Ambiguity Aversion, the Equity Premium and the Welfare Costs of Business Cycles

We examine the potential importance of consumer ambiguity aversion for asset prices and how consumption ‡fluctuations influence consumer welfare. First, considering a simple Mehra-Prescott-style endowment economy with a representative agent facing consumption fluctuations calibrated to match U.S. data, we study to what extent ambiguity aversion can deliver asset prices that are consistent with data: a high return on equity and a low return on riskfree bonds. For some configurations of preference parameters— a discount factor, a degree of relative risk aversion, and a measure of ambiguity aversion— we find that it can. Then, we use these parameter configurations to investigate how much consumers would be willing to pay to reduce endowment fluctuations to zero, thus delivering a Lucas-style welfare cost of fluctuations. These costs turn out to be very large: consumers are willing to pay over 10% of consumption in permanent terms.Ambiguity aversion; asset prices; business cycle

Patterns of exchange, fiat money, and the welfare costs of inflation

We seem to observe different patterns of exchange at different times and in different places. The first goal of this paper is to develop a model of money as a medium of exchange which allows multiple transaction patterns. A dynamic version of Shubik’s trading post economy is used, and it is shown that this economy allows a role for fiat money, and that fiat money can coexist with barter in exchange. There are multiple decentralized equilibria, and one of these resembles the equilibrium of a cash-in-advance economy—indeed, the model can be viewed as a generalization of the cash-in-advance framework. The second goal of the paper is to show that the present model can help explain why inflation seems far more disruptive and costly than what is implied by empirical studies on the cash-in-advance model. The argument for this is based on misestimations due to the unobservability of the patterns of exchange, which are variable in this model.Inflation (Finance)

Forensic investigations of disasters: Past achievements and new directions

In the 2020s, understanding disaster risk requires a strong and clear recognition of values and goals that influence the use of political and economic power and social authority to guide growth and development. This configuration of values, goals, power and authority may also lead to concrete drivers of risk at any one time. Building on previous disaster risk frameworks and experiences from practice, since 2010, the ‘Forensic Investigations of Disasters (FORIN)’ approach has been developed to support transdisciplinary research on the transformational pathways societies may follow to recognise and address root causes and drivers of disaster risk. This article explores and assesses the achievements and failures of the FORIN approach. It also focuses on shedding light upon key requirements for new approaches and understandings of disaster risk research. The new requirements stem not only from the uncompleted ambitions of FORIN and the forensic approach but also from dramatic and ongoing transformational changes characterised by climate change, the coronavirus disease 2019 (COVID-19) pandemic and the threat of global international confrontation, among other potential crises, both those that can be identified and those not yet identified or unknown. Contribution: Disasters associated with extreme natural events cannot be treated in isolation. A comprehensive “all risks” or “all disasters” approach is essential for a global transformation, which could lead to a better world order. To achieve this, an Intergovernmental Panel for Disaster Risk is suggested to assess risk science periodically and work towards sustainability, human rights, and accountability, within a development and human security frame and on a systemic basis and integrated perspective

Why do banks promise to pay par on demand?

We survey the theories of why banks promise to pay par on demand and examine evidence about the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature can be broadly divided into four strands: liquidity provision, asymmetric information, legal restrictions, and a medium of exchange. We assume that it is not zero cost to make a promise to redeem a liability at par value on demand. If so, then the conditions in the theories that result in par redemption are possible explanations of why banks promise to pay par on demand. If the explanation based on customers’ demand for liquidity is correct, payment of deposits at par will be promised when banks hold assets that are illiquid in the short run. If the asymmetric-information explanation based on the difficulty of valuing assets is correct, the marketability of banks’ assets determines whether banks promise to pay par. If the legal restrictions explanation of par redemption is correct, banks will not promise to pay par if they are not required to do so. If the transaction explanation is correct, banks will promise to pay par value only if the deposits are used in transactions. After the survey of the theoretical literature, we examine the history of banking in several countries in different eras: fourth-century Athens, medieval Italy, Japan, and free banking and money market mutual funds in the United States. We find that all of the theories can explain some of the observed banking arrangements, and none explain all of them

Latin American study of hereditary breast and ovarian cancer LACAM : a genomic epidemiology approach

Q2Q1Artículo original1-13Purpose: Hereditary Breast and Ovarian Cancer (HBOC) syndrome is responsible for ~5–10% of all diagnosed breast and ovarian cancers. Breast cancer is the most common malignancy and the leading cause of cancer-related mortality among women in Latin America (LA). The main objective of this study was to develop a comprehensive understanding of the genomic epidemiology of HBOC throughout the establishment of The Latin American consortium for HBOC-LACAM, consisting of specialists from 5 countries in LA and the description of the genomic results from the first phase of the study. Methods: We have recruited 403 individuals that fulfilled the criteria for HBOC from 11 health institutions of Argentina, Colombia, Guatemala, Mexico and Peru. A pilot cohort of 222 individuals was analyzed by NGS gene panels. One hundred forty-three genes were selected on the basis of their putative role in susceptibility to different hereditary cancers. Libraries were sequenced in MiSeq (Illumina, Inc.) and PGM (Ion Torrent-Thermo Fisher Scientific) platforms. Results: The overall prevalence of pathogenic variants was 17% (38/222); the distribution spanned 14 genes and varied by country. The highest relative prevalence of pathogenic variants was found in patients from Argentina (25%, 14/57), followed by Mexico (18%, 12/68), Guatemala (16%, 3/19), and Colombia (13%, 10/78). Pathogenic variants were found in BRCA1 (20%) and BRCA2 (29%) genes. Pathogenic variants were found in other 12 genes, including high and moderate risk genes such as MSH2, MSH6, MUTYH, and PALB2. Additional pathogenic variants were found in HBOC unrelated genes such as DCLRE1C, WRN, PDE11A, and PDGFB. Conclusion: In this first phase of the project, we recruited 403 individuals and evaluated the germline genetic alterations in an initial cohort of 222 patients among 4 countries. Our data show for the first time in LA the distribution of pathogenic variants in a broad set of cancer susceptibility genes in HBOC. Even though we used extended gene panels, there was still a high proportion of patients without any detectable pathogenic variant, which emphasizes the larger, unexplored genetic nature of the disease in these populations

Patterns of exchange, fiat money and the welfare costs of inflation

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Persistent, Nonfundamental Exchange Rate Fluctuations

A trading-post model of money is used to show how exchange rates can be affected by extrinsic uncertainty. With no uncertainty in fundamentals, we demonstrate that there exist equilibria where exchange rates as well as consumption allocations follow a stationary random process. The uctuations are permanent, and they affect economic welfare. These findings also apply when the currency supplies grow at different rates. Then, the only stationary equilibria in which both monies are valued are those with uctuations: the real value of the currencies follow a stationary process, and the average return on the fast-growing currency is lower than that of the slow-growing currency. (Copyright: Elsevier)

Patterns of Exchange, Fiat Money, and Coordination

Many argue that the intrinsic uselessness of fiat money makes ``coordination'' an essential part of monetary theory: consumers could all equally well coordinate on believing that fiat money has no value. The coordination view suggests, however, that many transactions patterns are in fact possible as economic outcomes. Indeed, we do seem to observe different patterns of exchange at different times and in different places, and the relative importance of money is probably not a universal constant. The main goal of this paper is to develop a simple model of money's role as a medium of exchange when multiple transaction patterns are possible. The coordination view is conveniently analyzed in a dynamic version of Shubik's game-theoretic trading post economy. This economy allows a role for fiat money, and fiat money can coexist with barter in exchange. There are multiple decentralized equilibria, and one of these coincides with the equilibrium of a cash-in-advance economy: the model can be viewed as a generalization of the cash-in-advance framework. Other equilibria use both money and other, intrinsically valuable, objects as media of exchange. One implication of the coordination view is that the effects of monetary policy in general depend on the equilibrium transactions pattern. The paper illustrates this point by showing how estimates of the welfare costs of inflation may be biased depending on the econometrician's beliefs about the transactions patterns.