79,622 research outputs found
Policy Evaluation in Uncertain Economic Environments
This paper develops a decision-theoretic approach to policy analysis. We argue that policy evaluation should be conducted on the basis of two factors: the policymaker's preferences, and the conditional distribution of the outcomes of interest given a policy and available information. From this perspective, the common practice of conditioning on a particular model is often inappropriate, since model uncertainty is an important element of policy evaluation. We advocate the use of model averaging to account for model uncertainty and show how it may be applied to policy evaluation exercises. We illustrate our approach with applications to monetary policy and to growth policy.
Regret in Dynamic Decision Problems
The paper proposes a framework to extend regret theory to dynamic contexts. The key idea is to conceive of a dynamic decision problem with regret as an intra-personal game in which the agent forms conjectures about the behaviour of the various counterfactual selves that he could have been. We derive behavioural implications in situations in which payoffs are correlated across either time or contingencies. In the first case, regret might lead to excess conservatism or a tendency to make up for missed opportunities. In the second case, behaviour is shaped by the agent’s self-conception. We relate our results to empirical evidence
Measuring the Behavioural Component of the S&P 500 and its Relationship to Financial Stress and Aggregated Earnings Surprises
Scholars in management and economics have shown increasing interest in isolating the
behavioural dimension of market evolution. Indeed, by improving forecast accuracy and
precision, this exercise would certainly help firms to anticipate economic fluctuations,
thus leading to more profitable business and investment strategies. Yet, how to extract
the behavioural component from real market data remains an open question. By using
monthly data on the returns of the constituents of the S&P 500 index, we propose a
Bayesian methodology to measure the extent to which market data conform to what is
predicted by prospect theory (the behavioural perspective), relative to the (standard) subjective
expected utility theory baseline.We document a significant behavioural component
that reaches its peaks during recession periods and is correlated to measures of financial
volatility, market sentiment and financial stress with expected sign. Moreover, the behavioural
component decreases around macroeconomic corporate earnings news, while it
reacts positively to the number of surprising announcements
Aversion to ambiguity and model misspecification in dynamic stochastic environments
Preferences that accommodate aversion to subjective uncertainty and its potential misspecification in dynamic settings are a valuable tool of analysis in many disciplines. By generalizing previous analyses, we propose a tractable approach to incorporating broadly conceived responses to uncertainty. We illustrate our approach on some stylized stochastic environments. By design, these discrete time environments have revealing continuous time limits. Drawing on these illustrations, we construct recursive representations of intertemporal preferences that allow for penalized and smooth ambiguity aversion to subjective uncertainty. These recursive representations imply continuous time limiting Hamilton–Jacobi–Bellman equations for solving control problems in the presence of uncertainty.Published versio
A Cost Approach to Economic Analysis under Production Uncertainty
This paper explores the economics of input decision by a firm facing production uncertainty. It relies on a state-contingent approach to production uncertainty. First, the paper develops a methodology to specify and estimate cost-minimizing input decisions under a state-contingent technology. Second, the analysis is applied to time series data on US agriculture. It finds strong empirical evidence that, in the analysis of input choices, expected output alone does not provide an appropriate representation of production uncertainty. The results provide empirical support for an output-cubical technology. This indicates that an ex post analysis of stochastic technology (as commonly found in previous research) appears appropriate. The analysis also provides evidence that the cost of facing adverse weather conditions has declined in US agriculture over the last few decades.production uncertainty, state contingent, cost, cubical technology., Research Methods/ Statistical Methods, C3, D21, D8,
The impact of pillar I support on farm choices: conceptual and methodological challenges
In the near future the CAP will continue to be structured around two pillars. In the first pillar the main instrument for producers’ support is the decoupled Single Farm Payment. In this paper we review the methodological framework for analysing decoupled payments in models of agricultural production. Market and technological uncertainty, credit constraints, farm household choices involving extra-agricultural decisions, policy uncertainty and long-run impact of decoupling on investment and land values are the relevant issues that should be pursued by methodological and empirical analysis. Future research should refine the analysis of decoupled payments, mainly trying to provide results that can be useful for policy simulation, to bridge the gap between analysis at the individual level and sector policy models.decoupled payments, agricultural production models, Common Agricultural Policy, Agricultural and Food Policy, Q12, Q18,
Estimation of labour supply functions using panel data: a survey
This survey aims at providing the reader with a thread through the literature on the topic of panel econometrics of labour supply, reporting also on the evaluation of the data used in these studies, and summarizing their substantive results. It documents the present trend away from models that take advantage of panel data almost exclusively in order to control for unobserved heterogeneity, towards fully dynamic models where wages become endogenous and consequently the concept of wage elasticity loses much of its appeal. --
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