A bayesian analysis of a random coefficient model in a simple keynesian system

The marginal propensity to consume in a simple Keynesian model is treated as a random coefficient. This gives rise to the problem of quotient of random variables, i.e., the Fieller-Creasy problem. The Bayesian and maximum likelihood estimators are compared in sampling experiments. The Bayesian estimators have smaller mean squared errors than the maximum likelihood estimators. Marginal posterior probability density functions for a given sample are also presented.     

Asset price prediction using seasonal decomposition

We propose a new forecasting procedure for asset prices using seasonal decomposition methods (SD hereafter), e.g., SABL and X-11. Such SD's are based on moving average methods, and they are thus easy to use and are capable of computing the seasonal pattern that changes over time. A SD typically decomposes a series intoT (trend),S (seasonal component), andR (residual or sometimes referred to as the irregular component). We use an ARIMA model onR to obtain its forecast. TheS component is forecasted by an extrapolation taking into account its changing pattern within the sample period. We propose to set up some scenarios on theT component by examining its possibly nonlinear and nonstationary behavior, and in the paper we suggest one possible way for this. Suppose that the forecasting horizon is relatively short compared toT's several cycles just before the end of the sample. Then we may safely extrapolateT linearly into the forecasting period. LinearizingT in such a case, makes sense. As to the slope of the linear line, we suggest the average rate of change of the most recent upward phase of a cycle to be used if we needed an optimistic scenario. Obviously, that of the downward phase may be used for constructing a pessimistic scenario, and that of one entire cycle is suitable for ‘average’ scenario. Once the forecasted values of the three components are obtained, we may put them back to make predictions on the original series based upon various different scenarios. In addition to proposing a new prediction method, we looked into the following issues, among others, in the paper: (1) on what sort of asset prices would our forecasting method work well? (2) Any significant differences if we used X-11 instead of SABL?     

The Japanese stock market and the macroeconomy: An empirical investigation

We investigate the relationship between macroeconomic variables, such as the industrial production index, interest rate and inflation rate, and the stock market, using Toda and Yamamoto (1995)'s vector autoregressions (VAR) specification. The major findings are: (1) macroeconomic variables do Granger cause the stock market variable, while reverse is not so clear. (2) The lagged stock market variable affects its current value but its impact tend to diminish in the long-run. Policy implication we draw is that the price keeping operation by the Japanese government would not work, but appropriate macroeconomic policies would benefit not only the real market but also the stock market.     

An exploration of the effect of doubt during disasters on equity premiums

In this note, we consider the effect on equity premiums of a representative household’s subjective expectations during disasters. In particular, we focus on the effect of doubt during disasters. We derive analytical solutions of equity premiums in the model of power utility function and conduct numerical exercises of the model of the recursive utility function. Our contribution is to demonstrate that doubt during disasters–even mild ones–generates high equity premiums.     

Stock market booms in economies damaged during World War II

Some studies find that real equity prices in economies damaged during World War II tended to rise sharply at the beginning of actual damage taking place during the war. This paper introduces an empirically plausible degree of persistence from the impact of World War II and demonstrates that stock market booms in economies damaged during the war are consistent with an equilibrium model of asset pricing.     

Price smoothing and demand noise: On business behavior and macromodels

Zusammenfassung Preisgl?ttung und zuf?llige Schwankungen der Nachfrage: Unternehmerverhalten und makro?konomische Modelle. - W?hrend Preisgl?ttungs-vereinbarungen zwischen preisbestimmenden Firmen, die stochastisch schwankenden Nachfragekurven gegenüberstehen, die Transaktionskosten verringern k?nnen, h?ngen die Folgen einer Preisgl?ttung für die Bildung des Volkseinkommens davon ab, welcher Art die erwarteten Nachfragebewegungen sind. Vorübergehende Nachfrage?nderungen sollten geringere Preisreaktionen ausl?sen als Nachfrageverschiebungen, die als l?ngerfristig angesehen werden. Aber in Zeiten besonders starker Nachfrageschwan-kungen werden die Anbieter wahrscheinlich die vorhergesagten Nachfrage?nderungen eher als vorübergehend und nicht als langfristig ansehen. Dementsprechend wird dann eine vorausgesch?tzte Nachfrageerh?hung die Firmen vermutlich dazu veranlassen, ihre Preisreaktionen abzuschw?chen, indem sie die Preisrigidit?t erh?hen und damit die Wirkungen von erwarteten ?nderungen der aggregierten Nachfrage steigern.

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Résumé Lissage de prix et le bruit de demande: sur le comportement des entreprises et les macro-modèles. - Prix-lissants accords entre des entreprises qui déterminent les prix et qui sont confrontées avec des courbes de demande stochastiques peuvent réduire les co?ts d’échange. Mais les implications du lissage de prix pour la détermination du revenu national dépendent de la nature des mouvements de demande prédits. Il est attendu que les changements transitoires de la demande induisent moins de réponse que ceux qui sont regardés comme permanents. Mais probablement les entreprises regardent les changements de demande prédits comme transitoires au lieu de permanents en périodes où la variation de la demande est extraordinairement forte. C’est pourquoi, sous la supposition d’une augmentation prédite de la demande dans une période de bruit pour des changements de demande, les entreprises probablement tempéront leur réponse de prix par une rigidité de prix accroissante et ainsi augmenteront l’effet des changements anticipés de la demande agrégée.

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Resumen Nivelación de precios y demanda inestable: sobre el comportamiento de empresas y modelos macroeconómicos. - Si bien la nivelación de precios acordada entre empresas dominantes enfrentando funciones de demanda estocásticas puede reducir el costo del intercambio, las implicaciones de la nivelación de precios para la determinación del ingreso nacional dependen de la naturaleza de los movimientos de demanda pronosticados. Cambios de demanda transitorios deberian inducir a realizar menos ajustes de precio que cambios de demanda considerados de naturaleza permanente. Pero las empresas tenderán más a considerar los cambios de demanda pronosticados como transitorios que a interpretarlos como períodos largos de demanda excepcionalmente inestable. Por ello, dado un aumento de demanda pronosticado para un período de demanda inestable, las empresas probablemente reducirán el ajuste de precios aumentando la rigidez de precios y aumentando así el efecto de cambios anticipados sobre la demanda agregada.