scholarly journals Natural Expectations and Macroeconomic Fluctuations

2010 ◽  
Vol 24 (4) ◽  
pp. 67-84 ◽  
Author(s):  
Andreas Fuster ◽  
David Laibson ◽  
Brock Mendel
Keyword(s):  
Empirical Evidence ◽  
Rational Expectations ◽  
Financial Time Series ◽  
Large Body ◽  
Negative Relationship ◽  
Equity Returns ◽  
Macroeconomic Fluctuations ◽  
Economic Agents ◽  
Long Run ◽  
High Volatility

A large body of empirical evidence suggests that beliefs systematically deviate from perfect rationality. Much of the evidence implies that economic agents tend to form forecasts that are excessively influenced by recent changes. We present a parsimonious quasi-rational model that we call natural expectations, which falls between rational expectations and (naïve) intuitive expectations. (Intuitive expectations are formed by running growth regressions with a limited number of right-hand-side variables, and this leads to excessively extrapolative beliefs in certain classes of environments). Natural expectations overstate the long-run persistence of economic shocks. In other words, agents with natural expectations turn out to form beliefs that don't sufficiently account for the fact that good times (or bad times) won't last forever. We embed natural expectations in a simple dynamic macroeconomic model and compare the simulated properties of the model to the available empirical evidence. The model's predictions match many patterns observed in macroeconomic and financial time series, such as high volatility of asset prices, predictable up-and-down cycles in equity returns, and a negative relationship between current consumption growth and future equity returns.

The effect of social spending on reducing poverty

2017 ◽  
Vol 44 (5) ◽  
pp. 620-632
Author(s):  
Ferdi Celikay ◽  
Erdal Gumus
Keyword(s):  
Empirical Evidence ◽  
Design Methodology ◽  
Negative Relationship ◽  
Social Spending ◽  
Social Expenditure ◽  
Education Expenditure ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
The Relationship

Purpose The purpose of this paper is to provide new empirical evidence on the relationship between social expenditure and poverty in Turkey. Design/methodology/approach There are voluminous studies in the literature and many of which contain condradictory results. The authors use panel error correction models and employ Turkish statistical territorial units data (26 regions) covering the period 2004-2011 in the analysis. Findings The authors have found that in the short run, there is a negative relationship between social expenditure and poverty, as expected. In the long run, however, there exists a positive relation between them. The authors utilize expenditure on education as one component of social expenditure, and the authors obtain a negative relationship between education expenditure and poverty, both in the short run and in the long run. Social implications Poverty is an important social problem that more studies on this subject should examine various aspects and find policies to alleviate it. Originality/value Literature on poverty and social spending are growing and their results are contradictory. However, this paper clearly and significantly provides new empirical evidence on the effect of social spending on reducing poverty using Turkish data. This kind of study is hardly found for developing countries like Turkey. It contributes to the literature.

Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse

2011 ◽  
Vol 105 (1) ◽  
pp. 1-26 ◽  
Author(s):  
STEPHEN HABER ◽  
VICTOR MENALDO
Keyword(s):  
Natural Resources ◽  
Large Body ◽  
Negative Relationship ◽  
Resource Curse ◽  
Omitted Variable Bias ◽  
Long Run ◽  
Variable Bias ◽  
Short Time ◽  
Time Invariant ◽  
Country Specific

A large body of scholarship finds a negative relationship between natural resources and democracy. Extant cross-country regressions, however, assume random effects and are run on panel datasets with relatively short time dimensions. Because natural resource reliance is not an exogenous variable, this is not an effective strategy for uncovering causal relationships. Numerous sources of bias may be driving the results, the most serious of which is omitted variable bias induced by unobserved country-specific and time-invariant heterogeneity. To address these problems, we develop unique historical datasets, employ time-series centric techniques, and operationalize explicitly specified counterfactuals. We test to see if there is a long-run relationship between resource reliance and regime type within countries over time, both on a country-by-country basis and across several different panels. We find that increases in resource reliance are not associated with authoritarianism. In fact, in many specifications we generate results that suggest a resource blessing.

scholarly journals An Empirical Examination Of The Effects Of Inflation And Hedging On Investments In The U.S. Air Transport Sector Over The Period Since Deregulation

2011 ◽  
Vol 3 (8) ◽  
Author(s):  
Bahram Adrangi ◽  
George Battistel ◽  
Arjun Chatrath ◽  
Richard Gritta ◽  
Kambiz Raffiee
Keyword(s):  
Stock Returns ◽  
Negative Relationship ◽  
Equity Returns ◽  
Air Transport ◽  
Transport Sector ◽  
Empirical Examination ◽  
Long Run ◽  
Cointegration Tests ◽  
Short Run ◽  
Equity Index

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.6in 0pt 0.5in;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Research in economics and finance has documented a negative relationship between stock returns and inflation rates in most economies.<span style="mso-spacerun: yes;">&nbsp; </span>The purpose of this study is to investigate this relationship for a particular specific sector investment, air transportation. A significant negative relationship is shown between the air equity index returns and unexpected inflation.<span style="mso-spacerun: yes;">&nbsp; </span>Air equity returns, however, are found not be correlated with expected inflation.<span style="mso-spacerun: yes;">&nbsp; </span>The Johansen and Juselius cointegration tests verify a long-run equilibrium between air transport equity index, general price levels, and the real economic activity. The short-run dynamics derived from the error-correction model, however,<span style="mso-spacerun: yes;">&nbsp; </span>do not support air transport equity index&rsquo;s long-run inflation hedging ability. These findings indicate that investing in air transport equity index may not be a reliable hedge against inflation in the long- or short-run.<span style="mso-spacerun: yes;">&nbsp; </span>In addition, the findings do not lend support for the Fisherian and Proxy hypotheses.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span></span></span></p>

Behavioral economics and DSGE-modeling

2020 ◽  
pp. 47-65
Author(s):  
D. N. Shults
Keyword(s):  
Rational Expectations ◽  
Inflation Expectations ◽  
Behavioral Modification ◽  
Economic Agents ◽  
Russian Economy ◽  
Long Run ◽  
The Interest Rate ◽  
Macro Variables ◽  
Dsge Modeling ◽  
Positive Effect

The article considers the “behavioral” modification of the standard DSGE model proposed by X. Gabaix. In his model, agents behave in a boundedly rational manner, showing incomplete attention to macroeconomic statistics. Moreover, unlike other attempts to abandon the hypothesis of rational expectations in favor of a model of adaptive and/or static expectations, the Gabaix model is initially constructed taking into account the inattention of economic agents to macro variables. The consequence of bounded rationality is that monetary policy is less effective (compared to the model of rational expectations) and, conversely, fiscal policy is effective due to the fact that Ricardo equivalence is not fulfilled. If the inertia of inflation expectations is taken into account in the Gabaix model, it demonstrates that the interest rate has a positive effect on inflation in the long run. Bayesian estimates for the rationality coefficient in the Russian economy are presented. Moreover, attention to inflation is much lower than attention to the variable of economic activity.

Macro-Economic Disequilibrium and Educational Development in Nigeria between 1980-2017

2019 ◽  
Vol 10 (08) ◽  
pp. 20592-21600
Author(s):  
Gbadebo Salako ◽  
Adejumo Musibau Ojo ◽  
Jaji Ayobami Francis
Keyword(s):  
Time Series Data ◽  
Educational Development ◽  
Negative Relationship ◽  
Series Data ◽  
Explanatory Variables ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Stationarity Test ◽  
Level I

This study empirically investigates the effects of macroeconomic disequilibrium on educational development in Nigeria. The study employed time series data between 1980 and 2017. Autoregressive Distributed Lag method of estimation was employed. The result revealed that the variables stationarity test were mixed between the first difference I(I) and level I(0). The cointegration result shows that there exist long run relationship between the variables. The result revealed that Balance of payment, Poverty, Debt rate inflation and unemployment exhibited negative relationship with educational development. The estimation result showed that all explanatory variables account for 88% variation of educational development in Nigeria. It is therefore recommended that government should fast track policies that can stabilize inflation and exchange rate in the country. Also, Policies must be formulated to reduce poverty and unemployment.

Why Do Valuation Ratios Forecast Long-Run Equity Returns?

CFA Digest ◽  
1999 ◽  
Vol 29 (4) ◽  
pp. 60-62
Author(s):  
Thomas J. Latta
Keyword(s):  
Equity Returns ◽  
Long Run ◽  
Valuation Ratios

Does Globalization Cause Inequality in Developed Countries in the Long Run? Empirical Evidence from 25 OECD Economies

2020 ◽  
Author(s):  
Rahul Sen ◽  
Gulasekaran Rajaguru ◽  
Sadhana Srivastava ◽  
Pundarik Mukhopadhaya
Keyword(s):  
Empirical Evidence ◽  
Developed Countries ◽  
Long Run

B is for Bias

2014 ◽  
Vol 3 (2) ◽  
pp. 35-47
Author(s):  
Calin Valsan
Keyword(s):  
Economic Theory ◽  
Rational Expectations ◽  
Economic Environment ◽  
Rational Agents ◽  
Economic Agents ◽  
Behavioral Biases ◽  
The Social ◽  
Modern Economic

Standard economic theory assumes rational agents. Individuals are expected to have rational expectations and constantly optimize their choices. Modern economic and financial theory is build under the assumption of rationality. There is plenty of evidence from psychology, however, that individuals are biased and rely heavily on heuristics in order to make decisions. Yet, this is not a mere fluke, a behavioral oddity. Because the social and economic environment in which individuals evolve is complex, behavioral biases represent evolutionary adaptations allowing economic agents to deal with undecidability and computational irreducibility.

The reflexive turn in key account management

2014 ◽  
Vol 48 (11/12) ◽  
pp. 2071-2104 ◽  
Author(s):  
Markus Vanharanta ◽  
Alan J.P. Gilchrist ◽  
Andrew D. Pressey ◽  
Peter Lenney
Keyword(s):  
Empirical Studies ◽  
Negative Relationship ◽  
Success Rates ◽  
Key Account Management ◽  
Content Type ◽  
Account Management ◽  
Long Run ◽  
Key Account ◽  
And Performance ◽  
The Uk

Purpose – This study aims to address how and why do formal key account management (KAM) programmes hinder effective KAM management, and how can the problems of formalization in KAM be overcome. Recent empirical studies have reported an unexpected negative relationship between KAM formalization and performance. Design/methodology/approach – An 18-month (340 days) ethnographic investigation was undertaken in the UK-based subsidiary of a major US sports goods manufacturer. This ethnographic evidence was triangulated with 113 in-depth interviews. Findings – This study identifies how and why managerial reflexivity allows a more effectively combining of formal and post-bureaucratic KAM practices. While formal KAM programmes provide a means to initiate, implement and control KAM, they have an unintended consequence of increasing organizational bureaucracy, which may in the long-run hinder the KAM effectiveness. Heightened reflexivity, including “wayfinding”, is identified as a means to overcome many of these challenges, allowing for reflexively combining formal with post-bureaucratic KAM practices. Research limitations/implications – The thesis of this paper starts a new line of reflexive KAM research, which draws theoretical influences from the post-bureaucratic turn in management studies. Practical implications – This study seeks to increase KAM implementation success rates and long-term effectiveness of KAM by conceptualizing the new possibilities offered by reflexive KAM. This study demonstrates how reflexive skills (conceptualized as “KAM wayfinding”) can be deployed during KAM implementation and for its continual improvement. Further, the study identifies how KAM programmes can be used to train organizational learning regarding KAM. Furthermore, this study identifies how and why post-bureaucratic KAM can offer additional benefits after an organization has learned key KAM capabilities. Originality/value – A new line of enquiry is identified: the reflexive-turn in KAM. This theoretical position allows us to identify existing weakness in the extant KAM literature, and to show a practical means to improve the effectiveness of KAM. This concerns, in particular, the importance of managerial reflexivity and KAM wayfinding as a means to balance the strengths and weaknesses of formal and post-bureaucratic KAM.

scholarly journals Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?

2006 ◽  
Vol 96 (3) ◽  
pp. 552-576 ◽  
Author(s):  
Philippe Bacchetta ◽  
Eric van Wincoop
Keyword(s):  
Exchange Rate ◽  
Empirical Evidence ◽  
Rational Expectations ◽  
Exchange Rate Volatility ◽  
Order Flow ◽  
Macroeconomic Variables ◽  
Symmetric Information ◽  
Macroeconomic Fundamentals ◽  
The Exchange Rate ◽  
Exchange Rate Changes

Empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables. We introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts. Consistent with the evidence, the model implies that (a) observed fundamentals account for little of exchange rate volatility in the short to medium run, (b) over long horizons, the exchange rate is closely related to observed fundamentals, (c) exchange rate changes are a weak predictor of future fundamentals, and (d) the exchange rate is closely related to order flow.

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