345 research outputs found
Effects of Economic Interactions on Credit Risk
We study a credit risk model which captures effects of economic interactions
on a firm's default probability. Economic interactions are represented as a
functionally defined graph, and the existence of both cooperative, and
competitive, business relations is taken into account. We provide an analytic
solution of the model in a limit where the number of business relations of each
company is large, but the overall fraction of the economy with which a given
company interacts may be small. While the effects of economic interactions are
relatively weak in typical (most probable) scenarios, they are pronounced in
situations of economic stress, and thus lead to a substantial fattening of the
tails of loss distributions in large loan portfolios. This manifests itself in
a pronounced enhancement of the Value at Risk computed for interacting
economies in comparison with their non-interacting counterparts.Comment: 24 pages, 6 figure
Consistency properties of a simulation-based estimator for dynamic processes
This paper considers a simulation-based estimator for a general class of
Markovian processes and explores some strong consistency properties of the
estimator. The estimation problem is defined over a continuum of invariant
distributions indexed by a vector of parameters. A key step in the method of
proof is to show the uniform convergence (a.s.) of a family of sample
distributions over the domain of parameters. This uniform convergence holds
under mild continuity and monotonicity conditions on the dynamic process. The
estimator is applied to an asset pricing model with technology adoption. A
challenge for this model is to generate the observed high volatility of stock
markets along with the much lower volatility of other real economic aggregates.Comment: Published in at http://dx.doi.org/10.1214/09-AAP608 the Annals of
Applied Probability (http://www.imstat.org/aap/) by the Institute of
Mathematical Statistics (http://www.imstat.org
Memory, multiple equilibria and emerging market crises
We present a new Generalized Markov Equilibrium (GME) approach to studying sudden stops
and financial crises in emerging countries in the canonical small open economy model with equilibrium price-dependent collateral constraints. Our approach to characterizing and computing stochastic
equilibrium dynamics is global, encompasses recursive equilibrium as a special case, yet allows for a
much more flexible approach to modeling memory in such models that are known to have multiple
equilibrium. We prove the existence of ergodic GME selections from the set of sequential competitive
equilibrium, and show that at the same time ergodic GME selectors can replicate all the observed
phases of the macro crises associated with a sudden stop (boom, collapse, spiralized recession, recovery) while still being able to capture the long-run stylized behavior of the data. We also compute
stochastic equilibrium dynamics associated with stationary and nonstationary GME selections, and
we find that a) the ergodic GME selectors generate stochastic dynamics that are less financially
constrained with respect to stationary non-ergodic paths, b) non-stationary GME selections exhibit
a great range of fluctuations in macroeconomic aggregates compared to the stationary selections.
From a theoretical perspective, we prove the existence of both sequential competitive equilibrium
and (minimal state space) recursive equilibrium, as well as provide a complete theory of robust
recursive equilibrium comparative statics in deep parameters. Consistent with recent results in the
literature, relative to the set of recursive equilibrium, we find 2 stationary equilibrium: one with
high/over borrowing, the other with low/under borrowing. These equilibrium are extremal and “selffulfilling” under rational expectations. The selection among these equilibria depend on observable
variables and not on sunspots
Local Interactions
Local interactions refer to social and economic phenomena where individuals' choices are influenced by the choices of others who are "close" to them socially or geographically. This represents a fairly accurate picture of human experience. Furthermore, since local interactions
imply particular forms of externalities, their presence typically suggests government action. I survey and discuss existing theoretical work on economies with local interactions and point to areas for further research
Memoria, equilibrios múltiples y crisis en países emergentes
We present a new Generalized Markov Equilibrium (GME) approach to studying sudden stops and financial crises in emerging countries in the canonical small open economy model with equilib-rium price-dependent collateral constraints. Our approach to characterizing and computing stochastic equilibrium dynamics is global, encompasses recursive equilibrium as a special case, yet allows for a much more flexible approach to modeling memory in such models that are known to have multiple equilibrium. We prove the existence of ergodic GME selections from the set of sequential competitive equilibrium, and show that at the same time ergodic GME selectors can replicate all the observed phases of the macro crises associated with a sudden stop (boom, collapse, spiralized recession, recov-ery) while still being able to capture the long-run stylized behavior of the data. We also compute stochastic equilibrium dynamics associated with stationary and nonstationary GME selections, and we find that: a) the ergodic GME selectors generate stochastic dynamics that are less financially constrained with respect to stationary non-ergodic paths; and, b) non-stationary GME selections ex-hibit a great range of fluctuations in macroeconomic aggregates compared to the stationary selections. From a theoretical perspective, we prove the existence of both sequential competitive equilibrium and (minimal state space) recursive equilibrium, as well as provide a complete theory of robust recursive equilibrium comparative statics in deep parameters. Consistent with recent results in the literature, relative to the set of recursive equilibrium, we find 2 stationary equilibrium: one with high/over borrowing, the other with low/under borrowing. These equilibrium are extremal and “self-fulfilling” under rational expectations. The selection among these equilibria depend on observable variables and not on sunspots.Presentamos un nuevo equilibrio generalizado de Markov (GME) para estudiar crisis de balanza de pagos en economías emergentes que sufren fricciones financieras en la forma de restricciones de colateral. Nuestro enfoque permite caracterizar y computar los equilibrios dinámicos y estocásticos en forma global, comprende a otros equilibrios recursivos (como los de espacio de esta mínimo) y representa una forma flexible de modelar “memoria” en estas economías que suelen tener equilibrios múltiples. Probamos la existencia de un GME ergódico cómo una selección del equilibrio secuencial el cual a su vez puede replicar tanto todas las fases de una crisis de balanza de pagos cómo los hechos estilizados de largo plazo. Computamos el equilibrio ergódico, estacionario y no estacionario. Encontramos que el equilibrio ergódico tiene trayectorias del consumo más suaves y que el no estacionario puede replicar un gran rango de crisis de balanza de pagos. Desde una perspectiva teórica, probamos la existencia del equilibrio secuencial y recursivo en espacio de estados mínimos, como así también resultados de estática comparativa robusta. En línea con la literatura, encontramos 2 tipos de equilibrios estacionarios: uno con alto y el otro con bajo endeudamiento. Estos equilibrios son auto-validantes en expectativas racionales y no requieren de manchas solares para su coordinación
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The Dynamic Free Rider Problem: A Laboratory Study
We report the results of an experiment that investigates free riding in the accumulation of durable public goods. We consider economies with reversibility, where contributions can be positive or negative; and economies with irreversibility, where contributions are nonnegative. Aggregate outcomes support the qualitative predictions of the Markov Perfect Equilibria (MPE) characterized in Battaglini, Nunnari, and Palfrey (2014): steady state levels of public good are lower with reversibility than irreversibility; accumulation is inefficiently slow; and the public good is under-provided in both regimes. On the other hand, public good levels are higher than MPE, and some evidence of history dependence is detected
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