1,720,983 research outputs found
Independence, Heterogeneity and Uniqueness in Interaction Games
Get PDFThis paper shows that incomplete information and sufficient heterogeneity of players can ensure uniqueness in interaction games. In contrast to recent work on uniqueness in interaction games, we do not require strategic complementarity. There are two parts to the argument. First, if a player’s signal is sufficiently uninformative of the signals of its opponents (in the sense of the Fisher information of the signal), then the player’s best response to any strategy profile of its opponents is non-decreasing in its signal. Secondly, a contraction mapping argument shows that sufficient heterogeneity ensures that equilibrium is unique.Co-ordination, Interaction games, Heterogeneity, Unique equilibrium
Neoclassical Growth Model with Externalities
Get PDFThis paper explores the local stability properties of the steady state in the twosector neoclassical growth model with sector–specific externalities. We show analytically that capital adjustment costs of any size preclude local indeterminacy nearby the steady state for every empirically plausible specification of the model parameters. More specifically, we show that when capital adjustment costs of any size are considered, a necessary condition for local indeterminacy is an upward-sloping labor demand curve in the capital-producing sector, which in turn requires an implausibly strong externality. We show numerically that capital adjustment costs of plausible size imply determinacy nearby the steady state for empirically plausible specifications of the other model parameters. These findings contrast sharply with the previous finding that local indeterminacy occurs in the two-sector model for a wide range of plausible parameter values when capital adjustment costs are abstracted from.capital adjustment costs; determinacy; externality; local indeterminacy; stability.
Contagion and State Dependent Mutations
Get PDFEarly results of evolutionary game theory showed that the risk dominant equilibrium is uniquely selected in the long run under the best-response dynamics with mutation. Bergin and Lipman (1996) qualified this result by showing that for a given population size the evolutionary process can select any strict Nash equilibrium if the probability of choosing a nonbest response is state-dependent. This paper shows that the unique selection of the risk dominant equilibrium is robust with respect to state dependent mutation in local interaction games. More precisely, for a given mutation structure there exists a minimum population size beyond which the risk dominant equilibrium is uniquely selected. Our result is driven by contagion and cohesion among players, which exist only in local interaction settings and favor the risk dominant strategy. Our result strengthens the equilibrium selection result of evolutionary game theory.contagion, state dependent mutations, risk dominance, local interaction games
The Fallacy of the Fiscal Theory of the Price Level
Full text linkIt is not common for an entire scholarly literature to be based on a fallacy, that is, 'on faulty reasoning; misleading or unsound argument'. The 'fiscal theory of the price level', recently re-developed by Woodford, Cochrane, Sims and others, is an example of a fatally flawed research programme. The source of the fallacy is an economic misspecification. The proponents of the fiscal theory of the price level do not accept the fundamental proposition that the government's intertemporal budget constraint is a constraint on the government's instruments that must be satisfied for all admissible values of the economy-wide endogenous variables. Instead they require it to be satisfied only in equilibrium. This economic misspecification has implications for the mathematical or logical properties of the equilibria supported by models purporting to demonstrate the properties of the fiscal approach. These include: overdetermined (internally inconsistent) equilibria; anomalies like the apparent ability to price things that do not exist; the need for arbitrary restrictions on the exogenous and predetermined variables in the government's budget constraint; and anomalous behaviour of the equilibrium' price sequences, including behaviour that will ultimately violate physical resource constraints. The issue is of more than academic interest. Policy conclusions could be drawn from the fiscal theory of the price level that would be harmful if they influenced the actual behaviour of the fiscal and monetary authorities. The fiscal theory of the price level implies that a government could exogenously fix its real spending, revenue and seigniorage plans, and that the general price level would adjust the real value of its contractual nominal debt obligations so as to ensure government solvency. When reality dawns, the result could be painful fiscal tightening, government default, or unplanned recourse to the inflation tax.
The Fallacy of the Fiscal Theory of the Price Level, Again
Full text linkThe Fiscal Theory of the Price Level (FTPL) rejects the fundamental 'Ricardian' proposition, that the government budget constraint must hold identically, that is for all admissible values of the variables entering the budget constraint. Accordingly, if the government is to meet its contractual debt obligations, one of its instruments must be determined residually to ensure the budget constraint is satisfied. If the government overdetermines its fiscal-financial-monetary policy programme, contractual debt obligations will not be met. The FTPL asserts that even when the government overdetermines its policy programme, contractual debt obligations will always be met. The general price level plays the role of a default premium or discount. The paper shows that the FTPL is a fallacy and leads to anomalies and contradictions.Fiscal theory of the price level, Ricardian fiscal rules, government budget constraint, price level indeterminacy
On the stability of the two-sector neoclassical growth model with externalities.
No full textAbstract This paper explores the local stability properties of the steady state in the two-sector neoclassical growth model with sector-specific externalities. We show analytically that capital adjustment costs of any size preclude local indeterminacy nearby the steady state for every empirically plausible specification of the model parameters. More specifically, we show that when capital adjustment costs of any size are considered, a necessary condition for local indeterminacy is an upward-sloping labor demand curve in the capital-producing sector, which in turn requires an implausibly strong externality. We show numerically that capital adjustment costs of plausible size imply determinacy nearby the steady state for empirically plausible specifications of the other model parameters. These findings contrast sharply with the previous finding that local indeterminacy occurs in the two-sector model for a wide range of plausible parameter values when capital adjustment costs are abstracted from
The Balassa-Samuelson Hypothesis Forty Years Later
No full textIt is well known that there are big cross-country differences in aggregate TFP. Are these differences uniform across sectors or are they driven by even larger TFP differences in specific sectors? Some forty years ago, Balassa and Samuelson hypothesized that the biggest TFP differences are in the tradable sectors. Providing empirical support for this hypothesis is hard because of the lack of data on sector inputs and outputs, at least outside the OECD. We get around this problem by employing economic theory to infer the missing information from the expenditure and price data of the 1996 Benchmark Study of the Penn World Tables. We distinguish between tradable and nontradable consumption and investment. We find that Balassa and Samuelson were right: the cross-country TFP differences are much larger in the tradable sectors than in the nontradables ones.
Occupational Choice, Financial Market Imperfections and Development
Full text linkWe develop a simple model of occupational choice under financial market im- perfections, in the presence of technological convexities. The aim is to analyze the quantitative effect of these imperfections on the level of income. We find that although their effect is relatively large, financial market imperfections alone are not able to explain the observed cross country difference in income. However, when interacted with the issue of mobility, those imperfections become much more relevant, to the point of pushing the economy into a development trap.
Macroeconomic Policy, Liberalization and Transition: Hungary's Case
Full text linkThe paper concentrates on economic developments; it does not treat issues related to domestic and foreign policy. It may well be the case that in the latter fields the trends are not encouraging, but these problems are beyond the focus of our paper. One of the major points we wish to demonstrate is that in spite of the clearly unfavourable recent economic developments, it would be too early to attribute Hungary`s present economic problems to its specific - "non-shock" - approach to the transition. Economic transition from a centrally planned economy to a market economy has no precedents and experience clearly indicates that almost all respective predictions turned out to be unfounded. The transition seems to be an extremely difficult Process, involving heavy economic and social costs. Temporary successes may be followed by lengthy set-backs. This is not to say that without political and economic transformation countries of the region would be better off; it only implies that as yet there are no solid grounds for forming strong judgements on the observed performance or the strategies pursued by individual countries. This paper discusses some of the major macroeconomic issues related to economic transition in Hungary and touches certain points related to comparison with other countries of the region. The first section treats the economic legacy of the democratically elected Hungarian government. The second deals with the initial policy-dilemma: shock-therapy or gradual changes. The major macroeconomic developments and policy issues of 1991-1992 are covered in section three. The fourth section deals with the major challenges facing the country in and after 1993. As a conclusion, the outlook of the Hungarian economy is discussed, comparisons with other countries of Central-Eastern Europe (CEE) are drawn and some lessons of the Hungarian experience are spelled out. It should be emphasized that the present survey does not cover the specific issues related to privatization in Hungary and in other CEE countries. This is explained by two reasons. First, the (English language) literature on the Hungarian transition and those of other CEE economies is saturated with publications on privatization; there is very little one can add to the already existing, vast amount of information.1 Second, and more importantly, those issues of macroeconomic policy that this study wishes to treat are not related directly to the problems of privatization. To put it more strongly, the over-discussed and over-politicised question of privatization is not considered to be a fundamental issue from the point of view of short-term macroeconomic management by the authors. The latter questions are covered only in the context of macroeconomic policies in this paper.Economic transition, Economic development, Hungary
Measuring Factor Income Shares at the Sectoral Level
Get PDFMany applications in economics use multi-sector versions of the growth model. In this paper, we measure the income shares of capital and labor at the sectoral level for the U.S. economy. We also decompose the capital shares into the income shares of land, structures, and equipment. We find that the capital shares differ across sectors. For example, the capital share of agriculture is more than two times that of construction and more than 50% larger than that of the aggregate economy. Moreover, agriculture has by far the largest land share, which mostly explains why it has the largest capital share. Our numbers can directly be used to calibrate standard multi-sector models. Alternatively, if one wants to abstract from differences in sector capital shares, our numbers can be used to establish that this is not crucial for the results.input-output tables; industry-by-commodity total requirement matrix; sector factor shares
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