scholarly journals Complementarity Modeling of a Ramsey-Type Equilibrium Problem with Heterogeneous Agents

2021 ◽  
Author(s):  
Leonhard Frerick ◽  
Georg Müller-Fürstenberger ◽  
Martin Schmidt ◽  
Max Späth
Keyword(s):  
Interest Rates ◽  
Heterogeneous Agents ◽  
Existence Of Solutions ◽  
Growth Dynamics ◽  
Discrete Form ◽  
Discount Factors ◽  
Mixed Complementarity Problem ◽  
Finite Dimensional ◽  
Initial Wealth ◽  
Ramsey Type

AbstractWe contribute to the field of Ramsey-type equilibrium models with heterogeneous agents. To this end, we state such a model in a time-continuous and time-discrete form, which in the latter case leads to a finite-dimensional mixed complementarity problem. We prove the existence of solutions of the latter problem using the theory of variational inequalities and present further properties of its solutions. Finally, we compute the growth dynamics in a calibrated model in which households differ with respect to their relative risk aversion, their discount factors, their initial wealth, and with respect to their interest rates on savings.

scholarly journals Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory

2019 ◽  
pp. 550-584 ◽  
Author(s):  
Gunther Schnabl
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Crisis Management ◽  
Growth Dynamics ◽  
Central Banking ◽  
Business Cycle Theory ◽  
Price Inflation ◽  
Austrian Business Cycle Theory ◽  
Austrian Business Cycle

This chapter analyzes the evolution and effects of central bank crisis management since the mid-1980s based on a Hayek-Mises-Wicksell overinvestment framework. It is shown that given that the traditional transmission mechanism between monetary policy and consumer price inflation has collapsed, asymmetric monetary policy crisis management implies a convergence of interest rates toward zero and a gradual expansion of central bank balance sheets. From a Wicksell-Hayek-Mises perspective, asymmetric central bank crisis management has contributed to financial market bubbles, decreasing marginal efficiency of investment, increasing income inequality, and declining growth dynamics. The economic policy implication is a slow but decisive exit from ultra-expansionary monetary policies.

Pricing Risks Across Currency Denominations

2019 ◽  
Vol 65 (12) ◽  
pp. 5308-5336 ◽  
Author(s):  
Thomas A. Maurer ◽  
Thuy-Duong Tô ◽  
Ngoc-Khanh Tran
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Cross Section ◽  
Principal Component ◽  
Sharpe Ratio ◽  
Global Risk ◽  
Discount Factors ◽  
Risk Sources ◽  
The Cross ◽  
Fx Market

We use principal component analysis on 55 bilateral exchange rates of 11 developed currencies to identify two important global risk sources in foreign exchange (FX) markets. The risk sources are related to Carry and Dollar but are not spanned by these factors. We estimate the market prices associated with the two risk sources in the cross-section of FX market returns and construct FX market-implied country-specific stochastic discount factors (SDFs). The SDF volatilities are related to interest rates and expected carry trade returns in the cross-section. The SDFs price international stock returns and are related to important financial stress indicators and macroeconomic fundamentals. The first principal risk is associated with the Treasury-EuroDollar (TED) spread, quantities measuring volatility, tail and contagion risks, and future economic growth. It earns a relatively small implied Sharpe ratio. The second principal risk is associated with the default and term spreads and quantities capturing volatility and illiquidity risks. It further correlates with future changes in the long-term interest rate and earns a large implied Sharpe ratio. This paper was accepted by Lauren Cohen, finance.

scholarly journals Beauty Contests and the Term Structure

2021 ◽  
Author(s):  
Martin Ellison ◽  
Andreas Tischbirek
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Aggregate Demand ◽  
Significant Proportion ◽  
Real Term ◽  
Quantitative Model ◽  
Discount Factors ◽  
Stochastic Discount Factors ◽  
Beauty Contest ◽  
Term Premia

Abstract A novel decomposition highlights the scope for information to influence the term structure of interest rates. Based on the law of total covariance, we show that real term premia in macroeconomic models contain a component that depends on covariances of realised stochastic discount factors and a component that depends on covariances of expectations of those stochastic discount factors. The covariance of expectations is typically low in macro-finance models, which contributes to the real term premia implied by the models being at least an order of magnitude too small, a result that is unchanged even if we introduce aggregate demand externalities combined with shocks to higher-order beliefs. We argue that generating realistic term premia requires there to be strategic complementarities in the formation of expectations. A quantitative model, in which beliefs are formed in a beauty contest, can explain a significant proportion of observed term premia, when estimated using data on expectations of productivity growth from the Survey of Professional Forecasters.

WELL-POSEDNESS OF FOKKER–PLANCK TYPE EQUATIONS ON THE WIENER SPACE

2010 ◽  
Vol 13 (02) ◽  
pp. 273-304 ◽  
Author(s):  
DEJUN LUO
Keyword(s):  
Sobolev Space ◽  
Existence Of Solutions ◽  
Wiener Space ◽  
Well Posedness ◽  
Abstract Wiener Space ◽  
First Order ◽  
Finite Dimensional ◽  
Finite Dimensional Case ◽  
Fokker Planck Equations ◽  
Fokker Planck

We consider Fokker–Planck type equations on the abstract Wiener space. Under the assumptions that the coefficients have a certain Sobolev regularity and they, together with their gradients and divergences, are exponentially integrable, we establish the existence of solutions to these equations, based on the estimates for solutions to Fokker–Planck equations in the finite-dimensional case. Moreover, the solution is unique if it belongs to the first-order Sobolev space.

A NON-HOMOGENEOUS SEMI-MARKOV REWARD MODEL FOR THE CREDIT SPREAD COMPUTATION

2011 ◽  
Vol 14 (02) ◽  
pp. 221-238 ◽  
Author(s):  
GUGLIELMO D'AMICO ◽  
JACQUES JANSSEN ◽  
RAIMONDO MANCA
Keyword(s):  
Interest Rates ◽  
Credit Spread ◽  
Credit Spreads ◽  
Time Interval ◽  
Yield Spread ◽  
Migration Process ◽  
Discount Factors ◽  
Semi Markov Process ◽  
Markov Reward ◽  
Markov Reward Model

In this paper, we present a model to describe the evolution of the yield spread by considering the rating evaluation as the determinant of credit spreads. The underlying rating migration process is assumed to be a non-homogeneous discrete time semi-Markov process. We calculate the total sum of mean basis points paid within any given time interval. From this information we show how it is possible to extract the time evolution of expected interest rates and discount factors.

Ultra-Low Interest Rates and Growth in Emerging East Asia from a Hayekian Perspective

2019 ◽  
pp. 294-316
Author(s):  
Gunther Schnabl
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
East Asia ◽  
Exchange Rate Regime ◽  
Growth Dynamics ◽  
Capital Allocation ◽  
Industrialized Countries ◽  
Credit Expansion ◽  
Low Interest Rates ◽  
Rate Environment

The chapter explores business cycles and growth dynamics in emerging East Asia within an ultra-low interest rate environment from the perspective of the monetary overinvestment theories of Mises and Hayek. It argues that, given a low interest rate environment in the large industrialized countries, the likelihood of overinvestment and therefore a crisis in emerging East Asia has increased independently from the exchange rate regime. Overinvestment can take the form of unsustainable booms on stock and real estate markets (as in Southeast Asia prior to the Asian crisis) or the misallocation of funds due to subsidized state-directed capital allocation (as is currently occurring in the People’s Republic of China). If further credit expansion counteracts a crisis triggered by a preceding overinvestment boom, it paralyses growth in the long term, as Japan experienced.

Sign in / Sign up

Export Citation Format

Share Document