Bayesian Methods in Nonlinear Time Series

This paper reviews the analysis of the threshold autoregressive, smooth threshold autoregressive, and Markov switching autoregressive models from the Bayesian perspective. For each model we start by describing a baseline model and discussing possible extensions and applications. Then we review the choice of prior, inference, tests against the linear hypothesis, and conclude with models selection. A short discussion of recent progress in incorporating regime changes into theoretical macroeconomic models concludes our survey.Threshold, Smooth Threshold, Markov-switching

Empirical Comparison of Sticky Price and Sticky Information Models

Mankiw and Reis (2002) have revived imperfect information explanations for the short run real effects of monetary policy. This paper contrasts their sticky information model with the standard sticky price model. First, I utilize a theoretical relation between aggregate prices and unit labor cost that allows me to leave unspecified household preferences, wage setting and money demand. Second, I introduce a modeling approach that allows me to nest the sticky price and the sticky information models within a single empirical framework. Third, I propose a single-step estimation method that provides consistent estimates of adjustment speeds and reliable confidence bands that enable me to reject flexible prices. Finally, I use the approach to carry out an empirical specification analysis of multiple structural models. An empirical comparison favors the sticky price explanation over the Mankiw-Reis model.sticky price, sticky information, model selection

The smooth transition autoregressive target zone model with the Gaussian stochastic volatility and TGARCH error terms with applications

This paper proposes to model the error term in smooth transition autoregressive target zone model as Gaussian with stochastic volatility (STARTZ-SV) or as Student-t with GARCH volatility (STARTZ-TGARCH). Using the dynamics of Norwegian krone exchange rate index, we show that both models produce standardized residuals that are closer to assumed distributions and do not produce a hump in the estimated marginal distribution of exchange rate which is more consistent with theoretical predictions. We apply developed models to test whether the dynamics of oil price can be well approximated by the Krugman’s target zone model. Our estimates of conditional volatility and marginal distribution reject the target zone hypothesis.target zone, oil price, exchange rate, stochastic volatility, griddy Gibbs, smooth transition

Expectations Anchoring in Inflation Targeting Regimes

Central banks adopt an inflation targeting policy with a goal to anchor inflation expectations. We argue that the expectations anchoring test developed in the context of the Krugman (1991) exchange rate targeting model is well-suited for inflation targeting applications. The test quantifies nonlinearity between realized and expected inflation for very high and very low inflation levels. It does not require comparison with the control group of non-targeting countries, avoiding critique of the benchmark approach. We test inflation targeting in Australia, Canada, New Zealand, Sweden, the United Kingdom and find weak support for expectations anchoring.monetary policy, inflation, exchange rate, target zone model, expectations anchoring

Posted - Offer Markets In Near Continuous Time: an Experimental Investigation

This paper reports an experiment conducted to evaluate a ‘near continuous’ variant of the posted-offer trading institution, where the number of periods in a market session is increased by reducing sharply each period’s maximum length. Experimental results suggest that although decisions in time-truncated periods are not equivalent to periods of longer duration, extensive repetition improves considerably the drawing power of equilibrium predictions in some challenging environments. Nevertheless, significant deviations remain in the near continuous framework. We also observe that the extra data collected in the near continuous framework allows new insights into price convergence and price signaling.experiment, monopoly, pricing, price signaling

Nominal Price Shocks in Monopolistically Competitive Markets: An Experimental Analysis

We report a market experiment that examines the capacity of price and information frictions to explain real responses to nominal price shocks. As predicted by the standard dynamic adjustment models, we find that both price and information frictions impede the response to a nominal shock. We also find, however, that the observed adjustment delays far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.Market Experiments, Price Rigidities, Information Rigidities, Bounded Rationality

Re-matching, Information and Sequencing Effects in Posted Offer Markets

This paper evaluates the effects of some standard procedural variations on outcomes in posted offer oligopoly experiments. Variations studied include the presence or absence of market information, the use of re-matching or fixed seller pairs and alterations in the order of sequencing. Experimental results indicate that such variations can have first order effects on outcomes. For this reason, we recommend that results in oligopoly experiments be carefully interpreted in light of the procedures selected.Market Experiments, Oligopoly, Re-Matching, Information, Market Concentration

Cooperation without Coordination: Signaling, Types and Tacit Collusion in Laboratory Oligopolies

We study the effects of price signaling activity and underlying propensities to cooperate on tacit collusion in posted offer markets. The primary experiment consists of an extensively repeated baseline sequence and a 'forecast' sequence that adds to the baseline a forecasting game that allows identification of signaling intentions. Forecast sequence results indicate that signaling intentions considerably exceed those that are counted under a standard signal measure based on previous period prices. Nevertheless, we find essentially no correlation between either measure of signal volumes and collusive efficiency. A second experiment demonstrates that underlying seller propensities to cooperate more clearly affect collusiveness.Experiments, Tacit Collusion, Price Signaling, TypesExperiments, Tacit Collusion, Price Signaling, Types

International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence

In this paper we take an agnostic view of the Phillips curve debate, and carry out an empirical investigation of the relative and absolute efficacy of Calvo sticky price (SP), sticky information (SI), and sticky price with indexation models (SPI), with emphasis on their ability to mimic inflationary dynamics. In particular, we look at evidence for a group of 13 OECD countries, and we consider three alternative measures of inflationary pressure, including the output gap, labor share, and unemployment. We find that the Calvo SP and the SI models essentially perform no better than a strawman constant inflation model, when used to explain inflation persistence. Indeed, virtually all inflationary dynamics end up being captured by the residuals of the estimated versions of these models. We find that SPI model is preferable because it captures the type of strong inflationary persistence that has in the past characterized the economies of the countries in our sample. However, two caveats to this conclusion are that improvement in performance is driven mostly by the time series part of the model (i.e. lagged inflation) and that the SPI model overemphasizes inflationary persistence. Thus, there appears to be room for improvement via either modified versions of the above models, or via development of new models, that better "track" inflation persistence.sticky price, sticky information, empirical distribution, model selection

Impure Altruism in Dictators’ Giving

We design an experiment to test whether the behavior of dictators can be rationalized by the impurely altruistic utility function. By giving the recipients an endowment of varying levels, we create an environment that allows for observable differences in behavior depending upon whether pure or impure altruism is the primary motivation. We find that the behavior of 66 percent of the dictators can be rationalized by the impurely altruistic utility function, while only 40 percent of the dictators make choices that are consistent with the purely altruistic utility function.Dictator Game, Impure Altruism, Incomplete Crowding Out