Universal bounds for asset prices in heterogeneous economies

We establish universal bounds for asset prices in heterogeneous complete market economies with scale invariant preferences. Namely, for each agent in the economy we consider an artificial homogeneous economy populated solely by this agent, and calculate the “homogeneous” price of an asset in each of these economies. Dumas (Rev. Financ. Stud. 2, 157–188, [1989]) conjectured that the risk free rate in a heterogeneous economy must lie in the interval determined by the minimal and maximal of the “homogeneous” risk free rates. We show that the answer depends on the risk aversions of the agents in the economy: the upper bound holds when all risk aversions are smaller than one, and the lower bound holds when all risk aversions are larger than one. The bounds almost never hold simultaneously. Furthermore, we prove these bounds for arbitrary assets.      

Measuring the unmeasurable: an application of uncertainty quantification to Treasury bond portfolios

We extract from the yield curve a new measure of fundamental economic uncertainty, based on McDiarmid’s diameter and related methods for optimal uncertainty quantification (OUQ). OUQ seeks analytical bounds on a system’s behaviour, even where aspects of the underlying data-generating process and system response function are not completely known. We use OUQ to stress test a simple fixed-income portfolio, certifying its safety—i.e. that potential losses will be ‘small’ in an appropriate sense. The results give explicit tradeoffs between: scenario count, maximum loss, test horizon, and confidence level. Unfortunately, uncertainty peaks in late 2008, weakening certification assurances just when they are needed most.     

Causes and Remedies of the Japan's Long‐lasting Recession: Lessons for China

Japan has suffered from sluggish economic growth and recession since the early 1990s. In this paper, we analyze the causes of the prolonged slowdown of the Japanese economy (the lost decade). Economics Nobel laureate Paul Krugman has argued that Japan's lost decade is an example of a liquidity trap. However, our empirical analysis shows that stagnation of the Japanese economy comes from its vertical IS curve rather than a horizontal LM curve, so the Japanese economy has been facing structural problems rather than a temporary downturn. The vertical IS curve is caused by an insensitivity of investment to a lower interest rate partly because of the decline of sales due to the aging population and firms not wanting to invest. The structural problems come from the aging demographic, which is often neglected by scholars and policy‐makers, and also from the allocation of transfers from the central government to local governments, and the unwillingness of Japanese banks to lend money to startup businesses and small and medium enterprises (SMEs), mainly because of Basel capital requirements. Many countries, like China, are expected to face similar issues, particularly given the aging population. The present paper will address why the Japanese economy has been trapped in a prolonged slowdown and provide some remedies for revitalizing the economy.     

Phillips Curve Instability and Optimal Monetary Policy

Empirical evidence suggests the Phillips curve has flattened over the past few decades. To capture this feature of the data, I develop a framework where firms face a changing cost of price adjustment, which produces a Phillips curve with a slope coefficient that varies over time. To evaluate the implications for monetary policy, I construct the utility‐based welfare criterion where the relative weight on output gap deviations changes synchronously with the slope of the Phillips curve. The systematic component of the rule that implements optimal policy is constant under discretion and commitment.     

Public policy for reducing tax evasion: implications of the Yule–Simpson paradox

The current study exhibits a new implication of the Yule–Simpson paradox with public policy repercussions. We construct Laffer curves of local property tax collection based on aggregated data and group division to residential land uses in Jerusalem. Results indicate that based on aggregated (dis-aggregated) data, the location of owner-occupiers and renters who pay a relatively high rate tariff will be on the upward-sloping (downward-sloping) part of the Laffer curve. Consequently, statistical test outcomes support Laffer’s controversial claim that for the few upper-brackets taxpayers, an efficient collection is associated with tax reduction rather than tax increase.     

Services inflation dynamics and persistence puzzle in Brazil: a time-varying parameter approach

This article analyses services inflation dynamics in Brazil, focusing on the Services Inflation Persistence Puzzle, for monthly data from January 2004 to February 2016. We apply a time-varying parameter (TVP) approach, via a Kalman filter, to estimate hybrid Phillips curves and compare inflation inertia for tradable goods and services inflation. Aggregate Brazilian Extended Consumer Price Index inflation serves as a benchmark. To justify the TVP analysis, parameter instability and structural change tests are implemented, based on OLS and Generalized Method of Moments (GMM) frameworks. The main results are as follows: (i) the TVP approach is relevant due to observed instability in some parameters estimated; (ii) inflation expectation coefficients are higher than lagged inflation in all calculations, but inflation inertia is not negligible at all; (iii) services inflation persistence ranges from 27 to 36%, whereas tradable goods inflation persistence ranges from 36 to 47%, providing evidence of the Services Inflation Persistence Puzzle in Brazil; (iv) from 2009 onwards an increase in one percentage point in real wages raises monthly services inflation rate by 0.02 to 0.03 percentage point; (v) there is evidence that cost-push pressures, due to wage increases in the service sector, are more important to explain services inflation than demand pressures from early 2009 to mid-2014.     

中国菲利普斯曲线的理论分析和实证研究

菲利普斯曲线是分析失业与通货膨胀变动关系的一个强有力工具 ,并可以勾勒出经济运行态势。但是 ,由于经济活动影响因素的复杂性及其组合在各国之间的差异 ,特别是我国的特殊国情及正处于经济转轨这一特殊的发展时期 ,传统的菲利普斯曲线及其理论无法直接拟合我国菲利普斯曲线     

技术生命周期视域下领域介入方向与时机研究 ——以图像处理技术领域为例

从专利文献数据出发,以Logistic曲线模型为研究方法,实证分析图像处理领域的整体技术发展及分支技术生命周期进程。研究发现,图像分割、图像识别技术方向及生物识别应用领域处于成长期,图像增强、图像去噪、图像重建、图像融合技术方向处于技术成熟期,而图像复原、图像编码技术及通信、医疗、交通、工业及遥感应用领域已经进入技术饱和期。结合图像处理领域分支技术方向及技术生命周期进展,可为相关创新主体介入领域的方向及时机提供参考信息。     

Inflation Dynamics: The Role of Expectations

This paper estimates the Phillips curve allowing for a simultaneous role of rational and survey expectations. We consider both a reduced form and a structural specification of the Phillips curve. The results suggest that survey expectations can be a statistically significant component of firms' expectations and inflation dynamics. However, rational expectations continue to play a dominant role.     

Unemployment,Government Spending and the Laffer Effect*

The paper studies the effects of income tax rate changes in a general equilibrium model with frictional unemployment. Laffer curve effects, by which a tax rate reduction may increase the level of government spending or its share in output, are shown to be possible under certain conditions. These are the presence of unemployment benefit payments, government budget balance through fiscal spending adjustment and limited quantitative importance of labour reallocation costs. Endogenous government spending acts as a fiscal accelerator if the fiscal burden of unemployment benefit payments is large, but reduces the employment effects of tax rate cuts if it is low.