria in a model of bargaining in networks abstract we study the markov perfect equilibria mpes of an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain players who reach agreement are removed from the network without replacement we establish the existence of mpes and show that mpe payoffs are not necessarily unique a method for constructing pure strategy mpes for high discount factors is developed for some networks we find that all mpes are asymptotically inefficient as players become patient

sorting by search intensity abstract in this paper i characterize matching in an on the job search model with endogenous search intensity heterogeneous workers and firms and match surplus is shared between workers and firms through bargaining i provide proof of existence and uniqueness of steady state equilibrium given equally efficient matched and unmatched search the worker skill conditional distribution of firm productivity over matches is stochastically increasing decreasing in worker skill if the production function is supermodular submodular i also show that this strong notion of sorting does not obtain everywhere for the firm productivity conditional match distribution

efficiency in decentralized oligopolistic markets the paper analyzes quantity competition in economies in which a network describes the set of feasible trades a model is presented in which the identity of buyers of sellers and of intermediaries is endogenously determined by the trade flows in the economy the analysis first considers small economies and provides sufficient conditions for equilibrium existence a characterization of prices and flows and some negative results relating welfare to network structure the second and central part of the analysis considers behavior in large markets and presents necessary and sufficient conditions on the network structure for equilibria to be approximately efficient when the number of players is large

bilateral trade with the sealed bid k double auction existence and efficiency for k in the unit interval the k double auction determines the terms of trade when a buyer and a seller negotiate transfer of an item the buyer submits a bid b and the seller submits an offer s trade occurs if b exceeds s at price kb 1 k s we model trade as a bayesian game in which each trader privately knows his reservation value but only has beliefs about the other trader s value existence of a multiplicity of equilibria is proven for a class of trader s beliefs for generic beliefs however these equilibria are shown to be ex ante inefficient

monetary policy with signal extraction from the bond market monetary policy is conducted in an environment of uncertainty this paper presents a model where the central bank uses real time data from the bond market together with standard macroeconomic indicators to infer the current state of the economy more efficiently while taking into account that its own actions influence the bond market and therefore what it observes that the central bank uses the information in the term structure to set policy creates a link between the bond market and the macroeconomy that is novel to the literature the estimated model suggests that there is some information in us yields of maturities of less than 1 year that can help the federal reserve to identify shocks to the economy on a timely basis

the taylor rule and opportunistic monetary policy we investigate the possibility that the taylor rule should be formulated as a threshold process such that the federal reserve acts more aggressively in some circumstances than in others it seems reasonable that the federal reserve would act more aggressively when inflation is high than when it is low similarly it might be expected that the federal reserve responds more to a negative than a positive output gap although these specifications receive some empirical support we find that a modified threshold model that is consistent with opportunistic monetary policy makes significant progress toward explaining federal reserve behavior

disclosure of information in matching markets with non transferable utility we present a model of two sided matching where utility is non transferable and information about individuals skills is private utilities are strictly increasing in the partner s skill and satisfy increasing differences skills can be either revealed or kept hidden but while agents on one side have verifiable skills agents on the other side have skills that are unverifiable unless certified and certification is costly agents who have revealed their skill enter a standard matching market while others are matched randomly we find that in equilibrium only agents with skills above a cutoff reveal and then they match assortatively we show that an equilibrium always exists and we discuss multiplicity increasing differences play an important role to shape equilibria and we remark that this is unusual in matching models with non transferable utility we close the paper with some comparative statics exercises where we show the existence of non trivial externalities and welfare implications