62 research outputs found

    Till Labor Cost Do Us Part A Vecm Model of Unit Labor Cost Convergence in the Euro Area

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    A sustainable path of relative competitiveness among the EMU countries is a key factor for the survivorship of the currency union in the long run. We analyze unit labor costs in the European Union with VECM methodology to evaluate relative competitiveness of euro area countries, controlling for exchange rate on the adjustment dynamics, for the economy as a whole and for the manufacturing sector, considered as a proxy of the tradable sector. Results show a lack of convergence of member countries, which is more pronounced for the tradable sector. Persisting idiosyncratic dynamics may be driven by different bargaining policies and institutional structures of national labor markets, and by differential path of technological advance deterring convergence of long run productivity.Unit labor costs, Exchange Rates, Convergence, Competitiveness, Manufacturing Sector

    Higher order beliefs and the dynamics of exchange rates

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    This paper investigates the role of higher order beliefs in the formation of exchange rates. Our model combines a standard macroeconomic dynamics for the exchange rates with a microeconomic specification of agents' heterogeneity and their interactions. The empirical analysis relies on a state space model estimated through Bayesian methods. We exploit data on macroeconomic fundamentals in a panel of subjective forecasts on the euro/dollar exchange rate. The equilibrium strategy on the optimization process of the predictors shows that higher order beliefs is the relevant factor in performing individual forecasting. Moreover public information, namely past exchange rates and fundamentals, plays a crucial role as a coordination device to generate expectations among agents on the basis of their forecasting abilities

    Are self-regarding subjects more rational?

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    Through an experiment, we investigate how the level of rationality relates to concerns for equality and efficiency. Subjects perform dictator games and a guessing game. More rational subjects are not more frequently of the selfregarding type. When performing a comparison within the same degree of rationality, self-regarding subjects show more strategic sophistication than other subjects.steps of reasoning, other-regarding preferences

    Price and Wealth Asymptotic Dynamics with CRRA Technical Trading Strategies

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    In this paper we study the dynamics of a simple asset pricing model describing the trading activity of heterogeneous agents in a "stylized" market. The economy in the model contains two assets: a bond with risk-less return and a dividend paying stock. The price of the stock is determined through market clearing condition. Traders are speculators described as expected utility maximizers with heterogeneous beliefs about future stock price and with heterogeneous estimation of risk. In particular, we consider traders who base their investment decision on different time horizons and we analyze the effect of these differences on the price dynamics. Under suitable parameterization, the stock no-arbitrage "fundamental" price can emerge as a stable fixed point of the model dynamics. For different parameterizations, however, the market shows cyclical or chaotic price dynamics with speculative bubbles and crashes. We find that the sole heterogeneity of agents with respect to their time horizons is not enough to guarantee the instability of the fundamental price and the emergence of non-trivial price dynamics. However, if different groups of agents are characterized by different trading behaviors, the introduction of heterogeneous investment horizons can help to decrease the stability region of the "fundamental" fixed point. The role of time horizons turns out to be different for different trade behaviors and, in general, depends on the whole ecology of agents' beliefs. We demonstrate this effect discussing a case in which the increase of fundamentalists time horizons can lead to cyclical or chaotic price behavior, while the same increase for the chartists helps to stabilize the fundamental price.Asset pricing, Price and wealth dynamics, Large market limit, Optimal selection principle.

    Does Volatility matter? Expectations of price return and variability in an asset pricing experiment.

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    We present results of an experiment on expectation formation in an asset market. Participants to our experiment must provide forecasts of the stock future return to computerized utility-maximizing investors, and are rewarded according to how well their forecasts perform in the market. In the Baseline treatment participants must forecast the stock return one period ahead; in the Volatility treatment, we also elicit subjective confidence intervals of forecasts, which we take as a measure of perceived volatility. The realized asset price is derived from a Walrasian market equilibrium equation with non-linear feedback from individual forecasts. Our experimental markets exhibit high volatility, fat tails and other properties typical of real financial data. Eliciting confidence intervals for predictions has the effect of reducing price fluctuations and increasing subjects' coordination on a common prediction strategy.Experimental economics, Expectations, Coordination, Volatility, Asset pricing

    The Minority Game Unpacked: Coordination and Competition in a Team-based Experiment

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    In minority games, players in a group must decide at each round which of two available options to choose, knowing that only subjects who picked the minority op- tion obtain a positive reward. Previous experiments on the minority and similar congestion games have shown that players interacting repeatedly are remarkably able to coordinate eciently, despite not conforming to Nash equilibrium behavior. We conduct an experiment on a minority-of-three game in which each player is a team composed by three subjects. Each team can freely discuss its strategies in the game and decisions must be made via a majority rule. Team discussions are recorded and their content analyzed to detect evidence of strategy co-evolution among teams playing together. Our main results of team discussion analysis show no evidence sup- porting the mixed strategy Nash equilibrium solution, and support a low-rationality, backward-looking approach to model behavior in the game, more consistent with reinforcement learning models than with belief-based models. Showing level-2 ratio- nality (i.e., reasoning about others' beliefs) is positively and signicantly correlated with higher than average earnings in the game, showing that a mildly sophisticated approach pays off. In addition, teams that are more successful tend to become more egocentric over time, paying more attention to their own past successes than to the behavior of other teams. Finally, we nd evidence of mutual adaptation over time, as teams that are more strategic (i.e., they pay more attention to other teams' moves) induce competing teams to be more egocentric instead. Our results contribute to the understanding of coordination dynamics resting on heterogeneity and co-evolution of decision rules rather than on conformity to equilibrium behavior. In addition, they provide support at the decision process level to the validity of modeling behavior using low-rationality reinforcement learning models.coordination, minority game, market eciency, information, self-organization, reinforcement learning s

    Till Labor Cost Do Us Part. On the Long Run Convergence of EMU Countries

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    A sustainable long-run pattern in the relative competitiveness of euro area countries is a key factor for the survivorship of the monetary union. We analyze the issue focussing on unit labor cost dynamics using cointegration analysis for the whole economy and for the manufacturing sector separately. Our findings show that the introduction of the euro has increased, rather than decreased, the distance among member countries, as measured in the metric of unit labor costs. Dispersion of productivity rather than wage compensation suggests that persisting idiosyncratic dynamics are driven by real factors, i.e. diverging technological patterns rather than by monetary factors, expressed by wage compensation

    Price and Wealth Asymptotic Dynamics with CRRA Technical Trading Strategies

    Get PDF
    In this paper we study the dynamics of a simple asset pricing model describing the trading activity of heterogeneous agents in a "stylized" market. The economy in the model contains two assets: a bond with risk-less return and a dividend paying stock. The price of the stock is determined through market clearing condition. Traders are speculators described as expected utility maximizers with heterogeneous beliefs about future stock price and with heterogeneous estimation of risk. In particular, we consider traders who base their investment decision on different time horizons and we analyze the effect of these differences on the price dynamics. Under suitable parameterization, the stock no-arbitrage "fundamental" price can emerge as a stable fixed point of the model dynamics. For different parameterizations, however, the market shows cyclical or chaotic price dynamics with speculative bubbles and crashes. We find that the sole heterogeneity of agents with respect to their time horizons is not enough to guarantee the instability of the fundamental price and the emergence of non-trivial price dynamics. However, if different groups of agents are characterized by different trading behaviors, the introduction of heterogeneous investment horizons can help to decrease the stability region of the "fundamental" fixed point. The role of time horizons turns out to be different for different trade behaviors and, in general, depends on the whole ecology of agents' beliefs. We demonstrate this effect discussing a case in which the increase of fundamentalists time horizons can lead to cyclical or chaotic price behavior, while the same increase for the chartists helps to stabilize the fundamental price

    Are Self-regarding Subjects More Strategic?

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    To investigate the relationship between the depth of strategic thinking and social preferences we ask subjects in an experiment to perform dictator games and a guessing game. The guessing game measures depth of strategic thinking while dictator games control for social preferences. When performing a comparison within the same degree of strategic reasoning, self-regarding subjects show more strategic sophistication than other subjects

    On the role of fundamentals, private signals and beauty contest to predict exchange rates

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    This paper proposes a model where heterogeneous agents formulate their predictions of exchange rates based on a Bayesian learning process and higher-order beliefs where fundamentals and private information are used. We exploit survey data on professional forecasts to estimate the model through a Bayesian approach. Our analysis shows that higher-order beliefs are crucial, as they improve the ability to make predictions of exchange rates due to the possible coordination among agents. Moreover, public information plays the most critical role in determining individual predictions. Although the precision of the private signal is higher than the public one, information publicly revealed does exert a disproportionate influence, and differences in the estimated signals determine the equilibrium strategy of each agent as a combination of personal beliefs and higher-order expectations
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