Publisher Correction: Classic rational bubbles and representativeness

Decisions in Economics and Finance - In the original publication, the copyright holder was incorrectly published as ‘Springer-Verlag Italia S.r.l., part of Springer Nature’ instead of...     

Cyclically monotone equilibrium problems and Ekeland’s principle

We study the existence of equilibria and approximate equilibria avoiding any assumption of convexity both for the domain and for the bifunction. Our approach is based on the concept of cyclic monotonicity for bifunctions. First, we exploit this notion to obtain an Ekeland’s variational principle for bifunctions which leads to the existence of approximate solutions of the so-called Minty equilibrium problem. Then, we prove the existence of equilibria in compact and noncompact settings. We introduce a new notion as a key tool for deriving a Minty’s lemma avoiding the use of convexity.     

Leading Indicators for Euro‐area Inflation and GDP Growth*

In this paper, we evaluate the role of a set of variables as leading indicators for Euro‐area inflation and GDP growth. Our leading indicators are taken from the variables in the European Central Bank's (ECB) Euro‐area‐wide model database, plus a set of similar variables for the US. We compare the forecasting performance of each indicator ex post with that of purely autoregressive models. We also analyse three different approaches to combining the information from several indicators. First, ex post, we discuss the use as indicators of the estimated factors from a dynamic factor model for all the indicators. Secondly, within an ex ante framework, an automated model selection procedure is applied to models with a large set of indicators. No future information is used, future values of the regressors are forecast, and the choice of the indicators is based on their past forecasting records. Finally, we consider the forecasting performance of groups of indicators and factors and methods of pooling the ex ante single‐indicator or factor‐based forecasts. Some sensitivity analyses are also undertaken for different forecasting horizons and weighting schemes of forecasts to assess the robustness of the results.     

Recursive structure and equilibria in games with private monitoring

Summary. In each stage of a repeated game with private monitoring, the players receive payoffs and privately observe signals which depend on the players' actions and the state of world. I show that, contrary to a widely held belief, such games admit a recursive structure. More precisely, I construct a representation of the original sequential problem as a sequence of static games with incomplete information. This establishes the ground for a characterization of strategies and, hence, of behavior in interactive-decision settings where private information is present. Finally, the representation is used to give a recursive characterization of the equilibrium payoff set, by means of a multi-player generalization of dynamic programming. Received: February 11, 2002; revised version: July 22, 2002 RID="*" ID="*" I am very grateful to In-Koo Cho, Larry Epstein, Denis Gromb, Stephen Morris, Paolo Siconolfi, Lones Smith and Max Stinchcombe for several insights and suggestions. A referee's comments helped improving the exposition. Finally, I wish to thank the participants to the seminars at MEDS, NYU, Columbia University, Caltech, UCLA, University of Rochester, University of Texas-Austin, Northwestern Summer Microeconomics Conference 98, Summer in Tel Aviv 98, and NASM98.     

Diamonds and precious metals for reduction of portfolio tail risk

ABSTRACT

We study the performance of diamonds compared to gold and other precious metals in mitigating the tail risk of a diversified equity market portfolio over the period June 2007 to October 2018. Our results display a diversification benefit of some diamond indices, which also improve the portfolio reward-to-risk ratio. To corroborate this evidence, we study the dependence structure and tail dependence of diamonds and a broad equity market portfolio and compare it to the dependence obtained with gold and other precious metals. Results from fitting a bivariate copula show that the average left tail dependence reaches its minimum when diamonds are used. We also show that using shares of diamond-mining companies does not provide the same benefits.     

Forecasting economic activity by Bayesian bridge model averaging

This paper proposes the use of Bayesian model averaging (BMA) as an alternative tool to forecast GDP relative to simple bridge models and factor models. BMA is a computationally feasible method that allows us to explore the model space even in the presence of a large set of candidate predictors. We test the performance of BMA in now-casting by means of a recursive experiment for the euro area and the three largest countries. This method allows flexibility in selecting the information set month by month. We find that BMA-based forecasts produce smaller forecast errors than standard bridge model when forecasting GDP in Germany, France and Italy. At the same time, it also performs as well as medium-scale factor models when forecasting Eurozone GDP.     

What topic modeling could reveal about the evolution of economics*

ABSTRACT

The paper presents the topic modeling technique known as Latent Dirichlet Allocation (LDA), a form of text-mining aiming at discovering the hidden (latent) thematic structure in large archives of documents. By applying LDA to the full text of the economics articles stored in the JSTOR database, we show how to construct a map of the discipline over time, and illustrate the potentialities of the technique for the study of the shifting structure of economics in a time of (possible) fragmentation.     

On the pro-trade effects of immigrants

This paper investigates the causal effect of immigration on trade flows using Italian panel data at the province level. We exploit the exceptional characteristics of the Italian data (the fine geographical disaggregation, the very high number of countries of origin of immigrants, the high heterogeneity of social and economic characteristics of Italian provinces, and the absence of cultural or historical ties with the countries where immigrants come from) coupled with the use of a wide set of fixed effects and an ‘instrument’ based on immigrants’ enclaves. We find that immigrants have a significant positive effect on both exports and imports, but much larger for the latter. The pro-trade effects of immigrants tend to decline in space, and even turn negative when large ethnic communities are located too far away from a specific province (via a trade-diversion effect). Moreover, while our data show inter-ethnic spillovers for exports, we find no evidence that networks between different ethnicities affect provinces’ imports. Finally, we provide evidence of a substantial heterogeneity in the effects of immigrants: the impact on trade tends to be larger for immigrants coming from low-income countries, for earlier waves of immigrants, and for least advanced provinces (Southern Italy).