http://hdl.handle.net/10023/65 2013-05-18T13:32:52Z 2013-05-18T13:32:52Z La Manna, Manfredi M A http://hdl.handle.net/10023/3497 2013-04-26T09:01:03Z 2013-04-01T00:00:00Z

Abstract: The paper shows that, whenever the completion of a research project requires the overcoming of more than one research obstacle, then Research Joint Ventures enjoy an intrinsic advantage relative to independent firms. This advantage, which has hitherto escaped attention in the RJV literature, relates to the RJV’s ability to organize research more efficiently than independent firms. The fact that RJVs can be both more profitable and yield higher expected net welfare than independent firms is surprising because it is derived from a model in which RJVs do not optimize over R&D investment. The paper exploits a basic result in systems reliability theory to establish the organizational superiority of RJVs.

2013-04-01T00:00:00Z La Manna, Manfredi M A The paper shows that, whenever the completion of a research project requires the overcoming of more than one research obstacle, then Research Joint Ventures enjoy an intrinsic advantage relative to independent firms. This advantage, which has hitherto escaped attention in the RJV literature, relates to the RJV’s ability to organize research more efficiently than independent firms. The fact that RJVs can be both more profitable and yield higher expected net welfare than independent firms is surprising because it is derived from a model in which RJVs do not optimize over R&D investment. The paper exploits a basic result in systems reliability theory to establish the organizational superiority of RJVs. Manzini, Paola Mariotti, Marco http://hdl.handle.net/10023/3457 2013-04-03T09:01:05Z 2013-03-01T00:00:00Z

Abstract: We model a boundedly rational agent who su¤ers from limited attention. The agent considers each feasible alternative with a given (unobservable) probability, the attention parameter, and then chooses the alternative that maximises a prefer- ence relation within the set of considered alternatives. We show that this random choice rule is the only one for which the impact of removing an alternative on the choice probability of any other alternative is asymmetric and menu independent. Both the preference relation and the attention parameters are identi…ed uniquely by stochastic choice data.

2013-03-01T00:00:00Z Manzini, Paola Mariotti, Marco We model a boundedly rational agent who su¤ers from limited attention. The agent considers each feasible alternative with a given (unobservable) probability, the attention parameter, and then chooses the alternative that maximises a prefer- ence relation within the set of considered alternatives. We show that this random choice rule is the only one for which the impact of removing an alternative on the choice probability of any other alternative is asymmetric and menu independent. Both the preference relation and the attention parameters are identi…ed uniquely by stochastic choice data. Senay, Ozge Sutherland, Alan http://hdl.handle.net/10023/3418 2013-03-22T14:01:02Z 2013-01-01T00:00:00Z

Abstract: Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule.

2013-01-01T00:00:00Z Senay, Ozge Sutherland, Alan Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule. Trew, Alex William http://hdl.handle.net/10023/3307 2012-12-17T17:31:01Z 2012-01-01T00:00:00Z

Abstract: The quality of contracting institutions has been thought to be of second-order importance next to the impact that good property rights institutions can have on long- run growth. Using a large range of proxies for each type of institution, we find a robust $negative$ link between the quality of contracting institutions and long-run growth when we condition on property rights and a number of additional macroeconomic variables. Although the result remains something of a puzzle, we present evidence which suggests that only when property rights institutions are good do contracting institutions appear also to be good for development. Good contracting institutions can reduce long-run growth when property rights are not secured, presumably because the gains from the (costly) contracting institutions cannot be realised. This suggests that contracting institutions can benefit growth, and that the sequence of institutional change can matter.

2012-01-01T00:00:00Z Trew, Alex William The quality of contracting institutions has been thought to be of second-order importance next to the impact that good property rights institutions can have on long- run growth. Using a large range of proxies for each type of institution, we find a robust $negative$ link between the quality of contracting institutions and long-run growth when we condition on property rights and a number of additional macroeconomic variables. Although the result remains something of a puzzle, we present evidence which suggests that only when property rights institutions are good do contracting institutions appear also to be good for development. Good contracting institutions can reduce long-run growth when property rights are not secured, presumably because the gains from the (costly) contracting institutions cannot be realised. This suggests that contracting institutions can benefit growth, and that the sequence of institutional change can matter. Kim, Seong-Hoon http://hdl.handle.net/10023/2744 2012-12-12T11:36:30Z 2011-12-01T00:00:00Z

Abstract: This paper introduces a classification of DSGEs from a Markovian perspective, and positions the class of POMDP (Partially Observable Markov Decision Process) to the center of a generalization of linear rational expectations models. The analysis of the POMDP class builds on the previous development in dynamic controls for linear system, and derives a solution algorithm by formulating an equilibrium as a fixed point of an operator that maps what we observe into what we believe. Description: Revised and resubmitted at Computational Economics

2011-12-01T00:00:00Z Kim, Seong-Hoon This paper introduces a classification of DSGEs from a Markovian perspective, and positions the class of POMDP (Partially Observable Markov Decision Process) to the center of a generalization of linear rational expectations models. The analysis of the POMDP class builds on the previous development in dynamic controls for linear system, and derives a solution algorithm by formulating an equilibrium as a fixed point of an operator that maps what we observe into what we believe. Devereux, Michael B. Senay, Ozge Sutherland, Alan http://hdl.handle.net/10023/2604 2012-12-12T11:36:37Z 2012-02-01T00:00:00Z

Abstract: Over the one and a half decades prior to the global financial crisis, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This is a highly robust prediction of open economy macro models with endogenous portfolio choice. It holds across many different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions.

2012-02-01T00:00:00Z Devereux, Michael B. Senay, Ozge Sutherland, Alan Over the one and a half decades prior to the global financial crisis, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This is a highly robust prediction of open economy macro models with endogenous portfolio choice. It holds across many different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions. Papi, Mauro http://hdl.handle.net/10023/2602 2012-12-12T11:36:34Z 2011-11-23T00:00:00Z

Abstract: A monopolist supplies a multi-attribute good and does not know whether the consumer makes or avoids tradeoffs between attributes. We illustrate a form of exploitation to which the tradeoff-avoiding consumer is vulnerable and draw some policy-relevant conclusions. Description: Submitted to the B.E. Journal of Theoretical Economics

2011-11-23T00:00:00Z Papi, Mauro A monopolist supplies a multi-attribute good and does not know whether the consumer makes or avoids tradeoffs between attributes. We illustrate a form of exploitation to which the tradeoff-avoiding consumer is vulnerable and draw some policy-relevant conclusions. Senay, Ozge Sutherland, Alan http://hdl.handle.net/10023/2601 2012-12-12T11:36:23Z 2010-01-01T00:00:00Z

Abstract: Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule.

2010-01-01T00:00:00Z Senay, Ozge Sutherland, Alan Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule. Kim, Seong-Hoon http://hdl.handle.net/10023/2599 2013-05-12T04:13:43Z 2012-01-01T00:00:00Z

Abstract: This paper introduces a classification of DSGEs from a Markovian perspective, and positions the class of POMDP (Partially Observable Markov Decision Process) to the center of a generalization of linear rational expectations models. The analysis of the POMDP class builds on the previous development in dynamic controls for linear system, and derives a solution algorithm by formulating an equilibrium as a fixed point of an operator that maps what we observe into what we believe.

2012-01-01T00:00:00Z Kim, Seong-Hoon This paper introduces a classification of DSGEs from a Markovian perspective, and positions the class of POMDP (Partially Observable Markov Decision Process) to the center of a generalization of linear rational expectations models. The analysis of the POMDP class builds on the previous development in dynamic controls for linear system, and derives a solution algorithm by formulating an equilibrium as a fixed point of an operator that maps what we observe into what we believe. Papi, Mauro http://hdl.handle.net/10023/2595 2012-12-12T13:22:04Z 2012-09-01T00:00:00Z

Abstract: Standard choice theory assumes that the budget set is known to the decision-maker in advance. In contrast, we develop a model in which alternatives are examined sequentially and decision-makers exhibit `satisficing' attitudes. We axiomatically characterize our model and investigate behavioral definitions of satisfaction, attention, and preference under various choice domains. Moreover, we relate our framework to several well-known existing models.

2012-09-01T00:00:00Z Papi, Mauro Standard choice theory assumes that the budget set is known to the decision-maker in advance. In contrast, we develop a model in which alternatives are examined sequentially and decision-makers exhibit `satisficing' attitudes. We axiomatically characterize our model and investigate behavioral definitions of satisfaction, attention, and preference under various choice domains. Moreover, we relate our framework to several well-known existing models. Manzini, Paola Mariotti, Marco http://hdl.handle.net/10023/2413 2013-05-12T03:34:25Z 2012-01-01T00:00:00Z

Abstract: In Tversky’s (1969) model of a lexicographic semiorder, a preference is generated via the sequential application of numerical criteria by declaring an alternative x better than an alternative y if the first criterion that distinguishes between x and y ranks x higher than y by an amount exceeding a fixed threshold. We generalize this idea to a fully fledged model of boundedly rational choice. We explore the connection with sequential rationalizability of choice (Apesteguia and Ballester 2010, Manzini and Mariotti 2007) and we provide axiomatic characterizations of both models in terms of observable choice data.

2012-01-01T00:00:00Z Manzini, Paola Mariotti, Marco In Tversky’s (1969) model of a lexicographic semiorder, a preference is generated via the sequential application of numerical criteria by declaring an alternative x better than an alternative y if the first criterion that distinguishes between x and y ranks x higher than y by an amount exceeding a fixed threshold. We generalize this idea to a fully fledged model of boundedly rational choice. We explore the connection with sequential rationalizability of choice (Apesteguia and Ballester 2010, Manzini and Mariotti 2007) and we provide axiomatic characterizations of both models in terms of observable choice data. Senay, Ozge http://hdl.handle.net/10023/2296 2013-05-12T04:31:26Z 2008-04-01T00:00:00Z

Abstract: This paper analyzes exchange-rate dynamics following a money-based disinflation under different degrees of exchange-rate pass-through. Using a microfounded dynamic general equilibrium model with imperfect competition and nominal rigidities, it is shown that a monetary slowdown causes an appreciation of the exchange rate and a short-run fall in employment. Varying the degree of pass-through, however, significantly alters the magnitudes of these effects. As the degree of pass-through is reduced, the extent of the short-run appreciation of the exchange rate increases and the short-run impact of the disinflation on employment falls.

2008-04-01T00:00:00Z Senay, Ozge This paper analyzes exchange-rate dynamics following a money-based disinflation under different degrees of exchange-rate pass-through. Using a microfounded dynamic general equilibrium model with imperfect competition and nominal rigidities, it is shown that a monetary slowdown causes an appreciation of the exchange rate and a short-run fall in employment. Varying the degree of pass-through, however, significantly alters the magnitudes of these effects. As the degree of pass-through is reduced, the extent of the short-run appreciation of the exchange rate increases and the short-run impact of the disinflation on employment falls. Senay, Ozge http://hdl.handle.net/10023/2286 2013-05-12T02:35:27Z 2008-07-01T00:00:00Z

Abstract: This paper analyses the welfare performance of a set of five alternative interest rate rules in an open economy stochastic dynamic general equilibrium model with nominal rigidities. A rule with a lagged interest rate term, high feedback on inflation and low feedback on output is found to yield the highest welfare for a small open economy. This result is robust across different degrees of openness, different sources of home and foreign shocks, alternative foreign monetary rules and different specifications for price-setting behaviour. The same rule emerges as both the Nash and cooperative equilibria in a two-country version of the model.

2008-07-01T00:00:00Z Senay, Ozge This paper analyses the welfare performance of a set of five alternative interest rate rules in an open economy stochastic dynamic general equilibrium model with nominal rigidities. A rule with a lagged interest rate term, high feedback on inflation and low feedback on output is found to yield the highest welfare for a small open economy. This result is robust across different degrees of openness, different sources of home and foreign shocks, alternative foreign monetary rules and different specifications for price-setting behaviour. The same rule emerges as both the Nash and cooperative equilibria in a two-country version of the model. Mitra, Kaushik Evans, George W Honkapohja, Seppo http://hdl.handle.net/10023/2260 2012-12-12T11:36:36Z 2012-01-01T00:00:00Z

Abstract: Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of "fiscal consolidations."

2012-01-01T00:00:00Z Mitra, Kaushik Evans, George W Honkapohja, Seppo Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of "fiscal consolidations." Senay, Ozge Sutherland, Alan http://hdl.handle.net/10023/2240 2012-12-12T11:36:24Z 2010-11-01T00:00:00Z

Abstract: Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price flexibility. The model shows that endogenising the degree of price flexibility tends to shift optimal monetary policy towards complete inflation stabilisation, even when shocks take the form of cost-push disturbances. This contrasts with the standard result obtained in models with exogenous price flexibility, which show that optimal monetary policy should allow some degree of inflation volatility in order to stabilise the welfare-relevant output gap.

2010-11-01T00:00:00Z Senay, Ozge Sutherland, Alan Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price flexibility. The model shows that endogenising the degree of price flexibility tends to shift optimal monetary policy towards complete inflation stabilisation, even when shocks take the form of cost-push disturbances. This contrasts with the standard result obtained in models with exogenous price flexibility, which show that optimal monetary policy should allow some degree of inflation volatility in order to stabilise the welfare-relevant output gap. Devereux, Michael B. Senay, Ozge Sutherland, Alan http://hdl.handle.net/10023/2231 2013-04-28T13:31:02Z 2012-01-01T00:00:00Z

Abstract: Over the one and a half decades prior to the global financial crisis, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This is a highly robust prediction of open economy macro models with endogenous portfolio choice. It holds across many different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions.

2012-01-01T00:00:00Z Devereux, Michael B. Senay, Ozge Sutherland, Alan Over the one and a half decades prior to the global financial crisis, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This is a highly robust prediction of open economy macro models with endogenous portfolio choice. It holds across many different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions. Kim, Seong-Hoon Moon, Seongman http://hdl.handle.net/10023/2173 2012-12-12T11:36:34Z 2012-01-01T00:00:00Z

Abstract: In this paper, we consider a producer who faces uninsurable business risks due to incomplete spanning of asset markets over stochastic goods market outcomes, and examine how the presence of the uninsurable business risks affects the producer's optimal pricing and production behaviours. Three key (inter-related) results we find are: (1) optimal prices in goods markets comprise ‘markup’ to the extent of market power and ‘premium’ by shadow price of the risks; (2) price inertia as we observe in data can be explained by a joint work of risk neutralization motive and marginal cost equalization condition; (3) the relative responsiveness of risk neutralization motive and marginal cost equalization at optimum is central to the cyclical variation of markups, providing a consistent explanation for procyclical and countercyclical movements. By these results, the proposed theory of producer leaves important implications both micro and macro, and both empirical and theoretical.

2012-01-01T00:00:00Z Kim, Seong-Hoon Moon, Seongman In this paper, we consider a producer who faces uninsurable business risks due to incomplete spanning of asset markets over stochastic goods market outcomes, and examine how the presence of the uninsurable business risks affects the producer's optimal pricing and production behaviours. Three key (inter-related) results we find are: (1) optimal prices in goods markets comprise ‘markup’ to the extent of market power and ‘premium’ by shadow price of the risks; (2) price inertia as we observe in data can be explained by a joint work of risk neutralization motive and marginal cost equalization condition; (3) the relative responsiveness of risk neutralization motive and marginal cost equalization at optimum is central to the cyclical variation of markups, providing a consistent explanation for procyclical and countercyclical movements. By these results, the proposed theory of producer leaves important implications both micro and macro, and both empirical and theoretical. Lasselle, Laurence Svizzero, S Tisdell, C http://hdl.handle.net/10023/1534 2013-05-12T01:32:33Z 2005-11-01T00:00:00Z

Abstract: We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark-Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.

2005-11-01T00:00:00Z Lasselle, Laurence Svizzero, S Tisdell, C We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark-Sacker bifurcation can occur as primary bifurcation when the steady state is unstable. Sutherland, Alan Senay, Ozge http://hdl.handle.net/10023/905 2013-04-18T22:13:17Z 2010-01-01T00:00:00Z

Abstract: Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price flexibility. The model shows that endogenising the degree of price flexibility tends to shift optimal monetary policy towards complete inflation stabilisation, even when shocks take the form of cost-push distur¬bances. This contrasts with the standard result obtained in models with exogenous price flexibility, which show that optimal monetary policy should allow some degree of inflation volatility in order to stabilise the welfare-relevant output gap.

2010-01-01T00:00:00Z Sutherland, Alan Senay, Ozge Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price flexibility. The model shows that endogenising the degree of price flexibility tends to shift optimal monetary policy towards complete inflation stabilisation, even when shocks take the form of cost-push distur¬bances. This contrasts with the standard result obtained in models with exogenous price flexibility, which show that optimal monetary policy should allow some degree of inflation volatility in order to stabilise the welfare-relevant output gap.