Price limits on a call auction market: Evidence from the Warsaw Stock Exchange

We empirically investigate the impact of price limits on volatility and autocorrelation in the call auction segment of the Warsaw Stock Exchange (WSE). Because call auctions offer time-out periods to investors, we do not expect price limits to counter overreaction and panic in this market structure. Indeed, our empirical findings show that price limits result in excess volatility on the next trading day and strong continuation of price movements, which indicates that price limits only delay the adjustment of prices to equilibrium levels. Our results question the necessity of price limits in the call auction system of the WSE.     

Market structure and buyer behaviour: Price adjustment in a multi-object progressive oral auction

Working within the framework of an English, or progressive oral, auction with multiple unit trading, the study addresses the question of the effect on price behaviour of variations in market size — in the sense of the number of equal-sized market competitors. Prices are shown to converge to near competitive equilibrium levels upon replication, whatever the market size. However, by extending the focus of the study beyond equilibrium to the market behaviour revealed during the adjustment or disequilibrium phase of the market, it is possible to advance some conjectures on the nature of the equilibrating processes.     

Idiosyncratic and international transmission of shocks in the G7: Does EMU matter?

This paper analyzes the transmission of shocks across the Group of Seven industrialized countries (G7) before and after the introduction of the euro. We estimate global vector autoregressive (VAR) models for different periods to investigate changes in the domestic and international adjustment of macroeconomic variables following supply, demand, and nominal shocks. The shocks are identified with robust sign restrictions, which we derive from a small open economy dynamic stochastic general equilibrium (DSGE) model. Specifically, we analyze the adjustment of output, inflation, and the real effective exchange rate following those shocks. Our results indicate that changes in the adjustment are due to global convergence rather than to regional‐specific convergence.     

Hospital Care inflation in the United States: prices adjustments in a disequilibrium econometric framework

Uncontrollable medical care expenditure inflation in excess of general price inflation in the United States has prompted the writing of this paper. It is argued that such a frustrating phenomenon is due to the existence of disequilibrium in the hospital market. This phenomenon can be verified only by modelling the market by disequilibrium methods. In this paper, a model of price adjustment in non-clearing market is presented and tested by using autoregressive techniques. It is found that excess demand for hospital care has been the source of disequilibrium for a large part of the period of the study, 1965–1984. It is observed then the key factor causing excess demand is low out-of-pocket expenditure for hospital care by patients due to third-party payments. Had the co-insurance rate been adjusted upward or co-payment patient rate not fallen, excess demand would have been eliminated. This study also finds that the response of providers and regulators to cost inflation through price control policy seems to be ineffective in bringing the market to a state of equilibrium.     

The Informational Role of the EPA SO2 Permit Auction

We consider the ex ante informational implications of the mandatory surrender feature of a stylized emission permit auction, similar to that in the U.S. EPA SO₂ permit scheme, but modeled as a uniform price auction. The theory suggests that generally the auction gives misleading signals concerning the expected price of permits in the post-auction permit market; in the cases where the permit auction is designed to correctly predict the post-auction permit market equilibrium price, the permit auction preempts the permit market, and all trading occurs in the auction. Ex post auction/market experience suggests that the market may have enabled the auction and consequently raises the possibility that the market may have worked in spite of the auction and not because of it.     

Approximate tâtonnement processes

Summary We introduce a probabilistic model for price adjustment in an exchange economy which approximates the classical Walras tâtonnement process while avoiding many of its unrealistic features. The model is decentralized in that the trades permitted to an agent and the resulting price changes depend only on the commodity vector currently held by that agent, and not on the commodity vectors held by the other agents in the economy. Our results will show that the Walras tâtonnement process can be decentralized without changing its behavior on the macroeconomic scale. Our model has a finite set of commodities, a market maker who adjusts prices, and a large finite set of agents who trade only with the market maker. Each agent has a demand function depending on his commodity vector and the price vector. At each discrete time, one agent is chosen at random and exchanges his current commodity vector for his demand vector. Then the market maker adjusts the price vector by an amount which depends on the selected agent's commodity vector and the current price. Prices are adjusted rapidly enough to avoid prolonged trading at the wrong price, but slowly enough so that a substantial price change will depend on a significant simple of agents. The main result shows that with probability arbitrarily close to one the price will rapidly approach and then remain close to an equilibrium value, following a path which is close to the price path of the corresponding tâtonnement process.     

A structural model of price and exchange rate dynamics in a small open economy

Conclusions A major result following from the analysis of ourstructural model of inflation under flexible exchange rates is that there is no such thing asstructural inflation in the long run. Long-run inflation rather becomes a purely monetary phenomenon if exchange rates are flexible and if on an international level functioning capital markets are postulated. While, in the light of the assumptions made in Part III, this finding is not nearly as paradoxical as it may appear at first sight, it can hardly be overemphasized considering the ongoing theoretical discussion and the empirical research on the Scandinavian approach to inflation and recalling that the Scandinavian model is basically intended to picture equilibrium dynamics.The results concerning equilibrium price and exchange rate dynamics also apply to the equilibriumlevels of prices and the exchange rate, i. e., the equilibrium price level depends exclusively on monetary factors while the equilibrium exchange rate is determined by a purchasing power parity element and the structural productivity gap component.Turning to the results of our analysis of disequilibrium dynamics, the overall picture does not change very much. Here the qualitative pattern of adjustment of both prices and the exchange rate is again completely independent of structural variables, but is exclusively determined by four adjustment coefficients. However, the particular quantitative values assumed by prices and the exchange rate during the adjustment process do indeed reflect the impact of the productivity gap.No conclusions can be derived from our model on the amount of time it takes to return to the neighbourhood of equilibrium once the economy has been subjected to some kind of external shock. A casual examination of post-1973 developments and especially the Swiss experience suggest, however, that in the case of a disturbance as, e. g., in the form of a monetary contraction (relative to the rest of the world), the economy may take so long to return to the neighbourhood of long-run equilibrium that the negative real consequences of the overvaluation of the domestic currency during the adjustment process provide a momentous rationale for short-run stabilization interventions in the foreign exchange market.We should like to thank Peter Bernholz and an anonymous referee for helpful comments on a previous version of this paper.     

Efficiency and information aggregation in large uniform-price auctions

We prove that the equilibria of a large interdependent-value, uniform-price auction model where bidders have arbitrary preferences for multiple units can be approximated by a nonatomic exchange economy. We show that the uniform-price auction is approximately efficient with a large number of participants and asymptotically aggregates idiosyncratic bidder information into the market price. More generally our analysis framework provides conditions justifying the use of nonatomic limit model approximations to analyze the large-market behavior of game-theoretic models. We demonstrate continuity requirements on the economic primitives sufficient for the equilibrium strategies of the two models to converge as the number of participants in the finite game approaches infinity.     

货币政策与贸易不平衡的调整

本文建立了一个开放小国随机动态一般均衡模型,研究不同的货币政策和汇率政策对调整贸易不平衡的作用,同时考虑了资本开放与否对不同政策效果的影响。分析发现,由于名义粘性的作用,无论资本开放与否,调整价格都无法快速实现贸易平衡,并会引起产出和物价的较大波动。而较快的汇率调整政策会较快实现贸易平衡,且无论资本开放与否,都不会引起经济波动。从福利角度比较,较快的汇率调整总是优于价格调整,且在资本开放环境下的调整总是优于资本封闭下的调整。通过中国数据校准和模拟发现,在渐进调整汇率的政策下,价格水平被迫作出调整可能是带来2005年人民币汇率改革之后经济波动的原因。     

Evolution of Walrasian equilibrium in an exchange economy

We study the stochastic stability of a dynamic trading process in an exchange economy. We use a simplified version of a trading model à la Shapley and Shubik (J Polit Econ 85:937–968, 1977). Two types of agents equipped with Leontief preferences trade goods in markets by offering endowments, and actual trades occur at market clearing prices. Better behavior tends to spread through the same type of agents by imitation, and agents also make mistakes occasionally. We provide a sufficient condition for the perturbed dynamic process to have a unique stochastically stable state that is a Walrasian equilibrium allocation. In this sense, we give a rationale for Walrasian behavior.     

Double Bubbles in Assets Markets With Multiple Generations

We construct an asset market in a finite horizon overlapping-generations environment. Subjects are tested for comprehension of their fundamental value exchange environment and then reminded during each of 25 periods of the environment's declining new value. We observe price bubbles forming when new generations enter the market with additional liquidity and bursting as old generations exit the market and withdrawing cash. The entry and exit of traders in the market creates an M shaped double bubble price path over the life of the traded asset. This finding is significant in documenting that bubbles can reoccur within one extended trading horizon and, consistent with previous cross-subject comparisons, shows how fluctuations in market liquidity influence price paths. We also find that trading experience leads to price expectations that incorporate fundamental value.     

Global instability in experimental general equilibrium: the Scarf example

Scarf (Int. Econ. Rev. 1 (1960) 157) proposed a model of dynamic adjustment in which the standard tatonnement price adjustment process orbits around, rather than converges to, the competitive equilibrium. Hirota (Int. Econ. Rev. 22 (1981) 461) characterized the price paths. We explore the predictions of Scarf's model in a non-tatonnement experimental double auction. The average transaction prices in each period do follow the path predicted by the Scarf and Hirota models. When the model predicts convergence the data converge; when the model predicts orbits, the data orbit in the direction predicted by the model. Moreover, we observe a weak tendency for prices within a period to follow the path predicted by the model.     

向上叫价时钟双向拍卖机制设计

通过深入分析统一价格密封双向拍卖机制的诸多缺陷，充分借鉴单向拍卖市场上时钟拍卖的基本思想，将时钟拍卖引入双向拍卖市场，构建了一个无论从分配效率方面考虑还是从竞价风险方面考虑都优于统一价格密封双向拍卖机制，不仅为同类物品确定统一价格，还可以为不同类的物品确定其不同的价格的向上叫价时钟双向拍卖机制。     

Unhedgeable shocks and statistical economic equilibrium

We develop a statistical concept of economic equilibrium as the stationary distribution of a random walk on the exchange equilibrium set (the contract set) of a pure exchange economy induced by unhedgeable shocks that perturb the economy from the exchange equilibrium set and subsequent disequilibrium trading that returns the economy to a new equilibrium. The Fokker–Planck equation for the resulting drift-diffusion process implies that the stationary distribution is independent of the size of the shock so that a small-disturbance limiting distribution is well defined. We present explicit solutions for the statistical equilibrium for the cases of quasilinear and Gorman-aggregatable Cobb–Douglas economies, and illustrate the results in the context of a generic dividend-discount model to emphasize the distinction between insurable risk and unhedgeable uncertainty in this context. The statistical equilibrium of income or wealth for quasilinear economies is described by an exponential Gibbs distribution. The statistical equilibrium income and wealth distributions for Gorman-aggregatable Cobb–Douglas economies can take a wider variety of forms, including power-law and gamma distributions. The statistical equilibria calculated for these examples suggest a close relation to widely observed statistical distributional regularities in real-world economies.     

Does money impede convergence?

Inspired by Clower’s conjecture that the necessity of trading through money in monetised economies might hinder convergence to competitive equilibrium, and hence, for example, cause unemployment, we experimentally investigate behaviour in markets where trading has to be done through money. In order to evaluate the properties of these markets, we compare their behaviour to behaviour in markets without money, where money cannot intervene. As the trading mechanism might be a compounding factor, we investigate two kinds of market mechanism: the double auction, where bids, asks and trades take place in continuous time throughout a trading period; and the clearing house, where bids and asks are placed once in a trading period, and which are then cleared by an aggregating device. We thus have four treatments, the pairwise combinations of non-monetised/monetised trading with double auction/clearing house. We find that: convergence is faster under non-monetised trading, implying that the necessity of using money to facilitate trade hinders convergence; that monetised trading is noisier than non-monetised trading; and that the volume of trade and realised surpluses are higher with the double auction than the clearing house. As far as efficiency is concerned, monetised trading lowers both informational and allocational efficiency, and while the double auction outperforms the clearing house in terms of allocational efficiency, the clearing house is marginally better than the double auction in terms of informational efficiency when trade is through money. Crucially we confirm the conjecture that inspired these experiments: that the necessity to use money in trading hinders convergence to competitive equilibrium, lowers realised trades and surpluses, and hence may cause unemployment.     

Dynamic price formation in a futures market via double auctions

Summary We report an exploratory study of the process of price formation in a speculative market in the absence of liquidity traders. Traders exchange a futures contract because they interpret information differently. We formulate trading as a sequence of anonymous double auctions and introduce a notion of bounded rationality in which traders use approximate models of market response in forming their bids. We prove existence of a perfect equilibrium in the sequential anonymous auctions game, and show that the equilibrium has a no-regret property. After learning the market price, a trader regrets neither the bid that he made nor the position that he holds. We show that trading volume is related to changes in the distribution of information in the economy. We also show that volume and expected change in price are related to two different attributes of the pattern of private information flow. Fundamentally, no particular relationship between the time series of these variables is always valid for all futures contracts. This point is emphasized by an example.I am thankful for useful comments made by Avraham Beja, James Gammil, Chi-fu Huang, David Scharfstein and three anonymous referees. Financial support from Stanford Graduate School Faculty Fellowship is gratefully acknowledged.     

An Experimental Study of Electronic Bulletin Board Trading for Emission Permits

This paper reports a laboratory experiment that studies several features of a tradable emission permit program recently implemented in the Los Angeles area. The experiment focuses on the new Electronic Bulletin Board trading institution, in which firms publicly post proposed terms of trade. Potential trading partners can review this information online, and transactions are executed following bilateral negotiation. The experiment includes trading restrictions implemented in the regulations due to the geography of Los Angeles. We find that the bulletin board market performs well and that prices reflect market conditions as accurately as in the continuous double auction trading institution.     

An ascending double auction

We show why the failure of the affiliation assumption prevents the double auction from achieving efficient outcomes when values are interdependent. This motivates the study of an ascending price version of the double auction. It is shown that when there is a sufficiently large, but still finite, number of sellers, this mechanism has an approximate perfect Bayesian equilibrium in which traders continue bidding if and only if their true estimates of the ‘value’ of the object being traded exceed the current price. This equilibrium is ex post efficient and has a rational expectations property in the sense that along the equilibrium path traders appear to have made the best possible trades conditional on information revealed by the trading process. We thank two anonymous referees and Dan Kovenock, the Editor, whose detailed comments and suggestions have allowed us to substantially improve the paper. We also thank seminar participants at University of Toronto, University of Wisconsin-Madison, Summer 2003 North American Meetings of the Econometric Society, 2004 NSF Decentralization Conference for their comments.     

人民币汇率、国内总需求与通货膨胀——基于汇率传递理论的实证研究

通货膨胀一直是中国政府直接面对而又必须谨慎处理的经济问题。本文以汇率传递理论为视角,运用自回归分布滞后模型（ARDL）考察了1980-2010年人民币汇率、国内总需求、世界商品价格与通货膨胀之间的长期均衡和短期调整关系。长期看来,人民币升值并未像国际经济学理论描述的那样可以抑制通货膨胀,相反却显著地抬高了国内价格水平;中国通货膨胀的成因具有需求拉上的特点,且不存在明显的世界通货膨胀的输入途径。短期看来,中国通货膨胀的动态调整具有明显的滞后特征,且由短期变动向长期均衡调整的速度较快。     

Randomized double auctions: gains from trade,trader roles,and price discovery

Experimental double-auction commodity markets are known to exhibit robust convergence to competitive equilibria under stable or cyclical supply and demand conditions, but little is known about their performance in truly random environments. We provide a comprehensive study of double auctions in a stochastic setting where the equilibrium prices, trading volumes and gains from trade are highly variable across periods, and with commodity traders who may buy or sell their goods depending on market conditions and their individual outcomes. We find that performance in this stochastic environment is sensitive to underlying market conditions. Efficiency is higher and convergence to the competitive equilibrium stronger when the potential gains from trade are high and when the equilibrium spans a wide range of quantities, implying a large number of marginal trades. Speculative re-trading is prevalent, especially among those who have little to gain under equilibrium pricing. Those with the largest expected gains typically earn far less than predicted, while those with little or no predicted earnings gain modestly from speculation, leading to some redistribution of gains from high to low expected earners. Excessive trading volumes are associated with negative efficiencies in markets with low gains from trade, but not in the high-gains markets, where zero-sum trading and re-trading appear to enforce efficiency and near-equilibrium pricing. Buyers earn more relative to their competitive equilibrium benchmark than sellers do. Introducing trader specialization leads to fewer trading errors and higher market efficiency, but it does not eliminate zero-sum trading and re-trading.