the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

analysts interim earnings forecasts evidence on the forecasting process existing empirical evidence indicates that analyst forecasts of corporate earnings do not meet the strict rationality standards prescribed by econometric tests of the rational expectations hypothesis 1 in this paper we address the question of whether the expectation formation process underlying analyst forecasts is adaptive or whether these forecasts are influenced by noninformational factors such as incentives arising from the market for their forecasts o brien 1988 lin and mcnichols 1993 francis and philbrick 1993 and dugar and nathan 1992 and interaction between judgmental and or statistical forecasting methods bunn and wright 1991 fan 1990 and hoerl and kennard 1970 the rejection of rational expectations gives rise to two views of the forecasting process of analysts the first based on an informational argument is that the forecasting process is adaptive marcet and sargent

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

wage expectations in the labor market survey evidence on rationality using a new set of directly observed wage expectations among firms this paper finds that in general firms forecasts fail the unbiasedness and efficiency requirements of weak form rational expectations these market participants consistently underestimate the wages they actually end up paying and their expectations do not efficiently utilize the information in past realizations the mean absolute forecast error of two percent compares with an error of only five percent if static expectations were held the major source of wage fore cast error seems to be errors in predicting demand rather than in predicting supply or the general price level wage forecast errors are positively correlated across fields with distinct supply patterns and are positively correlated with quantity forecast error the properties of stochastically weighted expectations and the effectiveness of the wage and price controls of the early 1970 s are also discussed this abstract was borrowed from another version of this item

bettor handicapping and market efficiency in greyhound parimutuel gambling this paper evaluates the speculative efficiency of the parimutuel gambling market for greyhound racing the efficiency tests consider the informational content of bettor handicapping data as well as the forecasts of professional handicappers and the aggregate market previous studies have failed to consider the wide range of performance data that are available for bettor handicapping activities two tests of efficiency are considered the first test evaluates the in sample explanatory power of the handicapper s forecasts and handicapping data relative to the aggregate market s forecasts as indicated by the final odds the second test compares simulated rates of return to hypothetical gambling obtained from ex ante finish forecasts to the efficient rates of return that are dictated by the track s commission significant speculative inefficiencies are revealed the second test suggests the existence of above normal returns to gambling from using conditional forecasts generated from bettor handicapping data

analysing the risk premium in the italian stock market arch m models versus non parametric models this paper investigates the variability of the risk premium in the italian stock market over the period 1978 89 we have modelled voatility using two different approaches arch m models and non parametric models the estimate of the arch m models confirm the existence of both an arch process in the variance and a time varying risk premium also the non parametric specification confirms the existence of a time varying risk premium moreover in both models the acceleration in the inflation rate has a negative effect on stock prices

nominal interest rates as indicators of inflation expectations forward interest rates have become popular indicators of inflation expectations theusefulness of this indicator depends on the relative volatilty and the correlation of inflation expectations and expected real interest rates this paper studies u s and u k data using a range of different tools and data sets the forward rate rule perfoms reasonably well in spite of significant movements in the expected real interest rate the reason is that the noise that movements in the expected real interest rate add to the inflation expectations is balanced by a tendency for expected real interest rates and inflation expectations to move in opposite directions

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

portfolio crowding out empirically estimated this paper tests hypotheses regarding the parameters in investors asset demand functions the hypothesis that federal bonds are closer substitutes for equity than for money implies portfolio crowding out by federal borrowing regression studies of asset demand functions have needed to impose prior beliefs to obtain precise and plausible estimates for the parameters this paper uses a mle technique that dominates regression in that it makes full use of the constraint that the parameters are not determined arbitrarily but rather are determined by mean variance optimization on the part of the investor the striking conclusion is that portfolio effects are close to zero

an analysis of a panel of spanish gdp forecasts this article undertakes an analysis of the forecasts included in the panel of spanish forecasts in order to highlight the fact that the predictions made and the errors committed by the entities participating on this panel contain information that is particularly useful in analysing the evolution of the spanish economy here a study is undertaken of the gdp growth forecasts for the spanish economy for the period 2000 to 2002 made in distinct forecast time horizons specifically it analyses whether the forecasts are optimistic or pessimistic and whether new information concerning the variable being predicted is used efficiently in revising earlier forecasts

non marketable assets and households portfolio choices a case study of italy abstract this paper analyzes the determinants of aggregate households portfolio choices conditional on those components of wealth which can be regarded as highly or totally illiquid because of the existence of substantial transaction costs and or institutional constraints on agents behaviour the empirical analysis broadly confirms the importance of the above mentioned institutional aspects in the allocation of financial wealth and provides the means for addressing some interesting questions regarding the behavior of portfolio holders in financial markets in particular it is shown that the presence of non tradable assets changes the risk premia on marketable assets hence in cases such as the italian one where the state is both the issuer of government securities and the collector of social security funds the positive correlation due to a common default risk between returns on government securities and on non marketable assets could lead to a higher cost of public debt financing

do asset demand functions optimize over the mean and variance of real returns a six currency test abstract international asset demands are functions of expected returns optimal portfolio theory tells us that the coefficients in this relationship depend on the variance covariance matrix of real returns but previous estimates of the optimal portfolio 1 assume expected returns constant and 2 are not set up to test the hypothesis of mean variance optimization we use maximum likelihood estimation to impose a constraint between the coefficients and the error variance covariance matrix for a portfolio of six currencies we are able statistically to reject the constraint evidently investors are either not sophisticated enough to maximize a function of the mean and variance of end of period wealth or else are too sophisticated to do so

dynamic portfolio adjustment and capital controls a euler equation approach we present a multiasset dynamic portfolio balance model that is based on the maximization of an intertemporal utility function in consumption when investors operate under uncertainty quadratic adjustment costs and capital market regulations we estimate the model s structural parameters on quarterly portfolio data of the german private sector asset demand is insensitive to return changes although the coefficients are significant adjustment costs are low but highly significant giving rise to moderate lags of adjustment still existing capital controls and adjustment costs cannot explain the currently observed home bias in the portfolio overall our results imply a strong rejection of the portfolio model

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

inattentive professional forecasters abstract using the ecb survey of professional forecasters to characterize expectations at the micro level we emphasize two new facts forecasters i fail to systematically update their forecasts and ii disagree even when updating it is moreover found that forecasters have predictable forecast errors these facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information a la mankiw reis and noisy information a la sims however building and estimating such an expectation model we find that it cannot quantitatively replicate the error and disagreement observed in the data

do professional forecasters trust in taylor type rules evidence from the wall street journal poll this article uses the monthly wall street journal poll between 2002 and 2010 to analyse whether professional economic forecasters believe in and thus apply taylor type rules for their own forecasts using their forecasts for the federal funds rate the inflation rate and capacity utilization we estimate whether these are internally consistent with the message of taylor type rules we find that the expectation formation can indeed be described by taylor type rules

efficiency and formation of expectations evidence from the european investment survey the european commission conducts an annual survey regarding planned and realized business fixed investment across various manufacturing sectors in euroland in this study we investigate the predictive content of survey based expectations on investment in addition we empirically test the rationality of respondents both in a time series as well as in a panel context according to our results based on pooling the data efficiency is rejected since expectations are biased predictors of actual outcomes furthermore expectations revisions are found to be correlated with components of the information set known at the time of decision making finally our results qualify regressive expectations as the mechanism that more adequately describes the formation of expectations

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

vested interest and biased price estimates evidence from an auction market this study employs a new data set from art auctions to examine the relationship between auctioneer presale price estimates and the long term performance of artworks we find that the price estimates for expensive paintings have a consistent upward bias over a long period of 30 years high estimates at the time of purchase are associated with adverse subsequent abnormal returns moreover the estimation error for individual paintings tends to persist over time these results are consistent with the view that auction house price estimates are affected by agency problems and that

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

do excess holding period returns depend on the composition of outstanding federal debt the relationship between the composition of outstanding federal debt and the term structure of interest rates has been a much studied and debated subject this note examines the relationship between the excess holding period returns and the composition of debt over the post accord period the evidence fails to support a link between debt composition and excess holding period returns copyright 1996 by ohio state university press

testing the rationality of price forecasts new evidence from panel data this paper tests the rationality of individual price forecasts in a panel of professional forecasters here unlike in most previous studies rationality is not rejected the results here differ because 1 using individual forecasts avoids aggregation bias 2 comparison of forecasts to initial data avoids bias due to data revision 3 the professional forecasters have economic incentives to state their expectations accurately and 4 a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used copyright 1990 by american economic association

risk versus return in the substitutability of debt and equity securities abstract this paper addresses the empirical issue of whether financial assets held by the u s household sector especially debt and equity are substitutes or complements and what if any are the magnitudes of the relationships using a flexible functional form portfolio optimization framework together with asset holdings and returns data and a rolling sample var expectation model we estimate asset demand elasticities with respect to expected returns variance and covariance of returns in general we find the elasticities to be significantly different from zero the results also indicate that debt and equity are substitutes public policy implications are drawn from the results

imperfect information and wage inertia in the business cycle a comment in a recent article gertler 1982 presents a model that explains certain stylized facts concerning the relative behavior of the money supply and nominal wages one additional feature of the model is the behavior of real output which is found to have a serially correlated response to a money supply shock this serial correlation appears to arise from an information structure that precludes agents from directly disentangling permanent versus transitory movements in relevant state variables this information structure complicates the forecasting problem that must be solved to analyze the model and affects the behavior of wages and the variance of output it will not however lead to serial correlation in real output an algebraic error is responsible for the serial correlation found by gertler this note corrects the error and presents an alternative solution to the forecasting problem gertler constructs forecasts of the relevant state variable through the use of a kalman filter while this technique is appropriate for the problem a simpler solution is available this solution is based on an equivalent representation of the stochastic process generating the disturbances of the model this equivalent representation can then be used in a straightforward way to describe wage dynamics and the variance of real output it is sufficient to analyze gertler s model in the case where there are only monetary disturbances the relevant equations are

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

forecast uncertainty ex ante and ex post u s inflation and output growth survey respondents who make point predictions and histogram forecasts of macro variables reveal both how uncertain they believe the future to be ex ante as well as their ex post performance macroeconomic forecasters tend to be overconfident at horizons of a year or more but overestimate i e are underconfident regarding the uncertainty surrounding their predictions at short horizons ex ante uncertainty remains at a high level compared to the ex post measure as the forecast horizon shortens there is little evidence of a link between individuals ex post forecast accuracy and their ex ante subjective assessments

recent estimates of time variation in the conditional variance and in the exchange risk premium abstract the optimal diversification model of investors portfolio behavior can give a linear relationship between the exchange risk premium and the conditional exchange rate variance this note surveys recent empirical work that allows the conditional variance itself and therefore the risk premium to vary over time in particular it examines the implications of recent empirical estimates for earlier arguments based on the assumption that the conditional variance was constant over time that the exchange risk premium had to be small in magnitude and variability

on the rationality of us macroeconomic forecasts evidence from a panel of professional forecasters asa nber survey data is used to check the rationality of us macroeconomic forecasts it is found that of 75 forecast series examined 51 are biased 25 are both unbiased and efficient and only two pass the null hypothesis of orthogonality this calls into question the validity of rational expectations hypothesis

alternative identifying restrictions in a model of uk real output and prices this paper presents some simulation results for a small structural vector autoregression model of the interaction between real output and prices for the uk economy the model is estimated using quarterly data over the period 1966 2 to 1995 4 the effects of alternative identifying restrictions on the simulation properties of the model are considered and it is shown that the restriction of long run neutrality of real output with respect to demand shocks has a major impact even if long run neutrality is not imposed the results still indicate that most of the variance of real output over long forecasting horizons can be attributed to supply side disturbances the model is used to analyse the role of demand and supply disturbances in explaining the three major recessions of the period and it is shown that each of these exhibits unique characteristics

estimation of relative risk aversion across time abstractthis article examines relative risk aversion in the framework of a three moment asset pricing model that accounts for skewness accounting for skewness in calculating risk aversion gives a more accurate series of estimates of risk aversion and helps to reconcile the wide disparity in risk coefficients found in past literature risk aversion coefficients are calculated from 1926 to 2014 using stock market returns this procedure results in a time series of data that can be related to other variables such as real interest rates and changes in demand for various asset classes

why do we reject the mean variance model a two stage test procedure for the static mean variance portfolio model is presented which focuses on increasingly restrictive versions of the general model it also delivers clues to the probable cause of rejection the procedure is applied to quarterly data for german private net wealth the mean variance restrictions are strongly rejected because the data reject any positive semi definite link between returns and asset holdings this suggests that the failure of the model is not primarily caused by neglect of the time variation of conditional covanances

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

firm performance and macro forecast accuracy abstract combining a unique survey of japanese firms gdp forecasts with accounting data for 25 years we find three main results first firms gdp forecasts are associated with their employment investment and output growth in the subsequent year second over optimistic and pessimistic forecast errors predict lower profitability and productivity consistent with our model of input choice under uncertainty third larger and more cyclical firms make forecasts closer to professionals presumably reflecting their higher return to accuracy forecasts by more productive and older firms are also more similar to professional forecasts implying forecasting ability is linked to management ability and experience

testing effeciency in gambling markets a comment in a recent article in this journal even and noble point out that the regression based test for unbiasedness in point spread betting markets is not valid test when the mean and median of the market s forecast errors are different in the case where skewness is present even and noble propose a likelihood ratio statistic to test for market efficiency in this comment three concerns are explored i whether distributions of market forecast errors in these markets are consistently and significantly skewed ii whether the test proposed by even and noble suffers from the same problem of low power as do other statistical tests in these markets iii whether the even and noble test statistic is actually a new test or simply the equivalent of very simple well known statistical test

the structure of expectations of the weekly money supply announcement abstract this paper examines the structure of expectations of the weekly money supply announcement in the late 1970s the data used are from a weekly telephone survey of money market participants the rationality and structure of expectations are explored with the data organized in three ways the mean response to each weekly survey the pooled sample of individual responses and time series of responses by each individual in the survey the effect of data aggregation on rationality tests is investigated the structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

the rationality of usda forecasts under multivariate asymmetric loss a large number of previous studies suggest that many usda forecasts are biased and or inefficient these findings however may be the result of the assumed loss function of usda forecasters we test the rationality of the usda net cash income forecasts and the wasde production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non separable forecast errors our results provide robust evidence that usda forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under or overprediction as a result this study provides an alternate interpretation of previous findings of forecast irrationality

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

tests of the rational expectations hypothesis this paper reviews evidence on the structure of anticipation from a number of empirical studies jack muth s rational expectations hypothesis is compared with a variety of alternative models including ferber s law the implicit expectations model of edwin mills and muth s new errors in the variables model the cumulative evidence is of such strength as to compel the suspension of belief in the concept of rational expectations this implies that it is a mistake to proceed under the maintained hypothesis that expectations are rational instead it is necessary to test the sensitivity of empirical and theoretical results to alternative assumptions about the structure by which anticipations are generated copyright 1986 by american economic association

estimation of asset demands by heterogeneous agents we develop optimization models to analyze the demand for financial assets by heterogeneous agents the models extend frankel s j portfolio manage 11 4 1985 18 earlier approach and relax the assumption of normality of asset returns instead we assume that investors maximize an expected utility of terminal wealth based on heterogeneous attitudes toward risk solving a bi level optimization program we endogenously estimate the risk aversion parameters and derive the optimal asset holdings for each agent the models are tested on united states market data explaining the market structure better than previously postulated models

optimal funding rules abstract the operation of automatic fiscal stabilisers may prevent interest rates from falling during times of recession while they may lower interest rates during recovery thereby exacerbating the private sector business cycle we demonstrate that the government funding authority may devise rules for debt issuance which minimise the variance of the government s overall funding requirement this is done by switching issuance between different debt instruments in such a way that interest and redemption payments counteract the cycle in the underlying funding requirement thereby removing any autocorrelation in the net funding requirement we illustrate the application of such a funding rule to the borrowing requirement of the united kingdom government this has the effect of smoothing out the borrowing requirement over the business cycle