8,542 research outputs found
Inequality reversal: effects of the savings propensity and correlated returns
In the last decade, a large body of literature has been developed to explain
the universal features of inequality in terms of income and wealth. By now, it
is established that the distributions of income and wealth in various economies
show a number of statistical regularities. There are several models to explain
such static features of inequality in an unifying framework and the kinetic
exchange models, in particular, provide one such framework. Here we focus on
the dynamic features of inequality. In the process of development and growth,
inequality in an economy in terms of income and wealth follows a particular
pattern of rising in the initial stage followed by an eventual fall. This
inverted U-shaped curve is known as the Kuznets Curve. We examine the
possibilities of such behavior of an economy in the context of a generalized
kinetic exchange model. It is shown that under some specific conditions, our
model economy indeed shows inequality reversal.Comment: 15 pages, 5 figure
Econophysics, Statistical Mechanics Approach to
This is a review article for Encyclopedia of Complexity and System Science,
to be published by Springer http://refworks.springer.com/complexity/. The paper
reviews statistical models for money, wealth, and income distributions
developed in the econophysics literature since late 1990s.Comment: 24 pages, 11 figures, 151 citations. V.2: one reference added. V.3:
many minor corrections, some references added. V.4: many minor stylistic
corrections incorporated after receiving the proof
Ambiguity in asset pricing and portfolio choice: a review of the literature
A growing body of empirical evidence suggests that investors’ behavior is not well described by the traditional paradigm of (subjective) expected utility maximization under rational expectations. A literature has arisen that models agents whose choices are consistent with models that are less restrictive than the standard subjective expected utility framework. In this paper we conduct a survey of the existing literature that has explored the implications of decision-making under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. We conclude that the ambiguity literature has led to a number of significant advances in our ability to rationalize empirical features of asset returns and portfolio decisions, such as the empirical failure of the two-fund separation theorem in portfolio decisions, the modest exposure to risky securities observed for a majority of investors, the home equity preference in international portfolio diversification, the excess volatility of asset returns, the equity premium and the risk-free rate puzzles, and the occurrence of trading break-downs.Capital assets pricing model ; Investments
Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model
We show that a flex-price two-sector open economy DSGE model can explain the poor degree of international risk sharing and exchange rate disconnect. We use a suite of model evaluation measures and examine the role of (i) traded and non-traded sectors; (ii) financial market incompleteness; (iii)
preference shocks; (iv) deviations from UIP condition for the exchange rates;
and (v) creditor status in net foreign assets. We find that there is a good case for
both traded and non-traded productivity shocks as well as UIP deviations in
explaining the puzzles
U.S. International Capital Flows: Perspectives From Rational Maximizing Models
This paper examines several aspects of the debate about the causes of the U.S. current account deficit in the 1980's. It surveys several popular explanations before developing two theoretical models of international capital flows. The first model is Ricardian, and it extends the analysis of Stockman and Svensson (1987): The second model is an overlapping generations framework. The major difference in predictions of these two models involves the effects of government budget deficits on the exchange rate and the current account. An update of the empirical investigation of Evans (1986) suggests that his VAR methodology is completely uninformative with additional data. Some empirical results on the importance of risk aversion in modeling international capital market equilibrium are also presented.
The Implications of First-Order Risk Aversion for Asset Market Risk Premiums
Existing general equilibrium models based on traditional expected utility preferences have been unable to explain the excess return predictability observed in equity markets, bond markets, and foreign exchange markets. In this paper, we abandon the expected-utility hypothesis in favor of preferences that exhibit first-order risk aversion. We incorporate these preferences into a general equilibrium two-country monetary model, solve the model numerically, and compare the quantitative implications of the model to estimates obtained from U.S. and Japanese data for equity, bond and foreign exchange markets. Although increasing the degree of first-order risk aversion substantially increases excess return predictability, the model remains incapable of generating excess return predictability sufficiently large to match the data. We conclude that the observed patterns of excess return predictability are unlikely to be explained purely by time-varying risk premiums generated by highly risk averse agents in a complete markets economy.
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