scholarly journals ENDOGENOUS INEQUALITY OF NATIONS THROUGH FINANCIAL ASSET MARKET INTEGRATION

2010 ◽  
Vol 14 (3) ◽  
pp. 285-310 ◽  
Author(s):  
Volker Böhm ◽  
George Vachadze
Keyword(s):  
Steady State ◽  
Market Integration ◽  
Rational Expectations ◽  
Overlapping Generations ◽  
Absolute Risk ◽  
Sufficient Conditions ◽  
Asset Markets ◽  
Asset Market ◽  
Financial Asset ◽  
Long Run

The paper analyzes an endogenous mechanism leading perfectly symmetric economies to diverge in the long run after unifying their financial asset markets. The standard growth model with overlapping generations of consumers (OLG) is extended to include uncertainty and a financial asset. In the absence of an international asset market, the two autarkic economies converge to the same globally attracting steady state under rational expectations dynamics. When the two asset markets are unified internationally, additional asymmetric steady states appear, implying that the steady state with equal levels of capital becomes unstable, causing symmetry breaking. The paper derives general sufficient conditions for a saddle node bifurcation of the symmetric steady state. A numerical example shows that these effects occur, in particular when the production function and the function of absolute risk aversion are isoelastic.

scholarly journals AUTOMATION, STAGNATION, AND THE IMPLICATIONS OF A ROBOT TAX

2020 ◽  
pp. 1-32 ◽  
Author(s):  
Emanuel Gasteiger ◽  
Klaus Prettner
Keyword(s):  
Steady State ◽  
Economic Impact ◽  
Technological Progress ◽  
Overlapping Generations ◽  
Investment Decisions ◽  
Cautionary Tale ◽  
Overlapping Generations Model ◽  
Long Run ◽  
Per Capita ◽  
Capita Output

We assess the long-run growth effects of automation in the overlapping generations framework. Although automation implies constant returns to capital and, thus, an AK production side of the economy, positive long-run growth does not emerge. The reason is that automation suppresses wage income, which is the only source of investment in the overlapping generations model. Our result stands in sharp contrast to the representative agent setting with automation, where sustained long-run growth is possible even without technological progress. Our analysis therefore provides a cautionary tale that the underlying modeling structure of saving/investment decisions matters for the derived economic impact of automation. In addition, we show that a robot tax has the potential to raise per capita output and welfare at the steady state. However, it cannot induce a takeoff toward positive long-run growth.

scholarly journals Information Asymmetries And Closed-End Funds

2011 ◽  
Vol 9 (3) ◽  
Author(s):  
Eric Higgins ◽  
Shawn Howton ◽  
Shelly Howton ◽  
Sophie Xiaofei Kong
Keyword(s):  
Information Asymmetry ◽  
Asset Markets ◽  
Asset Market ◽  
Information Asymmetries ◽  
Underlying Asset ◽  
Turnover Ratio ◽  
Long Run ◽  
Closed End Funds ◽  
International Fund

We examine the degree to which information asymmetries play a role in the closed-end fund seasoned offerings and introduce a new explanation for why funds with low information asymmetry also choose to issue. Interpreting turnover ratio as a proxy for information asymmetry, we test for differences in turnover across fund types and find that equity and international fund issuers generate significantly higher turnover than debt and domestic fund issuers respectively. We then investigate the motives for issuing funds with low information asymmetry and discover that they are good asset market timers, i.e. issue when underlying asset markets are relatively underpriced. By timing asset markets, such funds generate better long-run returns and maximize the interests of long-term investors.

Methods

2017 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Labor Supply ◽  
Money Demand ◽  
Rational Expectations ◽  
Overlapping Generations ◽  
Final Section ◽  
Price Setting ◽  
Reasonable Approximation ◽  
Planning Horizons ◽  
Elastic Labor Supply ◽  
Made In

Chapter 8 concludes the text with methodical remarks. It defends key assumptions made in the main text and compares them, to the extent they deviate, with more conventional premises. The chapter starts with a comparison of adaptive versus rational expectations. Thereafter, it contrasts infinite planning horizons, finite planning horizons, and overlapping generations models. The third section, which is devoted to modeling money, discusses money-in-the-utility, the transaction costs approach, and more recent theories that derive money demand from a microeconomic framework. The forth section shows that assuming a highly elastic labor supply is empirically unconvincing, whereas a constant labor supply simplifies the model greatly and appears as a reasonable approximation. The final section contrasts behavioral and choice theoretic approaches to price setting.

scholarly journals Cross-section instability in financial markets: impatience, extrapolation, and switching

2021 ◽  
Author(s):  
Roberto Dieci ◽  
Xue-Zhong He
Keyword(s):  
Financial Markets ◽  
Cross Section ◽  
Asset Price ◽  
Asset Market ◽  
Long Run ◽  
Short Run ◽  
And Performance ◽  
Equilibrium Market ◽  
High Degree ◽  
Fundamental Price

AbstractThis paper presents a stylized model of interaction among boundedly rational heterogeneous agents in a multi-asset financial market to examine how agents’ impatience, extrapolation, and switching behaviors can affect cross-section market stability. Besides extrapolation and performance based switching between fundamental and extrapolative trading documented in single asset market, we show that a high degree of ‘impatience’ of agents who are ready to switch to more profitable trading strategy in the short run provides a further cross-section destabilizing mechanism. Though the ‘fundamental’ steady-state values, which reflect the standard present-value of the dividends, represent an unbiased equilibrium market outcome in the long run (to a certain extent), the price deviation from the fundamental price in one asset can spill-over to other assets, resulting in cross-section instability. Based on a (Neimark–Sacker) bifurcation analysis, we provide explicit conditions on how agents’ impatience, extrapolation, and switching can destabilize the market and result in a variety of short and long-run patterns for the cross-section asset price dynamics.

Approximating the stationary distribution of an infinite stochastic matrix

1991 ◽  
Vol 28 (1) ◽  
pp. 96-103 ◽  
Author(s):  
Daniel P. Heyman
Keyword(s):  
Markov Chain ◽  
Steady State ◽  
Stationary Distribution ◽  
Numerical Approximation ◽  
Stochastic Matrix ◽  
Sufficient Conditions ◽  
Finite System ◽  
Balance Equations ◽  
The Given ◽  
Steady State Balance

We are given a Markov chain with states 0, 1, 2, ···. We want to get a numerical approximation of the steady-state balance equations. To do this, we truncate the chain, keeping the first n states, make the resulting matrix stochastic in some convenient way, and solve the finite system. The purpose of this paper is to provide some sufficient conditions that imply that as n tends to infinity, the stationary distributions of the truncated chains converge to the stationary distribution of the given chain. Our approach is completely probabilistic, and our conditions are given in probabilistic terms. We illustrate how to verify these conditions with five examples.

The Olympic Games as a News Shock

2017 ◽  
Vol 19 (6) ◽  
pp. 884-906 ◽  
Author(s):  
Viktoria C. E. Langer ◽  
Wolfgang Maennig ◽  
Felix Richter
Keyword(s):  
Steady State ◽  
Olympic Games ◽  
Structural Models ◽  
Adjustment Process ◽  
Dynamic Adjustment ◽  
Economic Variables ◽  
Long Run ◽  
News Shock ◽  
Steady State Levels ◽  
The Olympic Games

The awarding of the Olympic Games to a certain city or the announcement of a city’s Olympic bid may be considered as a news shock that affects agents’ market expectations. A news shock implies potential impacts on the dynamic adjustment process that change not only the volatility but also the long-run steady-state levels of endogenous economic variables. In this study, we contribute to and extend previous researchers’ attempts to empirically test for the Olympic Games as a news shock by implementing full structural models and by matching Olympic hosts and bidders to structurally similar countries.

scholarly journals The Role of Trading Frictions in Real Asset Markets

2011 ◽  
Vol 101 (4) ◽  
pp. 1106-1143 ◽  
Author(s):  
Alessandro Gavazza
Keyword(s):  
Empirical Analysis ◽  
Capacity Utilization ◽  
Asset Markets ◽  
Asset Market ◽  
Commercial Aircraft ◽  
Average Productivity ◽  
Thin Market ◽  
Asset Allocations ◽  
The Empirical Analysis

This paper investigates how trading frictions vary with the thickness of the asset market by examining patterns of asset allocations and prices in commercial aircraft markets. The empirical analysis indicates that assets with a thinner market are less liquid—i.e., more difficult to sell. Thus, firms hold on longer to them amid profitability shocks. Hence, when markets for assets are thin, firms' average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher. In turn, prices of assets with a thin market are lower and have a higher dispersion. (JEL A12, L11, L93)

scholarly journals INHERITED TASTES AND ENDOGENOUS LONGEVITY

2017 ◽  
Vol 23 (2) ◽  
pp. 674-698 ◽  
Author(s):  
Luciano Fanti ◽  
Luca Gori ◽  
Cristiana Mammana ◽  
Elisabetta Michetti
Keyword(s):  
Steady State ◽  
Overlapping Generations ◽  
Standard Of Living ◽  
Poverty Trap ◽  
Individual State ◽  
State Of Health ◽  
Tax Rate ◽  
Public Investments ◽  
The Individual ◽  
Endogenous Longevity

This article aims at studying a general equilibrium model with overlapping generations that incorporates inherited tastes (aspirations) and endogenous longevity. The existence of standard-of-living aspirations transmitted between two subsequent generations in a context where the individual state of health depends on public investments in health has some remarkable consequences at the macroeconomic level. First, aspirations allow escaping from the well-known poverty trap scenario described by Chakraborty (2004). Second, the steady-state equilibrium may be destabilized through a super-critical Neimark–Sacker bifurcation when the health tax rate is set at too high or too low a level. This causes endogenous fluctuations in income and longevity.

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