Mortgage valuation under optimal prepayment

Mortgage originators offer borrowers various combination of'point'-loan fees-and coupon: high points and low coupon orlow points and high coupon. In this article points are interpretedas a device serving to separate borrowers with high prepaymentprobabilities from those with low prepayment probabilities.Borrowers and lenders are treated symmetrically: both are riskneutral and both have complete and frictionless access to creditmarkets (implying that borrowers can finance points if theywish), except that borrowers' prepayment speeds are privateknowledge. Equilibria are derived, both when borrowers cannotprepay voluntarily and when they can.     

Coordinating on lower prices: pharmaceutical pricing under political pressure

We investigate the effects of political activity on pharmaceutical prices, focusing on the health care reform period in the early 1990s.We characterize firms based on their vulnerability to future price regulation and find that the more vulnerable firms were more likely to take various actions to forestall regulation, most notably coordinating on a specific percentage price increase during 1993. Since moderating price increases could have averted regulation, the coordination appears to be the industry's response to a collective action problem.     

Learning from Personal Experience: One Rational Guy and the Justification of Myopia

The paper examines a large population analog of fictitious play in which players learn from personal experience, focusing on what happens when a single rational player is added to the population. Because the learning process naturally generates contagion dynamics, the rational player at times has an incentive to act nonmyopically. In 2 × 2 games the dynamics are asymmetric and favor risk dominant equilibria. A variety of other examples are presented.Journal of Economic LiteratureClassification Number: C7.     

The Great Inflation and the Greenbook

Can the story of evolving Federal Reserve beliefs in The Conquest of American Inflation simultaneously explain the Great Inflation and the forecasts published in the Greenbook during that time? If Sargent is correct then evolving beliefs should be reflected not only in policy outcomes but also in Greenbook forecasts. In this paper they are. By conditioning on the Greenbook, it is show that both inflation outcomes and Greenbook forecasts can be rationalised by evolving beliefs. The results improve on recent empirical evidence that has been criticised for relying on unrealistic beliefs that produce forecasts inconsistent with the Greenbook.