Non-parametric counterfactual analysis in dynamic general equilibrium

In this paper, we examine non-parametric restrictions on counterfactual analysis in a dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary. The Arrow-Debreu prices uniquely reveal the probabilities and discount factor. The equilibrium correspondence, defined as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine possible restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. Although restrictions on possible price changes often exist, we show that results from a representative-agent economy usually do not carry over to a setting with heterogeneous agents.     

Testable implications of transferable utility

Although the Transferable Utility (TU) assumption is widely used in micro theory, little is known about its testable consequences, and in particular how one can, from the observation of a group's demand, test whether the TU assumption is satisfied within this group. We derive a set of necessary and sufficient conditions on demand that characterize the TU context. The conditions are of two types. First, TU requires the group to behave as a single decision maker. Secondly, within the unitary setting, the representative utility generated by a TU framework must be of the Generalized Quasi-Linear (GQL) form. We derive testable properties of the demand function that fully characterize GQL utilities. These additional restrictions only involve specific prices - namely, those of the goods that are publicly consumed within the group.     

Construction of a state space for interrelated securities with an application to temporary equilibrium theory

Summary We construct an endogenous state space in an exchange economy with possibly infinite horizon. Every period agents trade securities whose payoffs depend on future dividends and asset prices. We reject the perfect foresight assumption on the ground that agents have not only limited knowledge of other individuals' endowments and preferences, but also limited capacity to compute equilibria. We choose instead absence of arbitrage as the principle which allows agents to determine if a system of future prices is possible. We give an alogrithm to compute the set of nonarbitrage prices every period, with both finite and infinite horizon. We then apply this endogenous structure of uncertainty to an infinite horizon temporary equilibrium model.I would like to thank Professor Donald Brown for his constant help and guidance. I have also greatly benefited from helpful discussions with Professors Jacques Drèze, Bernard Dumas, Mordecai Kurz, Carsten Nielsen, Jan Werner, and Ho-Mou Wu.     

A test for rational bubbles in stock prices

This paper presents two necessary conditions for the absence of rational bubbles on the assumption that the discount rate is stationary. One condition is that real stock prices and real dividends are cointegrated with the time-varying cointegrating vector. The other is that the order of integration of real stock prices is equal to that of real dividends. The first condition is different from that proposed on the assumption of a constant discount rate. In contrast, the second condition is the same as that presented on this assumption. Examining the second condition using Japanese data, we find that Japanese stock prices and dividends satisfy the necessary condition. First version received: May 2000/Final version accepted: April 2001     

房地产“限购令”的调控机制与政策反思*——基于单中心双环城市模型的分析

近年来中国城市住房价格快速上涨,政府推出房地产“限购令”,以期调整房地产市场,控制城市房价。本文构建了带“限购令”政策约束条件的单中心双环城市住房市场模型,利用数值模拟的方法,从理论上分析房地产“限购令”的政策效果和作用机制。结果显示,限购政策使大中小城市房价均有所下跌,中小城市房价的下降幅度大于大城市的幅度,城市的投机性住房需求越大,限购政策的效果越明显。本文认为“限购令”作为非市场调控手段,仅可作权宜之计而非长久之策,应充分考虑城市的异质性特征,对限购政策进行辨证选择。     

A model of fashions and status

This paper presents a model of fashion cycles based on the idea that individuals purchase fashion goods because their displayed status increases with the personal status of other consumers who buy the same good. Fashion cycles occur in the model because demand now is a rising function of future prices: if future prices are high, only rich consumers will buy it in the future and the good will have a higher status value in the future and will be more desirable now, even though demand now is a decreasing function of current price. The time inconsistency problem is solved by repeated cycles which allows for reputation building. The crucial assumption made is that there is perfect information about the price path of all firms and the average status of the purchasers of each product. This limits possible profits in fashion markets in competition as imitation of price paths is then possible.     

Efficient spatial competition

Game-theoretic models of spatial competition usually assume that firms set prices after their choices of locations. Rather than make this assumption, this paper uses the core to model the competition between the firms. Two conditions are shown to be sufficient for efficient spatial competition. The first is that the firms' location choices satisfy a no-externalities condition. The second is that the second-stage game satisfy a separable-value condition, namely that the value (gains from trade) can be created on a buyer-by-buyer basis. This approach yields two further benefits. First, efficient location can be stable in situations with arbitrary distributions of buyers, arbitrary willingness-to-pay functions, and completely general location spaces. Second, efficiency in location games can be shown to be related to the Second Welfare Theorem.     

Linear and non-linear price decentralization

Compendious and thorough solutions to the existence of a linear price equilibrium problem, the second welfare theorem, and the limit theorem on the core are provided for exchange economies whose consumption sets are the positive cone of arbitrary ordered Fréchet spaces—dispensing entirely with the assumption that the vector ordering of the commodity space is a lattice. The motivation comes from economic applications showing the need to bring within the scope of equilibrium theory vector orderings that are not lattices, which arise in the typical model of portfolio trading with missing options. The assumptions are on the primitives of the model. They are bounds on the marginals of non-linear prices and for ω-proper economies they are both sufficient and necessary.     

限购背景下存准率与房价的关系研究

2010年以来,我国主要的大中城市纷纷出台了商品房的限购政策,同期法定存款准备金率也多次调整.在限购政策背景下,本文运用广义矩(GMM)方法,将限购政策作为逻辑变量加入到估计模型中,对限购背景下的存款准备金率调整与商品房价格的关系进行了定量分析.结果表明,限购政策对于抑制房价过快上涨具有显著意义,同时,政府上调存款准备金率在滞后2期和3期时对于抑制商品房价格过快上涨也具有一定的积极作用,但商品房价格不会因存款准备金率的上调而出现急速下跌,而是在存款准备金率持续上调的过程中呈现出先上涨后下跌,再上涨、再下跌的交替变化特征.研究同时发现,限购政策和存款准备金率调整对于我国东部地区城市影响显著,而对于中西部城市影响则不显著.基于此,本文提出了运用存款准备金率手段在抑制商品房价格过快上涨过程中的对策建议.     

Product differentiation and location decisions under demand uncertainty

We investigate Hotelling's duopoly game of location-then-price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand. We characterize the unique equilibrium and the socially optimal locations. Contrary to the individual-level random utility models, location uncertainty is a differentiation force. In equilibrium, increases in the variance of the uncertainty lead to greater differentiation, higher expected equilibrium prices and profits, and a greater welfare loss.     

The efficiency of competitive mechanisms under private information

We consider the efficiency properties of exchange economies where privately informed traders behave strategically. Specifically, a competitive mechanism is any mapping of traders’ reports about their types to an equilibrium price vector and allocation of the reported economy. In our model, some traders may have non-vanishing impact on prices and allocations regardless of the size of the economy. Although truthful reporting by all traders cannot be achieved, we show that, given any desired level of approximation, there is such that any Bayesian-Nash equilibrium of any competitive mechanism of any private information economy with or more traders leads, with high probability, to prices and allocations that are close to a competitive equilibrium of the true economy. In particular, allocations are approximately efficient. A key assumption is that there is small probability that traders behave non-strategically.     

Buyer Subsidies in an Equilibrium Model of Price Dispersion

Abstract. We present a model of equilibrium price dispersion in which a per-unit subsidy to buyers can reduce average prices. The reason is that subsidies have two effects on average prices that work in opposite directions. First, subsidies raise buyers' willingness-to-pay, and by itself this causes firms to charge higher prices. However, since a higher willingness-to-pay lowers the relative cost of search, subsidies also induce more search. This creates a second effect that puts pressure on firms to reduce prices. We show that the second effect can dominate, thus causing an overall reduction in average price.     

Consumption choice and asset pricing with a non-price-taking agent

Summary. This paper develops a pure-exchange model to study the consumption-portfolio problem of an agent who acts as a non-price-taker, and to analyze the implications of his behavior on equilibrium security prices. The non-price-taker is modeled as a price leader in all markets; his price impact is then recast as a dependence of the Arrow-Debreu prices on his consumption, allowing a tractable formulation. Besides the aggregate consumption, the endowment of the non-price-taker appears as an additional factor in driving equilibrium allocations and prices. Comparisons of equilibria between a price-taking and a non-price-taking economy are carried out. Received: March 29, 1996; revised version October 29, 1996     

Rockets and feathers behaviour in the Spanish gasoline and diesel market: New evidence

In this paper we analyse the potential asymmetric response of retail prices for gasoline and diesel‐fuel to changes in oil prices for the Spanish economy and its relation with the so‐called ‘rockets and feathers’ behaviour. We show that the assumption made by previous studies, which use as the key explanatory variable the sign –positive or negative‐ of the change in international oil prices, is inadequate for the Spanish case and the magnitude of the change in international oil prices is also relevant. For small changes in international oil prices there is neither price asymmetry nor rockets and feathers behavior in the retail markets. However, price asymmetries in line with rockets and feathers behavior in retail gasoline and gasoil markets are present when these changes exceed a certain threshold. Following Martín‐Moreno et al. (2018) we first apply an Auto‐regressive Error Correction Model and endogenously estimate the threshold triggering the rockets and feathers behaviour. A time‐varying nature for the dynamic response of retail prices to oil price shocks is revealed when we estimate the TAR‐ECM model using rolling windows. Hence, in a second stage, we use a Markov‐switching estimation of the model to test the robustness of the results given its suitability to changing environments. This study could have relevant policy implications for the Spanish gasoline and gasoil retail markets due to the ongoing debate on the existence of a rockets and feathers behavior in gasoline and gasoil retail markets between the Spanish regulatory body and the oil companies.     

Impact of government intervention in the housing market: evidence from the housing purchase restriction policy in China

In 2010, a housing purchase restriction policy was announced by China’s central government and implemented gradually by several prefecture governments. In this article, we empirically investigate this policy’s effect on the housing market. Using a difference-in-difference framework, we show that the housing purchase restriction policy reduces housing prices and transaction amounts but does not influence the housing investment or construction markets. Moreover, upstream industry suffers more than downstream industry. The results are robust to a battery of robustness checks. Heterogeneity exists across cities. We find that first- and second-tier cities as well as highly urbanized cities experience great declines in housing prices after the policy’s implementation, especially cites that had high housing prices in 2010 and cities with high real estate investment as a proportion of fixed asset investment. However, the housing policy is less effective in curbing speculative demand.     

Boiteux's solution to the shifting-peak problem and the equilibrium price density in continuous time

Summary. Bewley's condition on production sets, imposed to ensure the existence of an equilibrium price density when is the commodity space, is weakened to allow applications to continuous-time problems, and especially to peak-load pricing when the users' utility and production functions are Mackey continuous. A general form for production sets with the required property is identified, and examples are given of technologies which meet the weakened but not the original condition: these include industrial use and storage of cyclically priced goods. This gives a framework for settling Boiteux's conjecture on the shifting-peak problem. To make clear the restriction implicit in Mackey continuity, we interpret it as interruptibility of demand; and we point out that, without this assumption, the equilibrium can feature pointed peaks with singular, instantaneous capacity charges. The general equilibrium results are supplemented by results for prices supporting individual consumer or producer optima. Received: February 16, 2000; revised version: July 7, 2001     

Non‐Linear Pricing and Price Indexes: Evidence and Implications from Scanner Data

Non‐linear pricing, the fact that prices do not necessarily change in proportion to size, is a ubiquitous phenomenon. However, it has been neither particularly well understood nor well measured. Non‐linear pricing is of practical importance for statistical agencies who, in constructing price indexes, are often required to compare the relative price of a product‐variety of two different sizes. It is usually assumed that prices change one‐for‐one with package and pack size (e.g. a 1‐liter cola costs half as much as a 2‐liter bottle). We question the wisdom of such an assumption and outline a model to flexibly estimate the price‐size function. Applying our model to a large U.S. scanner dataset for carbonated beverages, at a disaggregated level, we find very significant discounts for larger‐sized products. This highlights the need to pursue methods such as those advocated in this paper.     

Viewpoint: Option prices, preferences, and state variables

Abstract.  This paper surveys recent developments in the theory of option pricing. The emphasis is on the interplay between option prices and investors' impatience and their aversion to risk. The traditional view, steeped in the risk‐neutral approach to derivative pricing, has been that these preferences play no role in the determination of option prices. However, the usual lognormality assumption required to obtain preference‐free option pricing formulas is at odds with the empirical properties of financial assets. The lognormality assumption is easily reconcilable with those properties by the introduction of a latent state variable whose values can be interpreted as the states of the economy. The presence of a covariance risk with the state variable makes option prices depend explicitly on preferences. Generalized option pricing formulas, in which preferences matter, can explain several well‐known empirical biases associated with preference‐free models such as that of Black and Scholes (1973) and the stochastic volatility extensions of Hull and White (1987) and Heston (1993) .     

Special offers and clustering under symmetric monopoly

A monopolist offerings variants on a Salop circle is analyzed with respect to his choice of product variants and prices. Although we assume a uniform distribution of tastes, the profit-maximizing pattern is not equidistant in variants and prices are not the same for all variants.Instead, under fairly general circumstances, there exists at least one cheap variant (special offer) around which the more expensive ones are clustered. This result depends on the assumption that the market size is not fixed as in most other models of this sort, but depends on prices in a straightforward manner.     

The determinants of price in 3G spectrum auctions

This article examined the empirical relationship between prices paid for national 3G wireless licenses when spectrums were sold by auction. The reduced-form modelling approach was based on the premise that auction design features can, and do, affect both final (revenue) and intermediate (viz., auction competitiveness and license assignment) auction outcomes. Importantly, the analysis recognizes, and explicitly allows for, the endogeneity of bidder entry and sample selection arising from an absence of bidding. Generally, these key features have only received attention in isolation. In particular, the study addressed the principal question of: which regulator chosen auction design variables determine prices paid in spectrum auctions? The analysis showed that flexible-package formats increased prices paid, and that higher reserve prices had a dampening effect. The article also showed that longer license terms and more competitive auctions (as measured by the bidders-to-licenses ratio) enhance prices paid.