Complementarities in information acquisition with short-term trades

In a financial market where agents trade for short-term profit and where news can increase the uncertainty of the public belief, there are strategic complementarities in the acquisition of private information and, if the cost of information is sufficiently small, a continuum of equilibrium strategies. Imperfect observation of past prices reduces the continuum of Nash equilibria to a Strongly Rational-Expectations Equilibrium. In that equilibrium, there are two sharply different regimes for the evolution of the price, the volume of trade, and information acquisition.Endogenous information, short-term gain, microstructure, strategic complementarity, multiple equilibria, Strongly Rational-Expectations Equilibrium, trading frenzies

Strategic complementarity of information acquisition in a financial market with discrete demand shocks

A simple model of financial market with rational learning and without friction is presented in which the value of private information increases with the mass of informed individuals, contrary to the property presented by Grossman and Stiglitz (1980). The key assumption is the possibility of independent discrete shocks on the fundamental value and on an exogenous demand.endogenous information ; strategic complementarity ; financial markets ; aggregation of information

Taxation of financial intermediation : measurement principles and application to five African countries

The purpose of this study is to set out a practical method for analyzing how inflation, interest ceilings, reserve requirements and like impositions have had tax-like effects and how they can be compared with explicit taxes. Using this method estimates of the varying magnitudes of the total taxation of financial intermediation in five African economies during recent years are computed. The paper explores the macroeconomic and fiscal dynamics which have contributed to the use of heavy taxation on the financial sector in certain countries and for certain periods. The likely impact of these taxes on efficiency is also examined.Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics&Finance,Insurance&Risk Mitigation

Strategic complementarity of information acquisition in a financial market with discrete demand shocks

A simple model of financial market with rational learning and without friction is presented in which the value of private information increases with the mass of informed individuals, contrary to the property presented by Grossman and Stiglitz (1980). The key assumption is the possibility of independent discrete shocks on the fundamental value and on an exogenous demand

On the Infinite Welfare Cost of Inflation and Other Second Order Effects

The optimal inflation rate is analyzed in a simple model of intertemporal general equilibrium where agents have an operative bequest motive and taxation is distortionary. Monetary balances are used as a productive input, and agents have perfect foresight. The optimal value of the permanent inflation rate can be approximated by a simple formula. The case in which the growth of aggregate income exceeds the social discount rate is unlikely to be important, and the optimal value of the permanent inflation rate depends on the existence of a short-run trade-off between unemployment and inflation

A General Equilibrium Expression of the Paradox of Thrift

A model is presented which is derived from some observations of Keynes on the nature of capital. The allocation of investment is analyzed in two economies with random demand shocks which are identical except for the types of markets. In the first, the combination of an asset and forward markets realizes the complete set of markets. In the second, the forward markets are replaced by spot markets. Consumers and entrepreneurs are rational and markets clear. A clear definition of the paradox of thrift is proposed and its existence is proven. The substitution of spot markets for forward markets generates fluctuations of the aggregate variables. The equilibrium with fluctuations is not always a constrained Pareto optimum

Optimal Taxation of Capital Income in Economies with Identical Private and Social Discount Rates

The optimal capital income tax is analyzed in the framework of intertemporal efficient taxation. The relation between the zero tax in the long-run and the equality between private and social discount rates is emphasized. The properties of the dynamic second best path described for a specific example (convergence to a steady state and values of the capital income tax in the transition). The case where wealth is a specific utility argument is also considered

The welfare cost of taxation and endogenous growth

The marginal efficiency costs of different taxes is analyzed in three models with endogenous growth, and the values are compared with those found in standard models. The models analyze how taxes affect (i) the trade-off between human capital accumulation and leisure, (ii) the intertemporal trade-off in consumption, and (iii) the trade-offs in a two-sector model. In general, the efficiency cost in models with endogenous growth may be greater or lower than in models with exogenous growth. When the value of the efficiency cost is very large, it is found to be very sensitive to the specification of the model, and it is reduced dramatically when government expenditures are a production input. In the two-sector model, the only tax which has a very high efficiency cost is the tax on time spent for human capital accumulation, and it may not be empirically important. It is verified that a positive impact of a tax reform on the long-term growth rate is not indicative of welfare improvement